G&A Finds Sustainability Reporting Increases for Russell 1000 Companies
On October 26, 2020, the Governance & Accountability Institute, Inc., or G&A, released a report on the sustainability reporting trends by Russell 1000 companies. The G&A report presents the Russell 1000 companies’ rate of (1) non-reporting on a sector basis; (2) utilizing, referencing or aligning selected standards or sustainability goals; (3) responding to a selected climate-related questionnaire; and (4) utilizing external assurances.
Executive Summary. Sixty-five percent (65%) of Russell 1000 companies published sustainability reports in 2019, up from 60% in 2018. Only a small percentage of these reports align with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD) or the Sustainable Accounting Standards Board (SASB) standards. Among the 11 Global Industry Classification Standard (GICS) sectors G&A reviewed, Utilities was the only sector in 2019 where all the companies issued sustainability reports. Among the United Nations Sustainability Development Goals (SDGs), the Russell 1000 companies reported the most on Goal 8, decent work and economic growth. Forty-one percent (41%) of Russell 1000 companies responded to the CDP climate change questionnaire. Lastly, 24% of reporting Russell 1000 companies included external assurances on their non-financial ESG disclosures.
Methodology. The G&A report presents data from three groups: all Russell 1000 companies and two other groups created from the Russell 1000 index. For simplicity, we refer to the second group as the “S&P 500 companies” because the G&A report states that the group of companies in the Russell 1000 index with the larger market caps “generally represents the S&P 500 Index companies and is determined based on company market cap.” The G&A report also uses the term “S&P 500” for this group at times throughout the report. For the third group, the G&A report explains that it roughly comprises the Russell 1000 companies, minus the S&P 500 companies. Stated differently, they are essentially the non-S&P 500 companies in the Russell 1000 index. As of December 31, 2019, the S&P 500 group had 494 companies and the third group had 487 companies. Below, we refer to this third group as the “smaller group” instead of the “smallest half of the Russell 1000 companies” or “smallest half” as used in the G&A report.
In this report, G&A presents for the first time year-over-year comparisons on selected metrics, such as non-reporting rates by sector, of the smaller group. G&A has released prior reports on S&P 500 companies, most recently the one in July 2020.
Highlights. The following are some of the more interesting data points, including notable comparisons between the smaller group and S&P 500 companies. Except for total reporting, the G&A report does not provide year-over-year comparisons for the specific frameworks:
- Total Reporting. Sixty-five percent (65%) of the reporting Russell 1000 companies published sustainability reports in 2019, up from 60% in 2018. (S&P 500 companies: 90% in 2019 versus 86% in 2018; smaller group: 39% in 2019 versus 34% in 2018.)
- GRI. Forty-seven percent (47%) of the reporting Russell 1000 companies used the Global Reporting Initiative (GRI) standards in 2019 (51% of S&P 500 companies versus 39% of the smaller group).
- SASB. Twenty-three percent (23%) of the reporting Russell 1000 companies aligned with or mentioned the SASB standards in 2019. Fourteen percent (14%) of S&P 500 companies aligned with the SASB standards and 11% mentioned them. Six percent (6%) of the smaller group aligned with SASB standards while 14% mentioned them.
- TCFD. Fourteen percent (14%) of the reporting Russell 1000 companies mentioned or aligned with the recommendations of TCFD in 2019 and 4% of the reporting Russell 1000 companies aligned with them. Five percent (5%) of S&P 500 companies aligned with TCFD recommendations and 12% mentioned them. Only 2% of the smaller group aligned with TCFD standards and 5% mentioned them.
- SDGs. Thirty-two percent (32%) of the reporting Russell 1000 companies’ reports included alignments with the SDGs. The Materials, Consumer Staples and Consumer Discretionary sectors have the highest number of specific goal alignments. Collectively among the reporting Russell 1000 companies, the most commonly aligned SDGs were as follows: (1) Goal 8, decent work and economic growth; (2) Goal 13, climate action; (3) Goal 12, responsible consumption and production; (4) Goal 7, affordable and clean energy; and (5) Goal 5, gender equality.
- External Assurances. Twenty-four percent (24%) of the reporting Russell 1000 companies sought external assurances on non-financial ESG disclosures, compared with 29% for S&P 500 companies and 12% for the smaller group. For all three groups, roughly 30% to 39% of reporters included external assurances on GHG data only and over a majority of reporters included assurances on other specified sections. Only 5% of all reporters included assurances on the entire report. In contrast, the percentages for S&P 500 companies and the smaller group were 9% and 5%, respectively.
- Response to CDP Climate Change Questionnaire. In 2019, 400 Russell 1000 companies, or 41%, responded to the CDP climate change questionnaire, compared to 65% of S&P 500 companies and 17% of the smaller group. Sixty-five percent (65%) of the 400 companies scored above a “C” on a grading scale of “A” through “F,” with “A” being the highest score granted by CDP.
- Rate of Non-Reporting by Sector. The G&A report shows an 11% decrease in non-reporting Russell 1000 companies from 2018 to 2019. Utilities was the only sector in 2019 where all the companies issued a sustainability report. In contrast, the Communication sector had the highest percentage of non-reporters (59%), followed by 46% of Information Technology-sector companies, 43% of Financial-sector companies, 42% of Health Care-sector companies and 37% of Real Estate-sector companies. Of the 11 sectors G&A reviewed, Information Technology was the only sector that had an increase in the number of non-reporting companies from 2018 to 2019. G&A believes that this change stems from the large number of non-S&P 500 companies added in 2019 to the Russell 1000 index.
Looking Forward. G&A predicts that Russell 1000 companies will continue to increase their sustainability disclosures primarily due to pressure from influential investors. Although G&A wonders how the Covid-19 pandemic will affect the 2020 reporting, the report does not offer a forecast.