Reflections from Jen...
Measuring and reporting on environmental initiatives and progress has always been a challenge. But with the right tools, companies are increasingly able to quantify - and share - the results of their sustainability and energy management projects. But this week, two separate studies indicated that reporting on progress may not be enough.
The studies found that companies that don't address risk in their environmental reporting may be missing out on an opportunity to build investor trust and ensure long-term profitability, according to a new report from Ceres. Companies that acknowledge the environmental risks they face, and that analyze how those risks might affect their value, may be more likely to catch the eye of investors.
One long-term investor said in the Ceres report that it is important to engage with companies about risk: they must consider the value they stand to lose when, for example, they face a depleting water supply but lack an effective water use management plan and policy.
Just this week, a report from Accenture, CDP and Hermes Investment Management suggested that, by not quantifying and reporting on the environmental risks they face and the potential value at stake from addressing those risks, organizations are missing a huge opportunity to build investor trust and ensure long-term profitability.
Likewise, a report from Accenture, CDP and Hermes Investment Management, suggests that companies should report on the potential value at stake from addressing risk. Consumer goods businesses, for example, are heavily exposed to physical, climate and operational risks through reliance on agricultural and commodity inputs; they also face challenges to brand value if they remain inactive on environmental issues. But more than 40% of the top 100 consumer goods companies reporting to CDP have not quantified, or publicly reported, the potential value at stake from addressing these risks and overcoming them with strong environmental performance, according to the research.
Similarly, the food sector is highly vulnerable to climate change impacts, yet more than a third of the publicly held companies analyzed by Ceres made no mention of climate-related water risks in their most recent 10-K filings. This is despite the fact that increasing variability in precipitation patterns due to climbing temperatures pose enormous risks to the food sector, such as agricultural supply chain disruptions and lost growth opportunities in water-stressed markets, the report states.
Perhaps it's not surprising that a large percentage of companies aren't reporting on the potential of lost value they face from risk, and the potential of value they gain by addressing it. "Risk" is the probability or threat of damage - by its definition, then, risk is something that hasn't happened yet. And it makes sense that quantifying something that hasn't actually happened might be more of a challenge than quantifying sustainability measures that have already produced results.
I was interested that both of these studies, by completely separate entities but released nearly simultaneously, pointed to similar conclusions in terms of reporting on the potential value of risk. Are you one of the companies that is quantifying potential risk, and how you can gain value from addressing it? If so, I'd love to hear from you. And I look forward to following this topic. Stay tuned and I'll keep you updated as I learn more. In the meantime, have a great weekend.
--Jen
