Environmental and sustainability claims are just so much hot air

If one thing is for sure following the disaster in the Gulf of Mexico it is that we will be hearing a lot more from companies keen to trumpet their sustainability and environmental credentials. But as a new report reveals, we shouldn't put much faith in what they have to say. Because most of it can't be backed up by any real metrics, independent oversight or even adherence to recognised standards.

Sustainability in the Boardroom, a report by The Conference Board, examined the sustainability and environmental initiatives of 50 U.S. public companies, revealing fundamental flaws that pose real questions as to their value or credibility.

What emerges from the report is not only the sense that US companies lack the right framework to ensure the proper oversight of their programs, but also a near total absence of due diligence or oversight around any statements that are made.

For example, three-quarters of the companies surveyed for the report admitted that do not employ any of the widely-endorsed standards existing today in many areas of social and environmental concern. Instead, they resort to their own definitions of sustainability, making it very hard for investors or anyone else to form a coherent judgement as to the company's real performance.

To make matters worse, independent sources of information on the impact of business operations on the environment, as well as detailed procedures and metrics for integrating social objectives into daily corporate activities are almost totally ignored.

In fact the companies surveyed almost never seek any independent verification or oversight to back up any public claims they might make or to help them critically verify and analyze any internally-produced information. Nine out of 10 directors simply rely on reports by senior executives and are happy to take these at face value.

One reason for this cavalier attitude is that the majority of companies simply haven't put in place any formal structure or assigned real responsibility around their sustainability programs. Few have a dedicated functional department, a clear mission statement or any systems to assess whether sustainability activities improves financial performance.

But as the report also points out, this is something of a chicken-and-egg situation, with sustainability reporting by US public companies still in its infancy compared to what is expected or required of many European companies. In the US, then, those companies that do voluntarily disclose progress on their sustainability initiatives tend to do so via their public website or through an annual report - and four out of 10 said that they do not include any information on metrics in these disclosure.

How far and how fast this situation will change is largely in the hands of the regulators - for whom the risk implications of environmental issues can only become more important - and the activism of investors. As the Conference Board notes, the success rate of social funds demanding change has risen to levels that were unimaginable only a few years ago.

In the last few years, socially responsible investment companies and large retirement funds have submitted a growing number of resolutions on matters ranging from climate change to political spending and from board diversity to pay disparity. Almost six out of 10 of the companies surveyed said they have received an explicit request for information from an activist investor.

"The environmental catastrophe that has been unfolding in the last few weeks in the Gulf of Mexico is indicative of how closely intertwined sustainability and corporate strategy really are," says Matteo Tonello, director of corporate governance research at The Conference Board Governance Center and author of the report.

"However, more directors are realizing the critical influence of stakeholder relations on firm performance and feeling pressure from regulatory bodies, enforcement agencies, and activist investors."