More than 80 percent of S&P 500 companies produce sustainability reports, but investors say the information is often tough to use and hard to compare. That could start to change as soon as next year as the Sustainability Accounting Standards Board is in the final stages of preparing its set of standards for companies to use in reporting.

SASB, a San Francisco-based nonprofit, has spent the last four years preparing industry-based standards companies can use to improve material sustainability disclosures in U.S. Securities and Exchange Commission filings, and hopes its standards will change the way companies talk about sustainability, says SASB founder Jean Rogers.

How are companies addressing sustainability in filings today?

Rogers: We’ve been tracking disclosure on these topics in 10-K annual report filings to set up a baseline. The majority of these sustainability topics are currently addressed in the filing, but more than 50 percent of that disclosure is boilerplate. Boilerplate meets the letter of the law, but it doesn’t meet investor needs. There’s a disconnect.

Investor demand for this is not going away. Investors are increasingly saying that sustainability information is material and they ought to have access to it. Vanguard sent an open letter to corporate boards this year saying they believe boards should be looking at ESG issues and calling for a market standard. There should be a mutual interest because companies want to attract the kind of long-term capital that cares about these issues.

When will more companies will start using the standards?

Rogers: Companies want some sanity around sustainability reporting. Companies have been giving us feedback on the standards and thinking about internal controls they will need on that data. This will be the start of better corporate uptake and disclosure, and hopefully a reduced need for sustainability questionnaires and shareholder proposals on these topics.

Companies have a huge burden in responding to all of these questionnaires, but investors don’t like doing them either. It’s a mutually hated practice, but questionnaires are really a manifestation of investor demand for this information. They’ve become a whole cottage industry. Even so, investors don’t have great mechanisms in place to process questionnaire data.

It’s been a market failure to not have a mechanism to provide this information in a comparable and efficient way.

Number of S&P companies that issue sustainability reports

What’s the status of the SASB’s draft standards?

Rogers: This is really the last bite of the apple. We want investors and companies to give us the feedback, and our plan is to codify the standards for use in the first quarter of 2018. We’ve been getting feedback for the past six months from investors and companies that resulted in 248 proposed changes to the provisional standards.

Investor concerns were mostly around the information being decision-useful, comparable and material. Company concerns were different, mostly around cost-effectiveness, implementation of standards, and also materiality. We updated the standards to integrate new work on human capital measurement and the Task Force on Climate-Related Financial Disclosures’ work on climate risk. After this, we’ll plan regular update cycles every three years.

How do you think these reports could look going forward?

Rogers: Companies have taken up this idea of sustainability reporting, and they’ve already put a tremendous amount of effort into it, but they are rightly asking, “Who is using it and where’s the value?” This is really about making sustainability communication fit a purpose. Companies need to be much more savvy about the audiences they are trying to reach.

Employees and consumers and suppliers need this information, and they are making judgments in their own way. Potential employees are deciding if they want to spend the next five years of their career with a company, so they need sustainability reporting, but that’s a totally different decision framework. Investors have specialized needs because they are making investment decisions.

Companies can start talking to their stakeholders in the framework they need and that differentiation would be a really positive thing.

Bloomberg News