Businesses must address 'internal disconnect' to deliver sustainability success
Sustainability and investor agendas are becoming increasingly intertwined, but gaps in knowledge and understanding are preventing companies and investors from sharpening their focus on long-term sustainable value creation, a new report has found.
The research by consultancy firm Corporate Citizenship in association with S&P Dow Jones identifies the key obstacles that must be overcome to enable more businesses to demonstrate a link between CSR performance and long-term competitiveness.
Based on research and interviews with industry experts, the study finds that an internal disconnect between investor relations and CSR teams is hindering the ability of businesses to evaluate sustainability actions, while a limited disclosure of CSR issues in the context of financial statements exists due to an external disconnect between companies and their investors.
Corporate Citizenship director Peter Truesdale said: “Over the past 20 years, we’ve seen investor interest in sustainability grow in volume, scope and depth. But those running publicly-listed companies have failed to get to grips with communicating ESG [environmental, social and governance] issues to investors. Our research suggests that companies have to up their game.”
The report identifies a framework for improvement on how companies can bridge the internal and external disconnects through a series of practical actions.
Businesses are missing out on attracting investment from the ever-growing number of investors that incorporate CSR information into their financial analysis and decision-making, the report states. Corporate Citizenship urges businesses to build a compelling long-term value strategy that can be communicated to investors which outlines how sustainability performance contributes to superior financial performance and competitive advantage.
The paper goes on to state that companies face an internal challenge due to an internal disconnect between investor relations and sustainability professionals which stems from a divergence of strategy and priorities. Companies must use shared terminology and language, the report suggests, and define metrics to articulate how sustainability adds value to the business, which will in turn achieve leadership buy-in and support for defining the company’s long-term competitive strategy.
“In order to maximise long-term value creation, more businesses must communicate effectively on their vital social, environmental and governance issues," Truesdale added. "They must convince investors that, far from being a niche interest, these topics shape long-term commercial success."
Corporate Citizenship also undertook research into the reporting practices of some of the world’s largest companies, including Unilever, SABMiller, GlaxoSmithKline and L’Oréal. The paper notes that few companies report on long-term value creation, and those that do rarely include key performance indicators (KPIs).
One notable exception is UK drinks company Diageo, which measures progress against its long-term business strategy according to a series of indicators such as carbon emissions and water efficiency.
Global consumer goods firm Unilever recently revealed that it is on track to meet the “vast majority” of the targets established in the Sustainable Living Plan, which aims to highlight that sustainability is no longer viewed as a “niche” issue. Meanwhile, cosmetics giant L'Oréal has made significant progress in its sustainable development plan, with latest figures showing the company is on course to reach targets to reduce emissions, water consumption and waste generation by 60% by 2020.