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Sustainability Matters, But What Does It Mean for Your Company?

Jul 31, 2015
From the Audit Committee Institute

For directors, corporate social responsibility (CSR) often raises two questions – does it matter, and what does it mean for my company? The first question can be answered in short order: investors care (37% of shareholder proposals and one out of every six dollars under professional management in the US took these issues into consideration); employees care (one leading recruiting firm called it a “beacon for top talent”); and consumers care (the companies who have suffered reputational damage due to the treatment of workers in their supply chain are too numerous to mention).

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The second question is more challenging. One company may develop programs that are environmentally-friendly; another may establish a philanthropic foundation; while a third may focus on diversity. One company’s level of commitment may be ad hoc and limited; for another, it may be the very foundation of the company’s business model. Totally different approaches, all loosely fitting under the same umbrella. Even the language runs the gamut – CSR, environmental, social, governance (ESG), sustainability, shared value, triple bottom line, purpose. A director recently commented told KPMG that this area is to corporations what nutrition and exercise are to people: important for long term health but not always easy to implement. What to do, how much to commit and how to measure the return are all questions with no single answer. Here are some considerations that may help:

Make it visible in the boardroom. According to NACD’s 2014-2015 Public Company Governance Survey, 24% of boards routinely oversee sustainability/CSR issues, but 43% don’t receive reports at all. If the board does not have visibility to the company’s programs in this area, it’s important to ask why. Has management assessed the potential impact of social and environmental forces on the company’s supply chain, talent, and reputation? If there is no obvious “home” for these questions, the audit committee can discuss them as part of its oversight of risk.

Drive organizational ownership. While in the past it was common for CSR to reside in Marketing or Communications, this is beginning to shift amid criticism that companies might be using their initiatives as a form of “greenwashing”—to build reputations not backed by substance. Instead, companies are moving toward the business units having ownership at the highest levels, with sustainability teams providing guidance and support.

Focus the efforts on areas of importance to the company. Companies at the forefront in this area integrate ESG considerations into overall strategic planning, and identify a few areas of priority that are the most relevant to the long term health of their business. For example, a company that is a heavy user of water may keep conservation front and center, while a services provider may focus on initiatives that help build a strong, diverse and inclusive talent pool. “It will never take hold if corporations only view these initiatives on a moral level. But if it makes good business sense, they’ll do it,” Curtis Ravenel, Global Head of Sustainable Business & Finance at Bloomberg LP told KPMG.

Align on communication. The audit committee (or the sustainability committee if there is one) should understand not only the information disclosed but also the basis for selection of the reporting framework. Specific disclosures are mandated by some US states and certain non-US stock exchanges. Many companies voluntarily issue sustainability reports using the Global Reporting Initiative (GRI) framework. The International Integrated Reporting Council (IIRC) champions reporting that combines financial and ESG measures in one document, and the Sustainability Accounting Standards Board (SASB) is developing industry-specific disclosure standards based on materiality.

Help the company to thoughtfully consider its role. Lord Michael Hastings, the Global Head of Citizenship for KPMG International, said it best: “This is an exciting and critical moment in the debate around the role of business in tackling the world’s most pressing problems.” The board can help ensure that the company thoughtfully considers and acts upon its chosen role in this debate.