The impact of climate change on business is both readily apparent (witness the automobile industry’s scramble to embrace electric cars) and impossible to analyze. Indeed, even as corporations are preparing to meet the myriad challenges of climate change, disclosure about ESG (environment, social and governance) metrics “remains almost entirely voluntary, resulting in incomplete and unstandardized data that makes it difficult for stakeholders to collectively compare firms and assess their impact,” according to a timely new report, “The State of Corporate Sustainability in 300 of the Largest U.S. Companies,” published by the Center for Impact at UCLA Anderson.
Authored by UCLA Anderson Professor Magali Delmas and researchers at the UCLA Institute of the Environment and Sustainability (IoES), Kelly Clark, Tyson Timmer and Moana McClellan, this groundbreaking initiative culled transparency information from corporate sustainability reports companies and others posted to their websites, and included in U.S. Securities and Exchange Commission (SEC) public filings concerning such topics as greenhouse gas emissions, water usage, diversity and inclusion, pay equality and taxes. Then, using the framework developed by the World Economic Forum (WEF) and organized around four pillars — Governance, Planet, People and Prosperity — the researchers crunched the data and concluded that “the average overall disclosure rate across the 300 firms is 49.6%,” with a minimum of 14.8% and a maximum of 74.8%.
Not one firm disclosed 100% of the WEF’s metrics. Texas Instruments Inc. held the top ranking for overall disclosure rate at 74.8%. Of the 300 companies, “only 9.2% stated that their report has been fully audited,” according to Delmas, who is faculty director of the Center for Impact and holds a dual appointment at UCLA Anderson and the IoES.
“We wanted to provide a window into the state of corporate sustainability disclosure so that investors, policymakers and the general public could see what data is out there,” Delmas said, “but also so that they could compare sectors and companies and weigh the information.”
By any metric, ESG is an ever-bigger area of focus in business; according to one study cited in the report, consumers across five major global markets considered ESG factors in 36% of investments, totaling a whopping $35.3 trillion. And yet, because U.S. corporations are not currently required to be transparent about sustainability metrics in their filings and disclosures, companies “can pick and choose which frameworks to employ and which ESG metrics to report on, if any,” according to the report.
“The idea of ESG is that investors are able to know about the best companies to invest in,” Delmas said. “But I don’t think that’s possible right now because there’s just not enough information in the almost entirely voluntary disclosures. The problem is, corporations are not disclosing uniformly and consistently. They’re using data strategically in providing some information that is to their advantage, but not disclosing other information, because there’s no mandatory reporting in the U.S.”
The team took about 18 months to pull the information together. According to Delmas, their plan is to publish an annual update regarding the data. “I’m a very strong believer in the power of information and transparency,” she said. “You have to be able to identify the problem to know what to do about it, but first you have to be informed. That’s the first step for change.”
Transformative change to the “vague promises and dodgy metrics” used by corporations may be near, Delmas points out. The SEC is pushing for mandated disclosure requirements, “where everyone has to disclose the same things and the chief financial officer will have to be responsible for accurate reporting. If it happens, it’s going to be a real sea change.”
No matter the SEC’s time frame for reform — and irrespective of the recent U.S. Supreme Court’s more recent ruling to limit the Environmental Protection Agency’s ability to regulate greenhouse gas emissions from power plants — Anderson’s Center for Impact will be at the center of the conversation. The center was founded in 2016 “to build core competency in this area and support student interest in recognizing the role that they, as future business leaders, will have in shifting the norm of business’s role in society,” said Bhavna Sivanand (’14), executive director of the Center for Impact. “The more we can engage and expose our students to cutting-edge topics like ESG, the more they can integrate innovation into the overall MBA experience.”
The Center for Impact at Anderson organizes the school’s annual Impact Week, inviting faculty and industry professionals to discuss ESG and corporate social responsibility
Sivanand said that the corporate sustainability disclosure report is a significant step in bridging the gap between the classroom and the C-suite. “We want to ensure that the curriculum is current and addresses topics such as corporate responsibility and ESG,” she said.
Research and teaching at the Center for Impact also support efforts at the other eight academic centers at Anderson. “We see ourselves as a hub-and-spoke model,” Sivanand said. “We partner with the other centers as each one recognizes its unique role in addressing its responsibility to society, whether that’s through entrepreneurship at the Price Center or through technology at the Easton Center. The topic of affordable housing, for example, is something that we cover in partnership with the Ziman Center for Real Estate.”
Sivanand notes that UCLA Anderson is now a signatory member of the UN’s PRME (Principles for Responsible Management Education), an initiative that encourages educators to integrate sustainability and social responsibility into business school classrooms and to prepare future business leaders to address climate and societal issues through the UN’s Sustainable Development Goals. According to Sivanand, the PRME complements the priorities of the Center for Impact: “Our goal is to create value for our students through socially responsible curriculum, classes and extracurricular programming; to advance thought leadership on sustainability and social impact; and to engage industry leaders in dialogue and action to solve society’s toughest challenges,” she said.
“Our areas of focus will continue to be the societal challenges that companies can directly impact —labor, hiring, DEI [diversity, equity and inclusion], health and wellness, and, from a decision making perspective, environmental output,” Sivanand said. “Our latest report shows that there is an urgent need for more novel, responsible and impactful research in the space of sustainability and corporate performance.”