Friday, April 26, 2019

Chatting with Judy Sandford: An Insiders’ View of Corporate Responsibility Reporting

It has been 15 years since I worked on my first corporate responsibility (CR) report. At the time, yes, we had smiling pictures on the cover and long narratives with very few targets. That was then and it was the beginning of a long journey. I am proud to see how far reporting has evolved, although many would say there is still a very long way to go. 

Judy Sandford
For an expert’s perspective, I recently spoke with Judy Sandford, Senior Strategist and Managing Director of CSR and Sustainability at Addison, a creative agency in New York. I got to know Judy and  her team while working on Merck’s corporate responsibility report– a report they continue to support today. 

Note: In this conversation, we use the terms “CR,” “Sustainability,” and “ESG” interchangeably. 

MK: What trends have you seen in CR reporting in the past few years?  

JS: One big trend is seeing companies starting to “integrate” their ESG information in different ways such as by adding sustainability information to their 10-K [financial] reports or providing downloadable fact sheets for analysts as a way to get the information in front of investors. This has been on the rise as more mainstream investors such as BlackRock, Vanguard and State Street ask corporate investor relations teams specific ESG questions on topics such as diversity of corporate boards and risks from climate change. 

Other companies are publishing “blended” reports by adding CR information to their financial reports. But, it’s not enough to have the information side-by-side in the report. To be truly integrated, companies must show how financial investments are increasing a company’s sustainability, and how sustainability is supporting the company’s long-term growth. To create an integrated report in the most robust way with the IIRC guidelines is challenging, and I don’t think we will see an increase in companies publishing truly integrated reports until there is regulation. Given that the current [U.S.] government is not focused on sustainability right now, I don’t think formal integrated reporting is likely to get much traction anytime soon [in the U.S.]. 

MK: What ESG challenges are companies struggling to report on?  

JS: A big issue now is transparency around diversity and pay parity. While many companies fear being put under microscope, others have embraced it and made it a strength such as Salesforce. They report openly about how they are getting better at catching pay disparity and adjusting for it. They have gained great reputational benefits by going through this exercise and addressing it head on. [For more information on how Salesforce reports on pay equity, click here.]

Another challenge is reporting on the business impacts of climate change and whether to set science-based targets. Overall, I see a lack of detail in reports on risk management and contingency and resiliency planning around climate change. There are lots of weather events starting to take a financial toll, and there isn’t a lot of detail on how companies are managing the costs of these impacts or how they are planning to ensure they will be ready to address them in the future. 

MK: Today, there is such a sea of ESG reporting standards and frameworks, from GRI and the UN Global Compact principles, to SASB (Sustainability Accounting Standards Board) and IIRC (The International Integrated Reporting Council). Which do you think are the most relevant and useful?

JS: GRI is a great place to understand how companies compare in general and to understand what issues are most important to you and your stakeholders. I also like SASB because it provides a shortcut for companies to identify what investors ae most interested in, although, of course, you must look at it through the eyes of your company, but it’s a helpful first-pass filter. CDP is also super important – making measures on water, forest and climate change very comparable. I like IIRC for its philosophy, but integration is more difficult for U.S. companies to implement. 

MK: Companies aim to reach multiple audiences with their reports. How can they satisfy such diverse information needs without making their report unwieldy?
 JS: We recommend that companies develop multiple tools customized by audience. We also suggest what we call the “reverse mullet” report -- all party in the front, all business in the back. In other words, all storytelling and narrative in the front, and all data in the back including your GRI index and technical data. This allows companies to share highlights and provide the details for people who want the data. 

We also see companies reporting in a hierarchical fashion. They create a short PDF summary report and then put the “encyclopedia” of information online for anyone who wants to go deep. A good example of a company that does this is Merck. The summary report is also useful as an employee tool and for use at conferences. 

MK: CR professionals are often stymied by their legal teams in disclosing key ESG data or information. Do you have advice for how to advocate for greater disclosure?

JS: My recommendation is to include the legal team as early as possible in reporting discussions so they can see what information you want to share and get their buy-in early in the process. They are often left out of sustainability reporting committees and of the decision-making process. Having them involved helps politically and practically. 

You can also help gain their support for disclosure by sharing benchmarking of reporting from others in your sector. If the majority of companies are disclosing X, you can ask “Why not us?” You can also engage in a discussion on the risk of not sharing the information versus the benefit. Yet, another point of leverage might be that disclosure can help you do better on your MSCI score, which can result in investors being more favorable to your company. This could even translate into a financial benefit. 
Finally, to help bring corporate counsel along on the sustainability journey it is important to explain the difference between financial materiality and corporate responsibility materiality.
MK: As you’ve mentioned, investors are increasingly important readers of CR reports. How do you advise your clients to best determine what information to include in their reports to meet investor information needs? 
JS: Investors are much more about the facts, not the story telling. For example, they want to see diversity and balance in the board. I would suggest consulting the SASB criteria for your sector and to also look at the information requested by major rankings and ratings, as well as major institutional investors criteria. Based on this, do a gap analysis of what you are reporting versus what is being requested of you. 

MK: Are companies doing a good job integrating the UN’s Sustainable Development Goals into their reporting? 

JS: Many companies just show alignment with the SDGs, but do not talk about how they are making progress. I am impressed with how Heineken [not an Addison client] represents the linkage in their reporting. They have a helpful value chain diagram that shows their impact along the way and there is a discussion of the relevant goals and what metrics they are trying to hit. GRI and the UN Global Compact issued a useful resource last year to help companies measure and report on their impact on the SDGs. [Note: You can download the new publication here: Integrating the SDGs into Corporate Reporting: A Practical Guide.]

MK: What is your perspective of assurance of reports? 

JS: There, of course, are different levels of assurance. For early stage reporters, I recommend an external review of content and methodology to confirm that the right topics are covered. This will help provide objective feedback. For more experienced reporters, there are the big accounting firms that provide formal auditing of data and verify claims. This can be expensive and time consuming. Some of our clients focus assurance efforts only on those elements that are most measurable, which tend to be environmental data. This makes sense for some companies. There may also be safety data worth having an outside view, as well as pay parity. Assurance provides more credibility to readers and, of course, it should be a different third party than that does your financial reporting audit to avoid a conflict of interest. 

MK: Companies often struggle with ESG data collection due to unconnected systems, mis-matched data requirements, etc. Are there practices or tools that you’ve seen help? 

JS: I have to say that a majority of clients are still using Excel spreadsheets to collect data. Some have embraced Workiva, while another client uses Enablon. UL EHS Sustainability (formerly Credit360) has also been around for a long time. Often companies’ IT departments don’t want to invest in new systems because of security concerns or lack of resources to manage them. On the other hand, such systems can really help with version control and documentation. 

MK: What advice would you give to a company embarking on its first CR report? 

JS:

1.      Do benchmarking of reports in your sector.

2.      Get your CEO/chairman behind the idea of reporting to help rally people and ensure they will give their time.

3.      Establish an internal committee where people are responsible to gather information from each group. The committee members should also talk to each other and share ideas. After all, reporting isn’t just about producing a report, it’s also people talking to each other, learning, identifying risks and opportunities, and continuously improving the company.

4.      Don’t try to report on everything – focus on the most material (important) topics. And keep to a manageable number of goals--20 or fewer. 

Judy’s Last Word on CR Reporting 
·       A company whose reporting you admire: For a large company, I think Nike provides several levels of reporting for different audiences, high transparency and demonstration of innovation. For a smaller company, United Rentals – they have a clear, concise report that shows the value to their business of their sustainability efforts.
·       A CR report should always: Be focused on what’s most important to the company and stakeholders. 
·       A CR report should never: Provide unsubstantiated information. 
·       In 15 years, CR reports will: Be mostly online and integrated with other corporate information. 
·       I wish that all CR professionals would: Be part of the overall strategy team and have access to the CEO.
·       I wish that all CEOs would: Embrace the benefits of sustainability reporting.  
·       I wish that all corporate lawyers would: Ask more questions about the importance of transparency. 
·       My favorite thing about working in this field is: Being able to help companies be more profitable and successful, and also the variety of sectors I get to work in. 

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