The Green Tie – The Official Blog of NAEM

Progressing beyond the current ESG reporting system

April 7, 2011 at 9:00 am Leave a comment

“Survey season” is here and environmental, health and safety (EHS) and sustainability leaders are already finding new rules for reporting on sustainability progress. This week, we caught up with Sandy Nessing, Managing Director of Sustainability & ESH Strategy & Design for American Electric Power Co. to learn more about some of the challenges and opportunities for public environmental, social and governance (ESG) reporting.

GT: What are some of the challenges of reporting sustainability metrics?

SN: One of the biggest challenges is not having standard industry metrics. For example, in the electric utility industry there is no universal metric (yet) for measuring environmental performance. Now we measure it based on internal metrics that include numbers of significant environmental enforcement actions, compliance with National Pollutant Discharge Elimination System permits, opacity and oil and chemical spills at our power plants. These are internal metrics that are tied to compensation but there is no way to compare our performance to our industry peers because no two companies have the same metrics.  How can you get to best in class when there’s no standard you can compare yourself to?

The Global Reporting Initiative (GRI) covers some of this, but because not all companies use this framework or report on the Electric Utility Sector Supplement, there is still a void on comparability.

GT: What do you think could be improved about the current reporting system?

SN: Two things. First, more companies need to report their sustainability performance and put it into context with their financial performance. That is the future of reporting, but I’m afraid it will take a while to get there. There are still so many companies that are not reporting at all. However, once we achieve a higher level of transparency and integrated reporting, the investment and financial communities will have no choice but to start paying greater attention to the linkages when rating companies or weighing credit-worthiness or investment potential.

While there is an International Integrated Reporting Committee (IIRC) working on this, it is not expected to have a framework in place for some time. GRI is just beginning to develop G4, which should be a bridge to the IIRC’s work. For companies like mine, that have already started down this path it’s a challenge. This year, South Africa began mandating that any public company listed on the Johannesburg Stock Exchange must produce an integrated report – or explain why not. They put together a framework for doing it and it’s a great guide for any company intending to head down this path.

Second, we have to find a better way for research firms to analyze and rank sustainability performance other than sending  companies surveys every year. There should be standard agreement that such firms first search out the information on the company’s website first and populate the surveys as best they can before requesting additional data. These surveys are valuable but they consume enormous resources within companies. There has to be a better approach.

What role could stakeholder dialogue have in improving the current system?

Having the right people at the table and a willingness to have a candid discussion about the challenges and benefits of the rankings would be very useful. We need a forum to listen and learn from each other and, hopefully, come away with a better understanding of expectations and ideas to help us manage the process more efficiently.

Sandy Nessing will be speaking about sustainability reporting as part of NAEM’s “Measuring Corporate Sustainability: Understanding the Metrics that Matter” event on May 4 in Fort Lauderdale, Fla.

Entry filed under: Climate Change, Corporate Social Responsibility, Emerging Issues, Risk Management, Sustainability, Uncategorized. Tags: Corporate Sustainability, Environment, esg, ESG rankings, ESG ratings, esg surveys, Sustainability rankings, sustainability ratings, Sustainability Reporting, sustainability surveys.