The Case for Corporate Responsibility Reporting:
Valuing and Communicating the Intangibles
During the past 15 years, companies worldwide have faced a wide range of environmental, social and governance (ESG) challenges. With burgeoning interest in corporate responsibility issues, companies have been deluged with new corporate responsibility frameworks and sustainability assessments by responsible investment research and ratings organizations and other stakeholders.
The importance of responding and reporting has only grown in tandem with investor and stakeholder interest in these issues. While it is generally accepted that a significant portion of corporate valuation is tied to intangible assets, this paper contends that the linkages between environmental, social and governance metrics and these intangibles are less well understood. Traditional financial rubrics have failed to capture or predict risk or value, creating valuation gaps and opportunities for companies to generate and communicate value. The responsible investment community, and to an increasing degree the mainstream investment community, has provided important structure and impetus for improved internal and external understanding of the metrics that can drive performance, particularly over the long term.
This paper aims to demonstrate the interrelationships among ESG and overall corporate performance, ESG communications and reporting, and valuation. We address the business case for corporate responsibility reporting, with an emphasis on addressing queries from the responsible investment community and the ESG metrics requested by mainstream investors. We also identify strategic drivers for value, summarize typical challenges and objections to reporting, and provide recommendations and tips to address them. With compelling evidence to assuage concerns and overcome reporting objections, this paper lays a foundation for internal strategic discussions and colleague engagement in the information collection and reporting process.
Finally, we contend that the reporting can truly drive changes in corporate behavior and performance, not only for ESG metrics, but for the broader range of intangible assets and ultimately, the overall valuation of a corporation.