Sustainability Practices in 2012

Editor’s Note: Matteo Tonello is managing director of corporate leadership at the Conference Board, Inc. This post relates to a Conference Board report authored by Dr. Tonello and Thomas Singer of the Conference Board. For details regarding how to obtain a copy, contact matteo.tonello@conference-board.org.

According to a new study recently released by The Conference Board, U.S. corporations continue to lag far behind their counterparts in other developed economies—notably , the European Union and Japan—in transparency of environmental and social practices. In particular, the overall disclosure rate of this type of information by U.S. companies in the Russell 1000 is 10 percent, compared to 19 percent for a global sample of 3000 business organizations tracked by Bloomberg’s Environmental, Social, and Governance (ESG) database.

The new report, Sustainability Practices: 2012 Edition—a collaboration between The Conference Board, Bloomberg, and Global Reporting Initiative (GRI) Focal Point USA—covers a total of 72 environmental and social practices including: atmospheric emissions, water consumption, biodiversity policies, labor standards, human rights practices, and charitable and political contributions. For benchmarking purposes, Bloomberg ESG data is compared with the S&P 500 and the Russell 1000, and further analyzed across 11 business sectors and four revenue groups.

The following are some of the other major findings discussed in the paper.

Larger companies are more likely to invest the resources necessary to prepare a periodic publication on sustainability. A sustainability report is the product of an enterprise-wide process designed to capture metrics of performance that are not traditionally included in annual disclosure to shareholders. Because of the resources required to establish and regularly conduct such process, the practice of publishing periodic sustainability reports varies depending on company size. While 45 percent of S&P 500 companies have made the investment, only 24 percent of Russell 1000 companies release a sustainability report.

Most companies lack an established set of risk management procedures designed to mitigate the impact of business operations on climate change. In the United States, only 16 percent of Russell 1000 companies have such procedures. In the global sample, by contrast, formal climate-change policies have been adopted by 39 percent of companies, with 57 percent reporting emission-reductions protocols.

Energy and water consumption by individual businesses remains largely undisclosed in the United States. Only a small fraction of U.S. companies (13 percent of the Russell 1000) have a unified process to measure and report on the consumption of energy across their business activities. In the global sample, 47 percent of companies do so. Similar discrepancies were found from the analysis of water consumption disclosure (12 percent in the Russell 1000, compared to 37 percent in the Bloomberg sample).

The adoption of a waste reduction policy is more common, even in the United States, but most U.S. companies do not document the total waste they generate. Almost one third of U.S. companies in the Russell 1000 (31 percent) reported the adoption of a waste reduction policy–including the collection, transport, processing, reuse, recycling, or disposal (i.e., through incineration or landfilling) of waste materials. However, only 10 percent of the Russell 1000 companies calculated and reported on the total amount of waste (hazardous and non-hazardous) materials they disposed of. In the global sample, the percentage was almost four times as high (37 percent).

After a decade of regulatory reforms on corporate governance, U.S. companies are among the leaders in the adoption of business ethics policies. Although there is no securities law requirement to adopt it, most U.S. public companies have an internal written code of ethics that complies with NYSE and NASDAQ standards for listed organizations. Eighty-six percent of U.S. companies comprising the Russell 1000 (and as many as 93 percent of the larger U.S. companies in the S&P 500) reported having a business ethics policy. Similar rules have been introduced in many other countries in recent years; however, this is the one of the few sustainability practices documented in the report for which U.S. business corporations outperform the global sample (80 percent).

The business community continues to lack widely adopted transparency standards on the presence of minority employees in management and senior-level positions. Two percent of companies in the global sample reported the percentage of minorities in management positions, compared to 5 percent of the S&P 500 and 3 percent of the Russell 1000. Based on these very small sub-samples of disclosing companies, the median percentage of minorities in management is 20 percent for the Bloomberg sample of companies, 20 percent for S&P 500 companies, and 19 percent for Russell 1000 companies.

Mounting pressure from shareholders may foster additional disclosure on political contributions by U.S. corporations. Company size matters even with respect to the disclosure of political contributions (e.g. direct monetary donations, use of corporate resources, and political advertising). Thirteen percent of U.S. companies in the S&P 500 index reported the total dollar value of corporate donations to political groups, parties or individuals, compared to 7 percent of the Russell 1000.

Aside from the disclosure on the adoption of a health & safety policy, data on workforce accidents and fatalities is seldom available. Fifty-nine percent of companies in the global sample collected by Bloomberg reported having adopted a health & safety policy, compared to 52 percent of U.S. companies in the S&P 500 and 35 percent of those in the Russell 1000. However, this type of disclosure is almost never supplemented with quantitative data on employee accidents and fatalities: only 2 percent of Russell 1000 U.S. companies do indicate the number of accidents occurred in the workplace in the previous 12 months, compared to 12 percent of companies in the global index.

Corporations hesitate to disclose employee turnover rates, which would provide insights on the quality of their relations with a key stakeholder group. Employee turnover is an easily measurable metric of corporate social performance, as it represents the rate at which a company either gains or loses employees. However, most corporations do not disclose it–presumably as it may impair the company’s ability to attract new talent: only 10 percent of the 3000 companies in the global sample publish their annual employee turnover rate, and the percentage is even lower when U.S. companies are analyzed alone (7 percent of the S&P 500 and 4 percent of the Russell 1000). The median annual employee turnover for the global sample is 9 percent.

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