Companies struggle to go beyond boilerplate in sustainability disclosures

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Sustainability information is increasingly a part of corporate reporting, but many companies are still relying on boilerplate language in their disclosures, according to a recent report.

A study by the Sustainability Accounting Standards Board reviewed the latest 10-K and 20-F filings of top companies in 79 industries. The study found that 69 percent of the companies analyzed reported on at least three-quarters of the sustainability topics included in their SASB industry standard, and 38 percent provided disclosure on every SASB topic. SASB has created a set of sustainability topics for each industry as part of its standards.

The study found that 81 percent of the entries analyzed across all sectors and topics included some form of disclosure. However, the most common form of disclosure was generic boilerplate language. This type of vague information was used 53 percent of the time when companies addressed a SASB topic.

“Most of that disclosure is boilerplate and not very specific to the company’s circumstances,” said SASB Foundation board member Robert Herz, a former chairman of the Financial Accounting Standards Board. “That makes it difficult for investors to get a good handle on what are the exposures specific to that company, what’s the company doing, and how is the company performing when comparing one company to another.”

Companies used metrics in less than 24 percent of the cases where disclosure occurred, the report found. Even in those cases, the metrics were not standardized and lacked comparability from one company to another. In general, companies most commonly addressed SASB topics related to social capital (87 percent of entries analyzed provided some form of disclosure), human capital (83 percent) and the environment (82 percent). On the other hand, they addressed SASB topics related to their business model and innovation (69 percent) much less frequently.

Although social capital topics—which include areas such as data security and privacy, product safety, and customer welfare—were the most likely ones to be addressed, they were also the most likely to be disclosed using boilerplate language (59 percent of reported topics) and the least likely to be disclosed using metrics (17 percent of reported topics). Disclosure levels for business model and innovation related-topics were relatively lower, but when they were addressed they tended to be of higher quality (with 43 percent of available disclosures using boilerplate language, and 31 percent using metrics).

Meanwhile, disclosures related to human capital—such as labor relations, workforce diversity, employee health and safety, and compensation practices—tended to be of the highest quality, the study found, with 37 percent of available disclosures using metrics.

Herz doesn’t find the greater specifics on human capital surprising. “To a certain extent, that’s been an area of focus for certain industries where there’s been some issues over time in manufacturing conditions overseas and things like that,” he said. “At a number of companies, the boards of directors have asked the company to look at that, but companies are also looking at environmental types of impacts as well.”

He pointed to the recent vote at the end of May by 62 percent of Exxon Mobil shareholders on a non-binding resolution requesting a more detailed analysis of climate change risks at the energy giant.

In some ways, European companies may be ahead of their U.S counterparts. “I would say in general that European companies and some companies in certain other parts of the world—either through legislation like the EU directive or stock exchange requirements there—have been required to get specific disclosures around sustainability type information now for several years,” said Herz.

Still, he is seeing more progress on the issue in the U.S. Even though President Trump recently announced his intention to withdraw from the Paris climate accord, Herz believes the move toward sustainability is inevitable. He pointed to the letter signed by the CEOs of 30 major companies urging Trump not to pull out of the climate accord before the president announced his decision. Even after Trump made the announcement, many companies and government leaders expressed their intention to continue their sustainability efforts.

“One thing that was really interesting is that immediately a number of cities, states and companies said we’re continuing ahead with our program,” said Herz.

Last year, the Securities and Exchange Commission issued a concept release describing various areas it might consider as part of an effort to modernize the Regulation S-K non-financial statement reporting requirements for public companies. Even though sustainability disclosure was a relatively minor part of the SEC release, two-thirds of the more than 276 non-form comment letters the SEC received addressed sustainability-related concerns. Eighty percent of sustainability-related letters called for improved disclosure of sustainability-related information in SEC filings, while only 10 percent of the letters opposed SEC action on sustainability.

Herz believes investors are demanding this type of information. “Our view at the SASB is that this is market driven,” he said. “Investors clearly tell us they want better, more standardized comparable disclosures on key sustainability matters. That’s why we’ve gotten a lot of support for the SASB, particularly from investors.”

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