Companies are failing to disclose key social and environmental risks
Company boards are failing to disclose the risks posed by social and environmental issues to their financial investors, according to a report out this week.Published jointly by UNEP, SustainAbility, and Standard & Poor, "Risk and Opportunity: Best Practice in Non-Financial Reporting", is an international review of corporate sustainability reports which calls for sustainability reporting to be accepted as part mainstream practice.
It finds that only three out of the top 50 assess the balance sheet implications of key environmental and social risks, despite the information being increasingly important to analysts, investors, lenders, insurers and re-insurers. Overall, however, there has been a rise in sustainability reporting quality since 2002.
It is the first survey to explore the link between credit ratings and the quality of companies' governance and disclosure of non-financial risks. Fifty reports were selected for a full analysis by an international independent expert committee out of a total of 350.
The top three companies selected were Co-operative financial services (UK), Novo Nordisk (Denmark), and BP (UK).
"Corporate governance is the hottest topic, but recent scandals have meant that most boards are focused on financial integrity issues - to the detriment of the bigger picture of non-financial risks and opportunities," said SustainAbility Chairman John Elkington.
He added that, overall, the quality of non-financial reporting had improved dramatically since the first benchmark survey in 1994. "Now the challenge is to ensure leading companies integrate their financial and non-financial accounting and reporting in ways that help analysts and rating agencies do their job properly. 2005 will see leadership companies setting new standards," he said.
Monique Barbut, Director of UNEP's Division of Technology, Industry and Economics stressed the importance of global guidelines.
"It is striking that 47 out of the top 50 reporters are users of the Global Reporting Initiative (GRI) Guidelines. Without doubt, sustainability reporting is moving mainstream. It is now critical that financial reporting and sustainable reporting become accepted as part of an integrated package," she said.
A similar study in July this year found that less than a quarter of the FTSE All Share companies bothered to make any quantitative environmental disclosures in their annual reports (see related story). Even then, only a small proportion went on to link environmental disclosure to financial consequences or future changes in shareholder value.
At the time, Barbara Young, Chief Executive of the Environment Agency in the UK urged: "Lets get a minimum standardised form of reporting on a basic list of priorities. All companies have to know that disclosure is an opportunity, not a threat."
By David Hopkins