Sustainability Reporting in 2020: Drivers and Stakeholders

This “Drivers and Stakeholders” blog post will be the first in a series on sustainability reporting, so be sure to sign up for EnergyWatch’s newsletter to be notified of future postings.

Sustainability is inherently a multi-faceted issue. The factors pertinent to “sustainability” at any organization are a mix of the internal and external, environmental and economic, people and policies. Similarly, the drivers to begin analyzing and reporting on sustainability are diverse but perhaps distillable to five categories. Whether you came for one reason or an amalgamation, considering all the drivers in sustainability reporting can help you construct a strategy that meets the needs of all stakeholders.

Customer Sentiment

Consumers and companies worldwide are increasingly using their purchasing power to support organizations and products that align with their values. This is evident in headline consumer trends for organic foods and sustainable fashions, as well as corporate purchasing of renewable energy and green office space. Though oft maligned as a luxurious frivolity for the young and the wealthy, Nielsen’s 2018 consumer research finds that sizable majorities across age brackets, as well as developed and developing countries, said that it is “extremely” or “very” important that companies implement programs to improve the environment.

How does sustainability reporting influence consumer willingness to pay?

It’s complicated. For years, research has shown that the “green premium” drops off precipitously for most consumers. However, in 2019 CGS found that 47% of U.S. consumers would pay more for a sustainable product, with 35% willing to pay 25% more for sustainable products. This average willingness to pay disguises that younger generations are much more likely to support higher premiums for green products.

Additionally, over the period 2015-2019, sales of sustainability-marketed products grew 5.6x faster than conventionally marketed products according to NYU’s Center for Sustainable Business. “Across virtually every category of consumer packaged goods (CPG), sustainability is where the growth is, which I think tells you something about where consumers are,” CSB Director Tensie Whelan told Fortune magazine.

How do companies make sustainable purchasing decisions?

In corporate procurement, sustainability increasingly serves as a baseline hurdle or key differentiator for vendors. This is perhaps most evident in large organizations moving towards procuring renewable energy, whether through their utility company, power purchase agreements, or by buying renewable energy certificates. The companies in the RE 100 initiative have committed to buying 100% renewable energy, often pushing their electricity providers to develop or augment renewable energy offerings that can benefit the entire customer base.

Other corporate sustainability carve-outs are growing for LEED certified building space and sustainable supply chains. Vendors looking to forge new contracts should both check all the required sustainability boxes of their potential clients as well as leverage their sustainability performance as a compelling differentiator to switch providers.

Investor Requests

There was once reticence to incorporate non-financial considerations into investment decision-making for fear of breaching fiduciary duty. Now, asset owners who are not leveraging Environmental, Social and Governance (ESG) criteria could be leaving money on the table.

The mainstreaming of ESG analysis has been swift and decisive: 85% of companies in the S&P 500 disclose ESG information as of 2019, up from just 20% in 2013. Bank of America Securities stated in 2019 that “70% of US assets can’t be analyzed without using ESG” given the large intangible asset value of major American market indices. A 2018 survey by FTSE Russell of global asset owners found that over half are currently implementing or evaluating ESG in their investment strategy, and State Street found an even greater 80% share among institutional investors. ESG factors are increasingly pertinent to financial performance, and investors are asking the companies in which they invest to provide reporting on their goals and performance to help inform capital allocation decision-making.

Identifying Wasted Resources

Sustainability is a new word for an old way of doing things. In order to sustain a business, a community or an individual, care must be taken to use resources wisely. As such, sustainable strategies are often directly beneficial to the bottom line. A therm of gas not burned saves money as well as greenhouse gas emissions. Many companies have seen outsize returns from internal sustainability initiatives to reduce commodity usage, save energy, and utilize resources efficiently.

Governmental Mandates

Jurisdictions worldwide are beginning to mandate that companies report a subset of ESG criteria in order to comply with local, national, or supranational ordinances. While the US Securities and Exchange Commission hasn’t yet required disclosure of sustainability data for publicly traded companies, a change of administration may bring the issue back into focus, complementing initiatives underway at the asset level domestically, and overseas at the corporate tier.

Of note in the US, is the trend towards benchmarking buildings in ENERGY STAR Portfolio Manager. Implemented in major metropolitan areas from New York to Kansas City and states from California to New Jersey, benchmarking ordinances provide a low-cost way for building owners and operators to compare their usage against a peer group, track energy and waste performance over time, and analyze opportunities to save money by saving energy. In New York City via Local Law 97 and Washington D.C. with the Clean Energy DC Omnibus, ENERGY STAR scores are being tied to fees for “inefficient” buildings, an indirect tax that escalates over time and is intended to drive emissions reductions in the building stock.

Overseas, the UK’s Streamlined Energy & Carbon Reporting requires large companies to report publicly on their energy use and carbon emissions within the UK. The European Commission has gone further in implementing Directive 2014/95/EU on non-financial reporting. The Directive mandates large European Union companies to publish reports on the policies they implement in relation to environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption, and diversity on company boards. While the directive allows significant leeway for corporates to determine what framework or guidelines are most applicable, it mandates that disclosure must be included in annual reports from 2018 onwards.

The fate of the world

Without getting into an existentially burdensome sidebar on climate science, the ultimate driver behind all the factors mentioned previously is that our global environmental paradigm has been fundamentally altered by human activity, and efforts to arrest the worst effects will be fundamental to the global economy over the next century. Whether you care or not, believe or not, the underlying transformation will create immense winners and losers as consumers change, capital shifts, and governments direct organizations of all types to move towards more sustainable practices. We want you to be prepared to reduce your risk exposure and capitalize on the opportunities.

What next?

Whatever your reason for evaluating sustainability performance and your strategy for implementation, strong results are based on strong data. Not sure where to start? EnergyWatch offers an energy and sustainability management platform, watchwire, that helps automate and streamline your sustainability efforts.  For more information, reach out to our sustainability account manager Alden Phinney for a free demo and consultation at alden@energywatch-inc.com.