Why should an organization expend resources on reporting?
Initial listing on a sustainability index won’t translate to increased profits, but getting de-listed is the equivalent of a doctor having his or her medical license revoked.LEARN MORE
A study of firms listed to and de-listed from the Calvert Index between 2000 and 2005 found companies lost 1.2% of their market value in just two days following their delisting.
When a company earns its rite of passage onto a sustainability index it does not mean the company is entitled to take a breather. Keep advancing sustainability initiatives. Establish metrics that help you identify where to make the biggest impact.
Companies that integrate environmental and social activities into financial reporting demonstrate stock price returns 5% higher than peers.LEARN MORE
Firms that implemented environmental and social activities and then integrated them into financial reporting experienced 4.8% higher returns compared with less sustainable peers – over a period of nearly two decades. These high sustainability firms also saw superior performance in return on assets (ROA) and return on equity (ROE), as well as lower turnover rates.
Integrated reporting demonstrates that environmental and social factors are core to your business. Key stakeholder groups will value your openness and investors will better understand the associated risk—or lack thereof.
Companies that voluntarily disclosed their role in a scandal saw 23% smaller stock price declines than companies outed by others.LEARN MORE
Firms that voluntarily disclosed their involvement in the backdating scandal experienced stock price declines of 23% less than firms that were exposed by others.
However, timing is critical. Disclosing too early is dangerous as well; firms that waited to disclose saw stock price declines of less than half of those firms that disclosed early (-1.81 versus -4.41%).
Don’t give third parties the advantage by letting them speak for you. Be honest about mistakes rather than waiting for third parties to expose them. Understand the framing of the issue to strategically and transparently communicate it in a timely fashion.
How Reporting Yields Progress
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What should I report?
Reporting real environmental achievements will boost market value. Communicating targets means little to investors.LEARN MORE
While lowering emissions did not affect the firm’s balance sheet, researchers found that firms with lower carbon emissions had higher Tobin’s q values than firms with higher carbon emissions. Tobin’s q is a ratio that captures the difference between a public company’s market and book values. This indicates that investors are willing to pay more for stock in a low-emitting company than a high-emitting company.
Companies that reported only on emission targets had lower return on equity and lower market value than companies who achieved their goals. Researchers concluded that preparing to achieve goals often comes with immediate costs, but no return. As such, goal-setting does little to drive investor interest.
Bolster shareholder interest by reporting on activities that already achieved a positive material effect on your company. Don’t abandon process-based initiatives and targets, but focus less on communicating what you plan to do another day.
Markets react best to announcements around ISO certification and philanthropy.LEARN MORE
Positive attention to green charity and ISO 14001 certification resulted in financial gains, generating returns that were 0.46% and 0.35% above average, respectively. Conversely, announcements of voluntary emissions reductions negatively impacted financial performance, with a mean abnormal return of -0.95%.
Authors concluded that philanthropy and ISO certification signal goodwill and good reputation, while emissions reductions beyond regulatory compliance may not be in shareholders’ best interest.
Announce only the initiatives that resonate with the market and your shareholders. Keep in mind that results trump targets when communication with your stakeholders.