About 43 percent of companies link executive compensation to sustainability in some way
All but one member of the S&P 500 made at least one disclosure regarding sustainability last year, but only seven of them have actually integrated financial and sustainability reporting, according to a joint study by the Investor Responsibility Research Center (IRRC) Institute and the Sustainable Investments Institute.
The 285-page report on sustainability disclosures among S&P 500 companies, titled Integrated financial and sustainability reporting in the United States, also shows that 43 percent link executive compensation to some form of sustainability criteria. Seventy-four percent of the companies mention a cash value on at least one sustainability initiative.
‘Disclosure per se is commonplace today. But isolated sustainability disclosures are of limited value, both to corporate managements trying to improve the bottom line and to investors trying to gauge risks and opportunities,’ says Jon Lukomnik, executive director of the IRRC Institute, in a press release. ‘The challenge today is to connect the dots between sustainability initiatives and corporate earnings and then to quantify the causal relationship.’
The one firm that made no disclosure last year was Zions Corp, a banking company.
Executive compensation, when linked to sustainability criteria, is mainly tied to social or environmental subjects, or ethical issues such as fraud, according to the report. More than 37 percent of the companies studied also indicate that gender or racial identity is a factor in nominating directors.
The study shows that environmental management was the most common type of sustainability disclosure last year, with 68 percent of companies disclosing related expenditures. In this category, companies commonly communicated reductions in operational risks, particularly those related to employee health and safety, the report adds.
The second-most common type of disclosure, made by 67 percent of the companies studied, relates to employment, with companies discussing job satisfaction, issues of attracting and retaining talent, retirement accounts, health plans and diversity. A close third, at 66 percent, was climate change. The most common themes to these disclosures concern energy efficiency, and the potential for increased regulation in the US.
Human rights disclosures were the least common among the companies surveyed, at 15 percent; when mentioned, this area was mostly described as a risk to a company’s reputation, particularly with regard to suppliers using forced or child labor. Ethics disclosures, made by 21 percent of the companies, most often focused on regulation such as the US Foreign Corrupt Practices Act. Water use disclosure, made by 39 percent, focused on potential scarcity of water.
‘I found it intriguing that nearly half the companies consider sustainability in determining at least some portion of executive compensation,’ says Lukomnik. ‘But for far too many sustainability factors, across far too many reports, quantification is lacking, leaving managers without tools and investors to wonder how carefully they are being managed.’
