Why It Matters That S&P 500 Companies Report on ESG

By Juliette Fairley

Some 82 percent of S&P 500 Index companies published a sustainability or corporate responsibility report last year, according to new research data.

“These leaders are seeing dramatic benefits from their efforts and are also increasingly engaging with investors to help make ESG data more strategically useful for decision-making by company management, stakeholders and investors,” said Louis Coppola, executive vice president and co-founder of the Governance & Accountability Institute (GAI).

The GAI’s 6th annual sustainability monitoring and analysis reporting study found that major industrial complex companies are the best at publishing sustainability reports.

Lockheed Martin, Northrop Grumman and Boeing are among the top three U.S. aerospace companies that are maintaining web sites and other forms of communication to inform stakeholders.

“If asset owners like CalPERS, New York State Common Fund and the New York City pension system and others are increasingly requiring asset managers to demonstrate their commitment to sustainable investing, then that influence is shaping the direction of the capital market,” said Hank Boerner, chairman & co-founder of the GAI.

Despite progress, 18 percent of companies included in the S&P 500 benchmark are still lagging. “We are wondering what the non-reporting enterprises are thinking,” Boerner said.

According to the Institute’s annual report, this year's top non-reporters are most likely found in the consumer discretionary sector.

“They have to catch up,” Boerner said. “It's not necessarily that they are doing nothing but that they need to do more because investors and consumers are demanding this information.”

Advisors can use the information that differentiates non-reporters from reporters in the S&P 500 benchmark to demonstrate that they are current on the sustainability of their client's investment portfolio.

“Companies that publish in-depth sustainability reports are more likely to enjoy lower operating expenses and greater competitive advantage, which creates a moat in the marketplace for themselves and their products and services,” Boerner said.

The practice of reporting by S&P 500 Index companies has been steadily increasing every year.
In 2011, for example, just under 20 percent of S&P 500 companies had reported on their sustainability, corporate social responsibility, ESG performance and related topics compared to 81 percent in 2015, indicating a steady acceptance by large-cap companies of sustainability reporting.

The focus of the reporting includes environmental management such as energy, community relations, non traditional corporate governance and societal issues like diversity, supply chain risk and child labor.

“The best reporters reduce cost of operations by being aware of the impact of liquid waste and conserving energy,” said Boerner. “More and more they are moving from cradle to cradle to a better life cycle management, which creates a competitive advantage.”

Juliette Fairley is a business and finance journalist who has written four personal finance books and has written for major news organizations. Juliette can be reached at [email protected].

Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for The New York Times, The Wall Street Journal, The Street and many other publications. She is a member of the American Society of Journalists and Authors, the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at [email protected].