A recent analysis of sustainability reporting by the 250 largest publicly-listed companies in each of 23 countries, finds that U.S. companies have the second-highest level of nonfinancial transparency – only companies in Japan had a higher disclosure rate (in Japan, corporate sustainability reporting requirements have been in place for a number of years). U.S. companies in the research sample on average disclosed information on one-quarter of the 91 environmental and social practices examined in the analysis (issues such greenhouse gas emissions, energy consumption, water consumption, workplace diversity, board diversity, health and safety incidents, human rights policies, etc.). The United Kingdom, Taiwan, and France round out the top five countries with the highest levels of corporate sustainability disclosure. At the opposite end of the spectrum, nonfinancial disclosure is largely absent from companies in Malaysia, Indonesia, Pakistan, and Poland. In these countries, companies on average report on fewer than five of the 91 environmental and social practices tracked in the analysis.

Stakeholder pressure is driving sustainability reporting

The findings suggest that U.S. companies, even in the absence of domestic nonfinancial reporting requirements, tend to be more transparent than their peers in much of the world. In the absence of mandated reporting, sustainability disclosure by U.S. companies is largely driven by pressure from stakeholders – including investors – and a recognition that transparency can help strengthen relationships with employees, customers, suppliers, and local communities. In addition to stakeholder pressure, sustainability disclosure by U.S. companies is driven by the fact that several large U.S. companies are subject to nonfinancial reporting requirements imposed by other jurisdictions. For example, certain U.S. companies operating in Europe are subject to the reporting requirements imposed by the EU Directive on Non-financial Reporting. The combination of pressure from investors and other stakeholders, along with emerging reporting requirements from the EU and elsewhere, mean U.S. companies are increasingly active in sustainability reporting despite the absence of broad domestic reporting requirements.  

A recent flurry of regulatory activity

While most nonfinancial reporting in the U.S. remains voluntary, some recent initiatives are aiming to change this. For example, in October of last year a group of investors representing more than $5 trillion in assets under management, including the California Public Employees’ Retirement System (CalPERS) and the New York State Comptroller, petitioned the US Securities and Exchange Commission to develop a comprehensive framework requiring public companies to disclose environmental, social, and governance (ESG) aspects of their operations. Similarly, pointing to a need for improved climate-risk disclosure, the Climate Risk Disclosure Act was introduced last year by Senator Elizabeth Warren. There is also evidence that state regulators in the U.S. are recognizing a need for transparency on the financial risks associated with climate change. In 2018, for example, a California bill passed requiring the two largest pension funds in the U.S., CalPERS and the California State Teachers’ Retirement System (CalSTRS), to disclose the exposure of all funds to climate-related financial risks.  

ESG reporting is here to stay

Though the likelihood of broad mandates for ESG reporting in the U.S. is low, U.S. companies that remain on the sidelines of sustainability reporting should be prepared for this possibility, not least because investors are increasingly considering sustainability-related risks and opportunities in their investment decisions. Voluntary sustainability reporting frameworks, such as the GRI Standards, have played an important role in helping companies navigate nonfinancial disclosure. These voluntary reporting instruments are also evolving to encourage companies to focus their reporting on material issues—those that companies and their stakeholders deem most important or relevant to their business. Materiality is a key focus, for example, of the standards put forward by the Sustainability Accounting Standards Board (SASB), as well as the framework developed by the industry-led Task Force on Climate-related Financial Disclosures (TCFD), which encourages firms to align climate-related risk disclosures with investors’ needs. A comparison table of some of these leading sustainability reporting frameworks can be found here.  

Members of The Conference Board can access the full analysis of sustainability reporting here. The analysis is complemented by a comprehensive database and online benchmarking tool, the Sustainability Practices Dashboard. The Dashboard allows users to generate customized charts by segmenting data by sector, revenue group, region, and country.