Reproduced with permission from Corporate Accountability Report, 11 CARE 848, 8/16/13. Copyright � 2013 byThe Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

Sustainability

Greener Ledgers: The Practical BenefitsAnd Legal Risks of Sustainability Reporting

s Practice Tip: Companies should pursue corporatesocial responsibility reporting to strengthen their rela-tions with stakeholders and develop their businessmodels, but must also work closely with their legalcounsel to ensure that they are not exposing themselvesto liability.

C ompanies in both the U.S. and abroad are likely toface increasing pressure to engage in some formof corporate social responsibility (CSR) or sustain-

ability reporting.Such reporting, which is also referred to as environ-

mental, social, and governance (ESG) reporting, pro-vides companies the opportunity to publicly discuss theorganization’s current status and future goals concern-ing issues related to climate change, natural resourceconsumption, community development, diversity, andcorporate governance.

Companies should approach this process as an op-portunity to engage with stakeholders and develop bet-ter business practices while also minimizing possible le-gal complications by being realistic and honest abouttheir current performance and future goals.

Sustainability Reporting: Past, Present and Future. Sus-tainability reporting’s underlying concepts can betraced back to at least as early as 1984—the year thatstakeholder theory began to really take hold in the busi-ness community following the publication of R. EdwardFreeman’s book, Strategic Management: A StakeholderApproach.

In the U.S., the practice has dramatically evolvedsince ice cream maker Ben & Jerry’s Homemade Inc.first substantively revolutionized the practice by com-missioning an independent ‘‘social auditor’’ to producea stakeholder report in 1989.

In the wake of the new practices employed by Ben &Jerry’s, other companies, such as The Body Shop Inter-national Plc and Shell Canada Ltd., continued to drivethe evolution of the practice throughout the 1990s.

By 2000, the Global Reporting Initiative (GRI), whichat the time still existed as a project department of theCoalition for Environmentally Responsible Economies(CERES), released the first version of its comprehen-sive reporting framework.

Following this initial release, the GRI became an in-dependent institution and grew in importance as it de-

veloped succeeding generations of reporting guidelines,which became the authoritative standards for sustain-ability reporting in both the U.S. and abroad.

By April of 2012, more than half of the companieslisted on the S&P 500 were producing CSR reports, 63percent of which followed the GRI’s framework, ac-cording to a 2012 report by the Governance & Account-ability (G&A) Institute, 2012 Corporate ESG/Sustainability/Responsibility Reporting: Does ItMatter?. As the report noted, ‘‘[n]ow that 53% of theS&P 500 and 57% of the Fortune 500 are reporting ontheir Environmental, Social, and Governance impacts,the non-reporters are now in the minority.’’

As articulated by Mervyn King, Chairman of the In-ternational Integrated Reporting Council, at the 2013GRI Global Conference, ‘‘[s]ustainability reporting hasbecome mainstream—as mainstream as financialreporting.’’

As for the future of sustainability reporting, the in-dustry trends in both the U.S. and abroad indicate an‘‘increase in the amount of policy and regulation for or-ganizational reporting,’’ according to a 2013 joint reportpublished by the GRI in collaboration with the G&A In-stitute, UNEP, and various other global stakeholders,titled Carrots and Sticks: Sustainability Reporting Poli-cies Worldwide—Today’s Best Practice, Tomorrow’sTrends.

Given that voluntary reporting practices drive man-datory policies and vice versa, U.S. stock exchanges arelikely to make sustainability reporting a listing require-ment. The NASDAQ OMX Group and the New YorkStock Exchange will be submitting ESG disclosure pro-posals at the World Federation of Exchanges annualmeeting this October.

In a June 2013 post on Twitter, NASDAQ OMX Man-aging Director, Evan Harvey, said ‘‘Our wish is ESG re-porting becomes as standard, actionable & ubiquitousas financial reporting.’’

Investors themselves increasingly care about compa-nies’ sustainability performance. Commenting on a2012 survey conducted by Bloomberg LP and Sustain-Ability, titled Rate the Raters: Phase Five—the Inves-tors View, SustainAbility Vice President Michael Sad-owski wrote that, ‘‘[o]ver 60 percent of respondents saythey are using ESG data and information more todaythan they were three years ago, while 63 percent saythey will use such data and information more threeyears from today.’’

Benefits, Potential Pitfalls of Sustainability Reporting. Inaddition to regulatory and shareholder pressure, com-panies have other incentives to start engaging in sus-tainability reporting.

COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1542-9563

Corporate Accountability Report®

As Kathrin Winkler, senior vice president, chief sus-tainability officer at EMC Corp., a global leader in pro-viding information infrastructure and virtual infrastruc-ture technologies, solutions and services, stated in aJuly 2013 email to BNA, ‘‘putting the rules aside, EMCbelieves there are many strong business reasons forsustainability reporting.’’

In Sustainability and the Board: EMC, a 2012 articlethat Winkler co-authored with Rachel Lee, EMC’s se-

nior corporate counsel, Winkler further discussed theways in which EMC’s sustainability reporting has en-abled the company to operate more efficiently bystreamlining processes, reducing costs, energy con-sumption and greenhouse gas emissions, and develop-ing more innovative product designs that use less mate-rial and minimize packaging waste.

Winkler and Lee also detailed the ways that reportinghas encouraged transparency and accountability withinthe corporation and served as a catalyst for driving thecompany’s ongoing communications with its sharehold-ers and stakeholders.

Sustainability reporting is not without its pitfalls. Par-ticularly, reporting companies must work closely withtheir legal department to ensure that reports do notmisrepresent material information that may lead to fu-ture litigation.

At EMC, ‘‘[t]he Office of the General Counsel is oneof our key partners, providing content for the ‘Gover-nance & Integrity’ section as well as reviewing the en-tire report for transparency, clarity, and accuracy,’’Winkler said.

He added that companies new to reporting should‘‘[r]emember—it’s a journey, not a single event. Expectto learn from each year’s report to make the next year’sreport better. Be honest about not only the accomplish-ments, but also the challenges.’’

BY NICHOLAS HAWKS

AVOIDING PITFALLSInvolving Counsel in the Reporting Process

Companies new to sustainability reporting canbenefit from risk management strategies that focuson:

s working with legal counsel from the earlieststages of the reporting process;

s increasing counsel’s role in reviewing the re-port’s transparency, clarity, and accuracy; and

s using third-party assurance organizations whenpossible and/or feasible.

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8-16-13 COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. CARE ISSN 1542-9563