By Max Clarke
Only 18% of firms surveyed publish their targets and performance in meeting environmental, social and governance sustainability goals on an annual basis.
Fully 40% of executives in an Economist Intelligence Unit survey do not currently publish information on their sustainability practices and have no plans to do so. However, in a sign of growing recognition in the developing world of the importance customers and other stakeholders attach to sustainable business practices, companies there show greater willingness to make public their sustainability goals in the near future than those in industrialised countries.
In developing countries, 45% of all those who do not currently publish their results for sustainability practices say they plan to do so in the next two years, compared to only 19% in developed countries.
The survey was carried out in December 2010 and January 2011 among 284 senior executives worldwide, three-fourths of whom are responsible for their firms’ strategy and business development. The research, which was sponsored by Enel, explores companies’ commitment to environmental, social and governance (ESG) sustainability goals, and their priorities among sustainability-oriented practices. The study defines sustainability as operating in a way that ensures long-term viability.
The research produced the following key findings:
• Commitment to sustainability is spreading from developed to developing markets.
Globally, 78% of respondents say that a focus on sustainability will be important for their firms in the coming three years, while in developing economies, the figure is 85%. Emerging market firms see sustainability-oriented ESG practices as a chance to bolster relations with customers and investors in developed economies.
• Customers exert the strongest influence on firms’ sustainability objectives.
Fifty-four per cent of executives say customers have the strongest influence on their ESG policies–more than any other stakeholder. Experts caution that consumers are fickle. However, the influence of regulators and investors appears to be growing.
• Short-term financial pressures are the main obstacle to commitment to sustainability.
Forty-four per cent of executives say immediate financial goals are an obstacle to sustainability. Many managers fail to see the opportunities: only 14% see a link between sustainability and short-term profit, even though some ESG initiatives pay off in under a year.
• Executives are divided on the merits of integrated financial and sustainability reporting.
Among large firms ($1bn - $5bn in global annual revenue), 35% report ESG sustainability information annually, yet only 18% publish an integrated financial and sustainability report. Not all executives agree on the merits of integrated reporting: Some business leaders cite the advantages of targeting individual stakeholder groups with information most relevant to them.
• Companies take an ad hoc approach to including sustainability practices in risk. management. Just 22% of executives say sustainability is a fundamental part of their risk management programmes; 35% have more of an ad hoc approach. Only 22% expect to begin including sustainability in their risk management in the future.
• The relationship between ESG and long-term financial performance is crystallising.
Fully 76% of executives agree that sustainability is a pre-requisite for long-term growth. Similarly, mainstream investors are paying closer attention to sustainability practices. One implication is that poor performance on sustainability could restrict access to capital.