Last year, Dutch pension fund manager APG wanted to compare how European telecom companies managed the energy needed to run their power-hungry data centers and networks. It turned out to be a tricky question. Some companies reported their CO2 emissions. Others measured the total energy they consumed. What’s more, their goals for cutting power use followed different timelines. "It was very difficult to compare the figures," says Erik Jan Stork, senior sustainability specialist at APG, which manages 311 billion euros ($398 billion) in assets.
So APG worked with the Carbon Disclosure Project to write guidelines for the telecom industry to report energy use. Those disclosures, which companies voluntarily file with the nonprofit, will help APG decide where to put its money. "It is information that has played an important role for the portfolio manager to weigh the various opportunities and risks within a company," Stork says.
Energy use is just one of many non-financial measures that more corporations are sharing these days. Such disclosures often come in response to outside organizations, like CDP, the Global Reporting Initiative, or Bloomberg LP (parent company to Bloomberg News), that are pressing businesses for more disclosure of sustainability metrics. Investors are increasingly paying attention, too. But Stork's experience shows how hard it is to evaluate such nonfinancial measures: what companies report is often irrelevant, haphazard, or impossible to compare with their peers.
In the 1990s, companies published “corporate responsibility reports.” Early on, these often focused on philanthropy and offered little investors cared about. These documents have largely evolved into “sustainability reports” that discuss the nonfinancial aspects of a business known as "environmental, social, and governance" (ESG) factors. "They've become much more quantitative and less storytelling, if you will," says Bruce Kahn, senior investment analyst at Deutsche Bank Climate Change Advisors. "The more data that corporations disclose, the more useful it is to us."
He estimates that about a third of analysts now read such reports consistently, while another third ignore them, with the rest somewhere in between. "The real secret sauce of any analyst then is connecting that data to its financial implication," Kahn says. "If I have an accident, how much does it cost me to clean it up?"
Companies have to balance the information investors care about with disclosures sought by environmental or labor groups. "We receive about 100 surveys from third parties asking us about everything from human trafficking to our water use," says Lynnette McIntire, UPS's director of global reputation management.
Often, investors and other stakeholders care about the same thing: managing risk. "After Fukushima in Japan, after the BP oil rig, people are thinking again, what are the key risks?" says Marjolein Baghuis, director of communications for the Global Reporting Initiative. The Amsterdam-based nonprofit develops standards for companies to report their performance on sustainability measures. More than 4,000 organizations have filed sustainability reports with GRI. "It's not the ideal for every company to report on everything."
Some investors are pushing for what's called "integrated reporting." That means pulling sustainability measures that matter to investors into a company's quarterly and annual reports filed with financial regulators. Matthew Arnold, head of environmental affairs at JPMorgan Chase, says companies should share the things that are most salient to sustainability in their business. He recalls advice he gave to an energy company client recently: "Don't confuse the marketplace with a whole lot of stuff. What are the things an investor really wants to focus on?"