Companies appear selective in their sustainability reporting

Companies may be cherrypicking sustainability measures that make them look good, while huge variation in what’s reported makes meaningful comparisons across firms impossible.

That’s according to the results of a new international study, whose authors are calling for minimum requirements for sustainability reporting — like those used in financial reporting.

“Companies are under increasing pressure from the public and shareholders to account for their environmental and social performance, as well as their financial performance,” said lead researcher Dr Ramona Zharfpeykan, a lecturer in the University of Auckland Business School’s Graduate School of Management.

“A 2017 KPMG survey showed 93% of the world’s 250 largest corporations now report on their sustainability performance, and 69% of New Zealand’s top 100 companies. Yet there is still no single global standard and reporting is voluntary in most countries. So we were interested in how companies approach sustainability reporting.”

Dr Ramona Zharfpeykan.

The researchers analysed reporting by 797 companies around the world from 2010 to 2014, all of which followed a popular set of standards created by the Global Reporting Initiative (GRI). They found that no companies used all 91 GRI indicators, with the regional average for reported indicators varying from 1 to 40.

Oceania and Africa had the lowest average number of reported indicators over the five-year period (20 in 2014). Oceania companies were more likely to report on environmental indicators, while African and European companies showed greater focus on social indicators.

“Companies seemed to cherrypick indicators that were either easy to collect or easy to imply positive or neutral messages, while some of the most sensitive indicators have barely been covered,” said Dr Zharfpeykan. “It is not clear whether firms report merely to stay legitimate and gain their stakeholders’ approval or report honestly and effectively. If it’s the former, then this raises serious concerns about the usefulness of reporting and the decisions it informs, such as around ethical investment.”

The number of hires, staff turnover and benefits provided to full-time staff were examples of the frequently reported indicators. Shunned indicators include reduction of greenhouse gas emissions, volume of spills and water sources affected by water use.

“On one level, this makes sense: why would you report on something you were doing poorly when your competitors are only reporting things that make them look good?” said Dr Zharfpeykan. “But it undermines the whole point, which is to provide an accurate, comparable picture of how companies are doing across the sustainability spectrum. We will probably only get this when minimum reporting standards are imposed.”

Next, the researchers plan to look at the level of sustainability disclosure in companies and see if companies that report more also report more comprehensively or if they are just window-dressing.

Top image credit: ©stock.adobe.com/au/JohnKwan