A Survey of Sustainability Disclosures by Small- and Mid-Cap Companies | White & Case LLP

In light of the heightened focus on environmental and social (“E&S”) disclosure, White & Case’s Public Company Advisory Group¹ conducted a survey of E&S website disclosures of 84 small- and mid-cap US public reporting companies.² Overall, more than one-third of the surveyed companies (approximately 35%, or 29 out of 84 companies) provided some form of website sustainability disclosure. Key trends and takeaways from our survey are set forth below.

Sustainability Disclosure by Industry and Market Cap

Industry Trends

In our survey, we reviewed the website disclosures of companies in the following five industries: energy, life sciences, retail, services and technology. The number of companies with sustainability disclosures in each industry group are shown in the chart above. Key trends are discussed below.

Energy Companies in Survey Leading the Way

Of the five industries represented in our survey, companies in the energy sector were most likely to provide some form of sustainability reporting:

• Approximately 78 percent of the energy companies surveyed (or 11 out of 14) had sustainability pages on their corporate websites, and 50 percent (or 7 out of 14) posted a standalone sustainability report on their websites.
• Disclosure by energy companies tended to focus on environmental disclosures, including disclosure regarding climate change, use of renewables and greenhouse gas emissions targets and metrics.
• All 14 of the surveyed energy companies included environmental disclosures, 10 included health and safety disclosures and eight included human capital management disclosures. See the “Sustainability Disclosure Topics” section below for more information on topics covered.

Life Sciences Companies in Survey Least Likely to Provide Sustainability Disclosure

Sustainability disclosures were less common in other industries. For example:

• Only four of the 27 life sciences companies surveyed (or approximately 15 percent) had any form of sustainability disclosure on their websites. These disclosures focused mainly on environmental sustainability and diversity and inclusion.
• Eight of the 30 technology companies surveyed (or approximately 27 percent) had some form of sustainability disclosure. Five of the surveyed technology companies included environmental disclosures, including disclosures regarding emissions and energy efficiency and four provided human capital management disclosures, such as disclosures regarding supply chain and diversity and inclusion factors.

Market Cap Trends

In our survey, we categorized companies by market capitalization into four groups: under $1 billion; $1 to $3 billion, $3 to $7 billion, and $7 billion to $10 billion. The number of companies with sustainability disclosures in each market cap group is shown in the chart above. Key trends were as follows:

• Companies with higher market caps were more likely to report on sustainability.
• Fifty percent of the companies surveyed (or five out of 10 companies) with a market cap from $7 billion to $10 billion provided sustainability disclosures on their websites, with three of these companies also providing standalone sustainability reports posted on their websites.
• On the other hand, a significantly lower percentage (36 percent, or eight out of 22 companies) of the companies surveyed with a market cap from $3 billion to $7 billion provided sustainability disclosures on their websites. Similarly, 34 percent of the companies surveyed with a market cap from $1 billion to $3 billion (or 12 out of 35 companies) provided sustainability disclosures on their websites.
• Twenty-five percent of the 16 companies surveyed with a market cap under $1 billion provided sustainability disclosures.

Governance Trends: Dual Class and Controlled Companies vs. Widely Held Companies

The surveyed companies that were controlled companies (more than 50 percent owned by one shareholder) or dual class (with high vote Class B shareholders controlling the vote) were much less likely to provide sustainability disclosure than companies that were widely held by institutional investors:

• Out of the 15 surveyed companies that were either controlled or dual class, four (approximately 26 percent) provided some form of website disclosures and one (7 percent) provided a standalone sustainability report.
• By contrast, out of the 69 surveyed companies that were not controlled and were not dual class, 24 (or 35 percent) provided sustainability disclosures. At nearly all of these companies, institutional investors such as Blackrock, which have called on companies to enhance their E&S disclosures, hold a significant percentage of the company’s shares (in many cases 10 percent or more of the company’s shares).³

Trends in Public Company Maturity: Length of Time Since IPO

The surveyed companies that have been public for a longer period were more likely to have sustainability disclosures.

• Out of 21 companies surveyed that had been public for more than ten years, 13 (62 percent) provided website sustainability disclosures and seven of these (33%) also provided standalone sustainability reports.
• Out of 30 companies surveyed that had been public between four and ten years, nine (30 percent) provided sustainability disclosures and three of these (10 percent) also provided standalone sustainability reports.
• Out of 29 companies surveyed that had been public between zero and three years, only six (21 percent) provided sustainability disclosures and only one of these (3 percent) also provided a standalone sustainability report.

Sustainability Disclosure Topics Overview

The 29 companies with sustainability disclosures on their websites frequently focused their disclosure on the following topics: environmental impact and risk management (including waste reduction), human capital management (including diversity and inclusion and community engagement) and health and safety. The 11 companies that also provided standalone sustainability reports included disclosure in their reports on these topics, which are more fully described below.

Environmental Disclosure

Environmental disclosure was the most commonly included type of sustainability disclosure. Twenty-two out of 29 surveyed companies with sustainability disclosures on their websites included some information on their environmental practices or goals. In addition, all 11 of the surveyed companies with standalone sustainability reports posted on their websites included environmental disclosures in their reports. 

Below are sample environmental disclosures from the surveyed companies:

Positive Disclosures and Statements:

• “[Energy Company] negates significantly more emissions than [it] produce[s], making [Company] one of the few companies in America that has a negative carbon footprint.”

Company Policies Regarding the Environment:

• “[Energy Company] has implemented specific policies to reduce, reuse, recycle, and reclaim materials. [It] continually seek[s] to reduce [its] impact on the environment by examining how [it] design[s] and package[s] [its] products as well as how [it] operate[s] [its] facilities.”
• “[Energy Company] is committed to managing environmental impact as an integral part of [its] operations. In particular, it is [Company’s] policy to assure the environmental integrity of [its] processes and facilities at all times.”
• “[Energy Company] minimize[s] [its] environmental impact through pollution prevention, reduction of emissions and natural resource consumption as well as waste recycling.”

Goals or Commitments:

• “[Energy Company is] committed to reducing [its] environmental impact and continually improving [its] environmental performance as an integral part of [its] business strategy and operating methods, with regular review points.
• “[Technology Company is] committed to protecting the environment by offering hardware, software, and service solutions that enable our customers to meet sustainability goals and support a circular economy.”

Human Capital Management

Human Capital Management disclosures were also commonly included, with 19 of the 29 surveyed companies with sustainability disclosures reporting on human capital management. These disclosures included information on hiring practices, diversity and inclusion, minority groups, and overall employee wellness. All 11 companies with standalone sustainability reports included human capital management disclosures, such as:

Diversity and Inclusion: “[Energy Company] is building an inclusive and diverse workforce to accelerate [its] performance. [Company] value[s] the unique identities, backgrounds, perspectives, experiences and abilities of [its] employees, and [it is] committed to equality of opportunity in all aspects of employment.”

Diversity in Leadership: “To create an environment that attracts great talent, [Retail Company] must motivate, inspire and recognize high performance among all employees. [It] create[s] the conditions under which women can become leaders through guidance, collaboration and the promotion of inclusive leadership styles.”

Wellness: “[Technology Company] is committed to providing competitive, employee-friendly benefits, with the goal of promoting holistic wellness.”

Health and Safety

Health and safety disclosures were also commonly included in sustainability reporting. Sixteen of the 29 companies (or 55%) with any sustainability disclosure included health and safety disclosures. These disclosures included information on workplace injury prevention, emergency preparedness, and safety trainings. All 11 companies with standalone sustainability reports included health and safety disclosures, such as:

Reducing Safety Incidents: “In 2018, [Energy Company] recorded one of its best safety years matching [its] lowest ever [Total Recordable Incident Rates] of 0.45 in 2015 and having the lowest ever number of recordable cases.”

Emergency Preparedness: “One of [Retail Company’s] requirements for Health and Safety focuses on emergency preparedness. Several years ago, one of [its] factories in central Mexico installed additional emergency exits and conducted evacuation drills to comply with this requirement.”

Employee Safety: “Keeping [Energy Company’s] employees, customers and communities safe is [its] top priority. [Company] ranked in the top quartile of the three key employee safety metrics that are tracked by the American Gas Association.”

Format of Reporting

Disclosure on a corporate website page is typically a first step towards sustainability reporting, while a sustainability report (a standalone document posted on the website in pdf format) can take more time to prepare. Accordingly, of the 84 companies surveyed, 29 companies (or approximately 35 percent) included sustainability disclosures on their websites, with 11 of these companies (or 13 percent) also posting a standalone sustainability report in pdf format.⁴

Reporting Standards

Of the 11 surveyed companies with standalone sustainability reports, ten (91 percent) disclosed the sustainability reporting standards that they followed. However, the majority of these companies did not follow any one standard completely, but noted that they aimed to follow a certain standard or had looked at several different standards in completing their report.

• The two most common standards⁵ that were noted were the Global Reporting Initiative (GRI) standards  and the Sustainability Accounting Standards Board (SASB) standards.⁶
• One company tied its disclosures to the United Nations Sustainable Development Goals and others used industry-specific guidelines, such as IPIECA’s Oil and Gas Voluntary Industry Guidance on Voluntary Sustainability Reporting and the American Gas Association’s voluntary sustainability metrics.

Below are examples of disclosure from the surveyed companies on the standards used for reporting:

Based on a variety of standards: “[Energy Company’s] disclosures have been sculpted by a number of third party ESG reporting standards and ratings, including Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), MSCI ESG research, Task Force on Climate Related Financial Disclosures (TCFD), Sustainalytics research, ISS Environmental and Social Quality Scores. We will strive to evolve our ESG disclosures in line with any operating developments, and with emerging best practice ESG reporting standards.”

Industry Standards: “The assessment followed a process as recommended by the Oil and Gas Industry Guidance on Voluntary Sustainability Reporting, published jointly by IPIECA, American Petroleum Institute (API) and the International Association of Oil & Gas Producers (IOGP). …. [Energy Company] also evaluated common reporting frameworks, including those of IPIECA and Global Reporting Initiative (GRI).”

Considerations and Key Takeaways

E&S is one of the most prominent governance and disclosure issues facing companies today, and E&S reporting standards, guidelines, frameworks and rating systems continue to proliferate. When a company considers whether to launch or enhance its sustainability reporting, a number of factors should be considered, including the following:

• Identify Your Company’s Key Risks, Opportunities and Priorities. The variety and complexity of reporting frameworks can be daunting for a company that is contemplating initial E&S disclosures. Companies should first consider what is most important for them. Asking and assessing what the key risks, opportunities and priorities are for your company before starting to draft sustainability disclosure is crucial to producing effective sustainability reporting that will benefit your company. In addition, it is important to keep in mind that sustainability disclosure on a company’s website is not mandatory, and a company should carefully consider what, if any, information to report, making sure that any statements that are included are accurate and clearly supportable.
• Focus on Your Investors. One of the main drivers behind a company’s decision to begin sustainability reporting is often a company’s investor base. Understanding your investors and what sustainability information they want to know is key to a successful reporting strategy. In particular, a company’s investor base should help dictate a wide range of items, including (i) when to begin reporting, (ii) which reporting frameworks to use, and (iii) which topics to cover.
• Assemble the Right Team. E&S reporting is a multidisciplinary effort that can involve accounting, human resources, governance, investor relations, and legal and operations functions, among others. The right individuals and departments at your company should help (i) decide what information to report, (ii) gather the information for reporting, and (iii) review and vet the information drafted for disclosure. In addition, it is important to keep senior management and the board of directors updated, as their support can be critical to the success of the effort.
• Establish Controls Over Sustainability Reporting. The E&S information that is disclosed in voluntary sustainability reports must be accurate and consistent, as the Securities and Exchange Commission (SEC) may actively compare the information your company voluntarily provides with any information disclosed in SEC filings. In addition, the anti-fraud provision of the U.S. federal securities laws under Rule 10b-5 applies to all public disclosure, including disclosure on a public company’s website. Accordingly, companies should take steps to ensure that they have controls in place to effectively process, summarize, assess and review the accuracy of all of their E&S disclosures. Further, such controls should ensure that a company’s disclosure matches its actions in practice, as companies may face scrutiny from both governmental agencies and investors on this front.

¹ In connection with White & Case’s Environmental Group and Business & Human Rights Group.
² The public companies in the survey had market capitalizations of approximately $500 million to $10 billion.
³ For example, in Blackrock’s Global Corporate Guidelines and Engagement Principles, Blackrock states that it “expects companies to identify and report on the material, business-specific E&S risks and opportunities and to explain how these are managed.” In addition, Vanguard’s Corporate Governance Principles state that Vanguard “engage[s] with boards regarding the oversight of material risks that have the potential to affect shareholder value over the long term—from business and operational risks to environmental and social risks.”
⁴ 10 of the 84 companies (or 12 percent) had some form of disclosure regarding a company’s charitable donations or activities, or similar activities that did not involve the business activities of the company. Companies with this type of disclosure that did not also have sustainability disclosure were not the focus of this survey and are not included in the statistics.
⁵ GRI is an international, multi-stakeholder and independent non-profit organization that developed the GRI Standards as the first global standards for sustainability reporting. See GRI’s website.
⁶ SASB developed a set of 77 industry standards that identify financially material sustainability topics and associated metrics “to help businesses around the world identify, manage and report on the sustainability topics that matter most to their investors.” See SASB’s website.

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