While the U.S. national government rushes to dismantle regulation, last week’s Wall Street Journal featured a series of articles about the move by top corporations to adopt sustainability measurement and management. Even the venerable Journal has figured out that corporate managers are increasingly saving money while reducing the environmental damage caused by their organizations. Moreover, the best and brightest brains they hope to attract to work in their organizations value the planet and want to be sure that the organizations they are building don’t destroy it. Environmental protection is no longer a frill but a necessity for the modern corporation.
Last week, a Wall Street Journal article by Dieter Holger and Fabiana Negrin Ochoa reported on the growth of corporate sustainability reporting in recent years. According to Holger and Ochoa:
“…a new Wall Street Journal ranking of the world’s most sustainably managed firms, underscores how sustainability reporting is capturing the corporate world. Not only are companies facing demands from some investors for data on their environmental, social, and governance (ESG) risks and practices, they are being pressured by employees and consumers to focus on issues such as climate change and diversity. Last year, 90% of companies in the S&P 500 index published sustainability reports, up from about 20% in 2011, according to Governance & Accountability Institute, a New York-based consulting firm. As disclosure has improved, so has the value of corporate ESG data, researchers say. Assets under management in funds world-wide that weigh sustainability factors when making investment decisions grew to $40.5 trillion this year from $22.9 trillion in 2016…”
The increased prevalence of corporate sustainability reporting is a strong indicator of the importance of sustainability in 21st-century corporate management. Our private sector must compete on a more crowded, resource-challenged planet that is not only battling a global pandemic but must also address the existential threat posed by climate change. Ideological politicians might be able to spin these issues and pretend they are not real for a short period of time, but corporate performance must operate in the actual world. A major problem with sustainability management and measurement, recognized by all concerned, is the different definitions assigned to the concept and the wildly different metrics utilized when measuring it. Central to the conceptual fuzziness has been the effort to create an index or ranking system that combines indicators of environmental sustainability with measures of a company’s work to promote equity and positive community impacts. My view is that this has been an effort to combine all the “do-gooder” elements of corporate behavior into a single measure. I do not see these practices as examples of corporate altruism but instead as evidence of effective management closely related to profit. Others act on the assumption that these are “add-ons” that do not contribute to corporate profit. The effort to measure these very different areas of performance in a single measure makes little sense. The organization’s environmental performance and efforts to be good places to work and have a positive social impact are three separate concepts that should have three distinct sets of measures.
A second problem with sustainability measurement today is that dozens of non-governmental organizations depend on the revenue they generate by analyzing and scoring corporate sustainability. This leads to an inherent conflict of interest in the current system of measurement. My personal research and teaching are in the field of environmental sustainability. Others, typically experts in human resource management, focus on workplace equity and fairness. Another field rooted in sociology or public policy study seeks to measure corporate impact on and engagement with local communities. Each of these elements of corporate performance should be measured and understood. But these critical performance measures must be designed and regulated by government. The model I propose is that we imitate the approach taken when we developed generally accepted accounting principles and require sustainability reporting by publicly owned corporations and audits by organizations certified by government to conduct those audits.