Will better disclosure help transform business?

accountingWhose sustainability performance is better, PepsiCo or Coca-Cola? Dell or HP? Microsoft or Google? Tracking sustainability metrics isn’t easy, but that hasn’t stopped numerous organizations from trying.

One of the newest and most ambitious efforts comes from the Sustainability Accounting Standards Board (SASB), a non-profit group based in San Francisco,which is trying to set standards for sustainability reporting, much in the way that the Financial Accounting Standards Board (FASB), has done for financial reporting.

I took a look at SASB (it’s pronounced sazz-bee) in my latest story for Guardian Sustainable Business. Here’s how it begins:

In the annual report known as a Form 10-K that is filed with the Securities and Exchange Commission, Coca-Cola outlines a variety of risks to its business, as public companies are required to do.

The global beverage giant, which booked $48bn in revenues in 2012, talks about how water is “a limited resource in many parts of the world, facing unprecedented challenges from over exploitation, increasing pollution, poor management and climate change.” Coca-Cola says that its plastic bottles could be subject to “deposits or certain eco taxes or fees.” And the company worries that growing concern about “the potential health problems associated with obesity and inactive lifestyles represents a significant challenge to our industry.”

PepsiCo also acknowledges the problem of water scarcity in its Form 10-K. But the company doesn’t cite the potential regulation of plastic bottles as a concern. And the word “obesity”does not appear anywhere in its annual filing.

What’s going on here? It’s possible that Coca-Cola is more aware of social and environmental risks than is its arch rival. More likely, the Coke and Pepsi lawyers don’t agree on what constitutes a “material” risk to their business, and thus has to be reported.

If nothing else, the different Form 10-Ks are evidence that the quality of sustainability disclosure varies widely – even though public companies are legally obligated to tell the SEC and investors about the social, political and environmental risks they face.

The Sustainability Accounting Standards Board (SASB), a non-profit group based in San Francisco, has set out to bring some consistency to sustainability reporting. Working closely with corporations, investors and other stakeholders, SASB is developing sector-specific sustainability accounting standards for US public companies.

Last week, SASB (it’s pronounced sazz-bee) released its first set ofprovisional standards, covering the health care sector – hospital, pharmaceutical and biotech companies, among others. Other sectors will follow soon.

Of course, SASB and its backers have more in mind that just improving disclosure. If all goes according to plan, the improved transparency will alert investors to a variety of non-financial risks, ranging from unethical drug marketing to “unburnable carbon.” Then, as investors awaken, they will insist on changes in corporate behavior. So, at least, goes the theory.

I hope groups like SASB–and the Global Reporting Initiative, and the International Integrated Reporting Council–have an impact. Transparency can drive companies to improve. But the real key will be persuading investors that companies that take sustainability issues seriously will outperform their peers in the long run. That case has yet to be made.

You can read the rest of the story here.

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