Just over a year ago, I began planning a research project to analyze how (or if) companies formally disclose financial gains/ROI of sustainability initiatives and investments. In the intervening months, project details changed somewhat and today the initial draft is done. The document is undergoing final review, edits and formatting and should be available within 2-3 weeks, but here are some highlights in the meantime:
- In our cohort of 113 publicly traded US companies, only 27% reported financial value/gains/benefit of sustainability in their 10-K reports. Only 34% reported financial value/gains/benefit of sustainability in their sustainability/ESG reports.
- Sustainability financial reporting/ROI disclosure, where it occurs at all, does not correlate to company size or sustainability reputation.
- Sustainability financial value/ROI disclosure, where it occurs at all, appears to take forms other than financial statements and corporate sustainability reports (such as media reports, press releases, public statements/presentations by company officials and social media).
- Almost every company reported sustainability/climate matters as an Item 1A Business Risk, infrequently balanced by discussions or data about potential upsides, value or ROI.
- Overall, the current state of sustainability disclosures in a financial context supports the perception that sustainability consists of charitable expenditures and business risks driving possible negative business conditions.
However, there are several relatively easy ways to turn this around, even if you face pushback from some parts of your organization. Indeed, this will be one of the matters that Zach will address our upcoming webcast for members “ESG Litigation Landscape 2025” on August 12 at 2:00 EST. The discussion will center on developing legal risks and the strategies companies can use to mitigate legal exposure – which includes building a viable business case.
We focused on US publicly-traded companies and searched for hard dollar value (top line or bottom line) reported in 10-Ks and sustainability/ESG/CSR reports, only including those that provide explicit dollar values (or clearly/easily calculated values such as percentages of total company revenue or cost line items). Non-financial operational metrics are not included. We also exclude cost items, risk reduction claims, predictions of potential future benefits not yet realized and general narratives without explicit financial values/benefits.
Companies were selected to represent a range of annual revenues (from -$149 million to over $390 billion) and a variety manufacturing, retail and service industry sectors. Most were selected at random, but others were chosen based on their general reputation as sustainability leaders or recent news of specific major sustainability-related announcements to compare their reputation to how/whether they report financial value of sustainability.
We conducted our research manually without using AI. It would be easy to think that the results could be quickly replicated using any popular AI system available. Think again – as a point of curiosity, we compared some of our results to results produced by common publicly available AI systems and found significant discrepancies and omissions in the AI results versus our manual reviews of the source documents.
If you would like to see us replicate the study using non-US companies, send us a note. If there is enough feedback, we’ll do it – and now that we have things ironed out, it won’t take us as long this time.
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