Monday, June 29, 2020

ESG Reports. The new gimmick?

Anyone in the sustainability reporting world cannot help but have noticed the trend towards ESG Reporting we have been witnessing in the past year or so. ESG is the term of choice for investors apparently, and therefore, if you do not report on ESG rather than plain old sustainability or even plainer older CSR, then apparently, you are also plain and old, and unattractive to investors.

I know that I harp on quite a lot about sustainability disclosure becoming the new toy-tool of financial analysts, serving money markets rather than real people and people's lives, but this move to ESG disclosure, ESG indicators, ESG reporting, ESG Everything (please Ben & Jerry's - do not bring out an ESG flavored ice cream) is rather disappointing. I can overlook Integrated Reporting as a tool that helps companies include sustainability information as part of the way they create (financial) value, but sustainability reporting was always about impacts, not financially material impacts that help stock-owners and investors decide how to make more money, but real-life impacts that affect you, me, human beings, animals, all of us on the planet and the planet itself. When did the core values that drove sustainability and sustainability reporting get lost on Wall Street and other financial hubs? When did we start to care about the planet only if it represents a climate-related financial risk? When did reporting managers start to wear dollar-tinted glasses instead of real-life lenses?

So what exactly is an ESG Report and how does it differ from a Sustainability Report except in its name? And with ESG reporting, have we seen a switch away from stakeholder disclosure in favor of add-on financial disclosure? Is this just the new gimmick of the day? It seems to be getting farther away from the true sustainability agenda, just when 181 U.S-based leaders of large corporations committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders in the new Statement on the Purpose of a Corporation from the Business Roundtable.

Of course, I couldn't resist taking a look. Let's start with a small company that most of you have probably never heard of: Walmart. 😁 In the 2019 ESG Report, Walmart makes the point: "This ESG Report responds to stakeholder requests for a more concise and focused view of our priority topics — how we define them and the long-term strategy to manage them; our aspirational goals and targets; and progress to date."(page 8).

Walmart's first ESG Report for 2019 follows the 2018 Global Responsibility Report, which was published annually since 2009. Prior to that, the report archive shows a "Sustainability Progress Report" and before that, two "Ethical Sourcing" Reports.

A key change is the weight-loss (haha, wish I could do so well losing weight): the 2018 report was 232 pages (including the GRI Content Index) while the 2019 report is just 95 pages (excluding the GRI Content Index). Apparently when you talk ESG you say a lot less than when you talk responsibility!

Report structure:
2019: Four core sections: Our Approach and then one for each E, S and G. There is an additional section grouping metrics called ESG Data.
2018: Five core sections: Welcome, Opportunity, Sustainability, Community, Governance. These are followed by a summary of ESG Priorities and the GRI Content Index.

Aside from the words, not too much has changed. Sustainability has become Environment, Community has become Social and Governance stays Governance. But in moving to ESG, the report has lost a section called Opportunity! Unfortunate, maybe?! Although not really, because the content in this section has been moved to the Social content of the 2019 ESG Report. Same content, different place.

But some new language? See this opening paragraph from the Chief Sustainability Officer (red highlight is mine) from the 2018 and 2019 reports:

2019: "Business exists to serve society. For Walmart, this is true in many ways: providing customers with convenient access to affordable food and other products; employing associates; helping suppliers grow their businesses that in turn employ others; generating tax dollars that help support community life; providing a return to shareholders."
2018: "Business exists to serve society. For Walmart, this is true in many ways. We’re providing customers with convenient access to safe, affordable food and other products, creating job opportunities for our associates; helping suppliers grow their businesses that, in turn, employ others; and generating tax dollars that help support community life."

Now, to be fair, in both reports there is a section entitled "Our Approach to ESG" and they are exactly the same in both reports .. with the exception of a date or number update here and there.

Shared Value from Walmart in the 2018 Global Responsibility Report (page 7), same text as in the 2019 ESG Report
In general, I can't see any major changes in content, except that the 2018 Report is much shorter. This is in part due to the omission of several case studies - we all know that investors and analysts are so busy that they do not have time to read stories or look at anything that does not contain a number. So helpful and interesting content in the 2018 Report found no place under the ESG banner.

Finally, the other big difference is the use of color. The 2018 Global Responsibility Report is bright, colorful, optimistic. The ESG Report is a little more "formal" - blue on white with images and icons. See the different ways, in the governance sections, that Board Composition is represented:

Board Composition in 2018

Board Composition in 2019
Bottom line: While Walmart may be saving time and energy in delivering the new-style weight-conscious ESG Report, nothing of substance has changed, only moved around or omitted. I suppose that's what concise and focused means. I guess.

Got time for another one?

Here is one that represents a change not in name only.

Alliance Data published its  2019 ESG Performance Report, following its 2018 Sustainability Report  and several prior years of "CR" reporting. And the difference is quite interesting. In fact, it could be two different companies (except for the fact that the materiality analysis from 2017 has not changed - apparently the move to ESG did not affect material topics!)

As you can see, Alliance Data goes from multi-color to monochrome and from design creativity to design minimalism - all the while thinning down the report from 78 pages in 2018 to 21 pages in 2019. The 2019 ESG Report "references" GRI and SASB disclosures, while the 2018 Report was prepared in accordance with GRI Standards (core).

Report structure:
2019: Two core sections: (1) Management Approach Disclosures describing policies and programs and brief updates across 10 topics (which broadly represent the topics listed in the Materiality Matrix, although clustered slightly differently) and (2) ESG Data tables covering three years of activities and referencing GRI and SASB disclosures.

2018: Five core sections: Ethics, Excellence, Associated, Communities, Environment. These are preceded by a section on Our Approach and followed by a GRI Content Index. 

The diet plan included, for example, exclusion of all case studies and appealing graphics. So, the section on information security and data privacy went from 5 pages of text in 2018 with icons, imagery, charts quotes to one page of monochromatic text.

2018  report - sustainability in party colors

2019 Report - ESG in funeral colors

Overall, this 2019 ESG Report is useful in presenting policies and data. It's definitely not a report you read - it's a disclosure document, nothing more. If this is what the super-serious, busy and story-challenged investment community is looking for, it might do the job. Neither report is externally assured, by the way. 

On the other hand, the 2018 Sustainability Report gets a message through - starting with the report title of Embracing Change and continuing through the insights of company leaders, case studies and more extensive descriptions of processes that underpin the disclosure and enhance credibility with a broader range of stakeholders. It's also appealing, you do more than just cherry-pick data-bytes, you actually read the narrative selectively and some of it is quite inspiring. 


I can certainly understand the appeal to company leadership of boarding the ESG train .. it's short, it's focused, it's lower budget and it plays to the demands of people who hold the money. And I am no means an advocate for tediously looooong sustainability reports. But in converting to ESG, perhaps something is getting lost en route - exactly what the CSR, Sustainability, Social Impact, Conscious Business, Accountability, Sustainable Impact etc Reports aimed to do: speak to all stakeholders in language all stakeholders understand in ways that help all stakeholders stay informed and engaged beyond computing facts and figures. 

I think this is symptomatic of the ongoing tension (and increasing complexity) in the sustainability space as investor interest has finally woken up to the fact that the impacts of companies are not just about traditional financial materiality. The challenge in this awakening is a bit like the old adage: When you are an ice cream, everything you see is a cone and chocolate sprinkles. (OK, I adapted that old adage). With investors, everything they are seeing in sustainability is now reframed as new financial risk (rather than a non-financial one) and monetized to assess its effect on shareholder value. We just might be in danger of coming full circle. I appreciate that corporations are struggling with this and how to best meet the needs of investors while continuing to place value in values. 

An example of a company that does it well, in my view, is FORD's Sustainability microsite.

Ford 2020 Sustainability microsite home page
Ford's online and downloadable Sustainability Report clearly states all the different frameworks that Ford reports against. It's a packed 54 page report that includes strategy, material topics, quotes, images, case studies and super interesting perspectives on all aspects of sustainable mobility and responsible practices.

And for the ESGerati, wow, there is also an ESG Reporting Hub. This contains not only the Sustainability Full and Summary Reports, but also downloadable indices for no less than 8 reporting frameworks, including GRI, SASB, UNGC, CDP and others. 

The ESG Hub continues with a suite of policies and positions and ESG highlights, for those who have an extra few minutes to scroll down the page.

It appears to me that Ford has invested in developing detailed disclosures and organizing them in a way that enables different stakeholders to get the information they want and need quickly and efficiently, without compromising on the richness of insight we seek from sustainability reporting. I like this. I feel that Ford is respecting all its stakeholders. 

In summary, I hope ESG does not become a poor proxy for sustainability reporting. I hope companies will not use ESG reporting as an opportunity to turn sustainability reporting into skeleton disclosure about whose numbers are bigger.

Resonate, anyone? 

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltdan inspired Sustainability Strategy and Reporting firm having supported 100+ client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business   

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