The use of data is always contentious and so it proves with measures of sustainability. According to a new study, FTSE 100 companies may be selectively choosing data that offer a better picture of their performance than otherwise deserved—and the impact of these sustainability reporting boundaries may even amount to “greenwashing”.
The research, undertaken at Oxford Brookes University, found that 72% of FTSE 100 sustainability reports used “very narrow reporting boundaries”—limits on the activities chosen for reporting—and may ignore major impacts of their policies.
Dr Samantha Miles, reader in accounting and finance at Oxford Brookes, said: “This report offers a worrying picture of many companies’ sustainability reporting, much of which appears to be a promotional exercise rather than a genuine effort to address stakeholder concerns.
“The Oxford Brookes team found that 72% of FTSE 100 sustainability reports adopted very narrow reporting boundaries, restricting the scope of responsibility or using illustrative examples to suggest wider compliance, while in reality providing information that could be described as ‘greenwashing’.
“Other companies—26% of the FTSE 100—widened the boundary of their sustainability reporting to include impacts derived from operations they ‘owned, controlled or significantly influenced’.”
The researchers worry that if left unchallenged, such reporting habits could become the norm.
Reporting limits
Academics have become intrigued by the limits applied to sustainability reporting with a number of papers emerging in recent years.
Researchers from Oxford Brookes looked at sustainability disclosures made by the FTSE 100 in 2016. Because some companies publish more than one report, in all 136 documents were interrogated by comparing them with the reporting framework provided by the Global Reporting Initiative (GRI).
The academics described the way companies set boundaries around what they choose to report as “disheartening” and mostly aimed at “reputation management” rather than accountability.
“This finding is dispiriting,” they wrote, “as sacrificing accountability to the pursuit of self-interest is to shun responsibility…reduce the usefulness of reports and has moral implications.”
This conclusion hinges on the way reporting boundaries are set by companies. The academics used a set of boundary definitions. For example, a “reputation management boundary” could mean good news is included while bad news left out of the reparation process. An accountability boundary might be based on “strategic stakeholder management” and respond to their concerns, while also reflecting management interests.
The researchers found that Unilever operated the widest boundaries for reporting using an accountability method, one of only two companies in the FTSE 100—the other being Mondi—to apply the reporting model.
Non-financial measures
There has been close attention to non-financial reporting in recent years, including efforts by the EU to introduce further mandatory measures that apply to listed companies with more than 500 employees.
While some companies have made good progress reporting against the new rules, there has also been criticism, with campaigners calling for “mandatory baseline disclosure requirements”. Observers worry they do not detail which precise information and risks should be provided in reports.
Other recent developments saw the UK’s reporting watchdog, the Financial Reporting Council, informing companies that investors seek better disclosure on workforce issues, a key part of corporate sustainability.
A recent review of compliance with the UK Corporate Governance Code said that the the public has “lingering concerns that companies gave little thought to long-term sustainability”.
However, while worried that improved governance was needed to “promote sustainability”, the FRC also found good examples of incentives based on non-financial measures.
As concerns intensify about the influence of big business on climate and society so reporting on sustainability topics will become ever more important. Academics are clearly concerned that the reporting has integrity. Boundary setting will be an increasingly significant part of that process.
