Sustainability is still in its Wild West phase, as companies struggle to identify what information they should freely divulge about their environmental and social performance and corporate governance ("ESG"). A cottage industry of sustainability consultants has sprouted up to help companies identify the transparency measures that will make them more trusted, respectable and successful in the long term.
Below is an imaginary memo from a made-up consultancy that was recently obtained by Bloomberg.com Sustainability News:
TO: [NAMES REDACTED, COMPANY NAME REDACTED]
FROM: Arthur Billingreen, Trendy Advice Partners, LLC
SUBJECT: Sustainability reporting advice
Institutional investors, governments and nongovernmental organizations have raised their expectations about how much non-financial information companies should disclose as material to investors. They now recommend "a lot."
The U.S. Securities and Exchange Commission in January 2010 detailed how companies should judge whether risks or opportunities related to climate change, or climate change policy, are material and therefore must be shared.
That was just the beginning. In the name of sustainability, companies are encouraged by investors, governments and NGOs to disclose information across dozens or even hundreds of performance metrics ranging from water use per dollar of revenue, to workforce injuries, women in management, whistle-blower policy, political donations and beyond.
The SEC last month passed a rule requiring manufacturers to identify and disclose if the tin, tantalum, tungsten and gold they buy are "conflict minerals" that enrich warlords in the Democratic Republic of Congo. This move invalidates the previous guidance of Trendy Advice Partners, that there are two kinds of companies, those who want to know that they conduct business with warlords, and those who don't. We no longer recommend that [REDACTED COMPANY NAME] executives continue the heretofore successful policy of idly whistling or pretending to mishear questions when the topic comes up.
Trendy Advice Partners expects that in the next months, and years, [REDACTED COMPANY NAME] will see more requests for disclosure of non-traditional information.
The question of child labor has re-emerged with sustainability. In collecting data about workforce demographics, the Utopian Workplace Fund, an NGO with ties to labor unions, realized that most major companies could be vulnerable to age-discrimination lawsuits because they employ so few children. Consider this: Not one S&P 500 company employs a single child in senior executive positions. The push is on to disclose the percentage of children in senior management. General counsel offices have yet to reconcile this push with existing federal and state laws prohibiting child labor.
Germany now requires that public companies measure and disclose the grammatical and syntactical accuracy of company emails. Messages longer than nine words (about 15 percent of total emails sent) are selected at random, hand-graded on a 100-point scale, and averaged in quarterly report cards. Employees must correct their work and bring it back the next day, or no donuts on Friday. British p.r. firms are expected to undertake similar practices for English, particularly as the Queen intensifies her push for more umlauts. Americans believe that all grammar is French, and therefore for sissies.
Where quantitative values can't be ascribed to non-financial performance metrics, investors are looking for qualitative assessments.
The admissions process at elite colleges and universities is having a novel impact on sustainability disclosure. In the United States, where corporations retain the same legal access to courts as individuals when defending contracts, executives are increasingly asked to write 10-K Essays on behalf of the company, explaining a formative emotional experience; a company, living or dead, that they look up to; or how they cope with stress.
Corporate sustainability reports vary in quality and are widely assumed to be glossy p.r. products. Companies that produce them should disclose the number of feel-good phrases in them, as an inverse measure for the quality of the report. Remember that in the U.K., feel-good phrases are now more likely to require umlauts.
Sustainable companies should also disclose the number of new sustainability metrics they publish every year. Eventually, Trendy Advice Partners predicts, as more and more data become material to investors and published within official, legal disclosures, sustainability reports will become lists of feel-good phrases, and shortly thereafter, pictures of flying horses and rainbows.
Generation X investors increasingly want to know what kind of music senior executives and board members prefer. Do they listen to classic rock, or jazz, or bluegrass? Like, what percentage of senior executives have heard the latest Dylan album? It's awesome but kind of dark.
Finally, companies are being asked to state, yes or no, if they think that post-World War II levels of economic growth are sustainable globally and indefinitely. If not, they should disclose other things that long-term investors should consider investing in.
We hope this guidance is useful. Please contact us with questions.
Trendy Advice Partners, LLC
Visit www.bloomberg.com/sustainability for the latest from Bloomberg News about energy, natural resources and global business.