March 2012
Environmental, social, and corporate governance (ESG) issues are becoming a key issue for many publicly traded companies. The continued use and growth of reporting standards such as the Carbon Disclosure Project (CDP) and the Global Reporting Initiative (GRI) demonstrates this trend. Additionally, the CDP has recently added a water-specific survey that serves as a complement to its original survey geared towards climate change, energy use, and emissions.
U.S. companies are increasingly realizing that ESG is important to their various stakeholders and to their own operations. They have responded by taking increasingly larger steps towards developing sustainable, ESG-friendly practices. Every year, more companies are instituting methods for capturing ESG-related metrics in order to track their environmental impacts and progress. While many companies do not share all this information, more and more of it is being disclosed publicly.
The IW Financial (IWF) research group recently analyzed the sustainability disclosure of companies over the last four years (2008 through 2011). To obtain a pure growth rate that is unaffected by companies initiating disclosure during the study period we limited the analysis to companies and data elements that were part of IWF’s research universe for all four years. With this restriction, the applicable data for the analysis covers a total of 785 large cap companies and 575 individual data elements.
The analysis revealed a 45.72% increase in total disclosure from 2008 to 2011. This increase represents the total number of data points across the 785 companies. At the end of the 2011 research cycle for IWF, companies reported on 45.72% more of the covered data points than at the end of the 2008 cycle. This is an average of a 15.24% increase in disclosure in each year covered. In addition to an increase in the aggregate level of disclosure, certain subject areas saw high levels of disclosure growth. Those categories seeing the highest levels of disclosure growth in the last reported year are listed below.
Resource Conservation: 25% growth in disclosure from 2010-2011
Electrical Power Use: 23% growth from 2010 to 2011
Demographics Reporting: 20% growth from 2010 to 2011
Greenhouse Gas Emissions: 18% growth in disclosure from 2010-2011
Global Reporting Initiative (GRI) Reports: 40% growth in disclosure from 2010-2011
Water Use: 38% growth in disclosure from 2010-2011
Many of the fastest growing disclosure categories have a direct impact to companies’ costs. Considering these trends, it appears that areas where there are perceived financial risks or impacts to financial reports tend to be the first ESG areas to be measured and focused on by companies. IWF expects these areas to continue to see higher levels of disclosure growth as mid and small cap companies start taking sustainability seriously. Future reports will examine these trends as they pertain to the small and mid cap companies.
For more information on incorporating ESG research into the investment process or to learn more about IW Financial’s research and analytics, contact Sarah Gabler at 207-619-8424 or sarahgabler@iwfinancial.com.
About IW Financial
IW Financial is a leading provider of environmental, social, and governance ESG research, analytics, and consulting solutions for asset management firms, institutional investors, plan sponsors, managed account platforms and investment advisors. For more information visit www.iwfinancial.com.
