Over the past ten years, U.S. public company sustainability, or environmental, social, and governance (ESG), reporting has moved from a niche activity to standard practice for large public companies. New reports from two organizations that monitor the state of sustainability reporting provide insight into how widespread the practice has become and the evolution of these disclosures.
The Governance & Accountability Institute (G&AI)
G&AI released Sustainability Reporting In Focus 2024, the thirteen edition of its annual series tracking sustainability reporting. The report analyzes trends in sustainability reporting by companies in the Russell 1000 index. G&AI observes that its research “continues to show a steady increase in the total number of companies publishing annual sustainability reports, which is now widely recognized as essential for both large- and mid-cap U.S. publicly-traded companies.”
G&AI first published an analysis of S&P 500 company sustainability reporting in 2012. Since then, sustainability reporting has gone from rare to almost universal; G&AI’s initial report found that, in 2011, just 20 percent of S&P 500 companies published sustainability reports or disclosures. In 2019, G&AI expanded its research to include companies in the Russell 1000. For a discussion of last year’s G&AI report, see G&AI: Nine Out of Ten Russell 1000 Companies Publish a Sustainability Report, November-December 2023 Update.
The 2024 G&AI report covers sustainability reporting during the 2023 publication year. G&AI’s press release accompanying the report notes that it reflects “substantial increases in sustainability reporting for both large-cap and mid-cap U.S. public companies as the U.S. regulatory environment moves to follow Europe on required ESG reporting.” A record 93 percent of Russell 1000 companies published a sustainability report in 2023, an increase from 90 percent in 2022.
Key findings of the 2024 report include:
Sustainability reporting is the norm. As noted above, 93 percent of Russell 1000 companies published a sustainability report in 2023; stated differently, only 70 of these companies did not issue such a report in 2023. The smaller half by market cap of the Russell 1000 had the greatest increase in reporting last year. In 2023, 87 percent of these 500 companies published a sustainability report, a five percent increase over 2022. For the larger half by market cap of the Russell 1000 (i.e., the S&P 500) nearly all companies are sustainability reporters. In 2023, 98.6 percent of the S&P 500 published a report (493 companies), an increase from 98.2 percent (491 companies) in 2022.
Most companies use an ESG disclosure framework. The Sustainability Accounting Standards Board (SASB) disclosure standards are the most widely used disclosure framework. Eighty-one percent of Russell 1000 reporters aligned with SASB in 2023, up from 78 percent in 2022. Russell 1000 use of Global Reporting Initiative (GRI) disclosures remained fairly constant, increasing from 54 percent in 2022 to 55 percent in 2023. Alignment with the disclosure recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD) also continued to increase. Sixty percent of Russell 1000 reporters followed TCFD recommendations in 2023, compared to 50 percent in 2022.
More industry sectors joined the 100 percent reporting club. In 2023, all companies in six industry sectors engaged in sustainability reporting. These sectors were Real Estate, IT, Energy, Industrials, Materials, and Utilities. In 2022, only Energy and Utilities had 100 percent reporting. As in 2022, the sector with the lowest percentage of sustainability reporters was Communications, with 24 percent of companies failing to issue a sustainability report. Although it remained the laggard, Communications improved from only 40 percent reporting in 2022, an increase of seven new reporting companies. In all other industry sectors, ten percent or less of the sector’s companies were non-reporting.
External assurance on sustainability reporting continues to increase. In 2023, 48 percent of Russell 1000 ESG reporting companies obtained external assurance on their non-financial ESG disclosures, up from 40 percent in 2022 and 36 percent in 2021. Sixty-six percent of the companies in the largest half of the index (the S&P 500) obtained assurance, compared to 57 percent in 2022 and 49 percent in 2021. Twenty-seven percent of companies in the smallest half of the Russell 1000 obtained such assurance, an increase from 21 percent in 2022 and 18 percent in 2021.
The scope, level, and providers of sustainability assurance services are changng slowly. For all Russell 1000 companies that obtained external assurance, only two percent obtained assurance over their entire sustainability report, a decrease from three percent in 2022. Fifty-seven percent obtained assurance over only GHG emissions data, essentially unchanged from 58 percent in 2022. Further, only six percent of assurance reports provided a reasonable/high level of assurance, compared to five percent in 2022. In contrast, 91 percent of assurance reports provided limited or moderate assurance. Engineering firms continued to be the most frequent sources of assurance, probably because GHG emissions were the most frequent topic of assurance. Engineering firms provided 66 percent of Russell 1000 assurance reports, down slightly from 68 percent in 2022. Accountants provided the assurance report in 21 percent of Russell 1000 assurance engagements (compared to 17 percent last year) and consulting firms were the provider in 12 percent.
Teneo
Teneo, a global advisory firm, published Stand by ESG? Our Annual State of U.S. Sustainability Reports, its fourth annual look at U.S. sustainability reporting. Teneo analyzed 250 sustainability reports from S&P 500 companies published in 2024 prior to September 11. Teneo notes two “mega-trends” affecting ESG reporting and strategy -- increasing requirements from regulators for more ESG disclosure and increasing anti-ESG political and activist pressure. Teneo provides twenty ESG reporting data points based on the 250 S&P 500 sustainability reports it reviewed. For example:
The average length of a 2024 sustainability report is 83 pages, up from 70 pages in 2021.
In 2024, 40 percent of companies issued a press release with their sustainability report, down from 70 percent in 2021.
In 2024, 39 percent of companies used the word “Sustainability” in their report title, up from 33 percent last year. Twenty-four percent used “ESG,” down from 35 percent in 2023. Other popular words in report titles were “Corporate Responsibility” (12 percent in 2024) and “Impact” (10 percent).
The CEO alone signed the cover letter for 65 percent of 2024 sustainability reports. The CEO and other executives signed 14 percent of cover letters. Two percent of reports had no cover letter.
Teneo summarizes its findings in “Top Ten Takeaways From 2024 Sustainability Reports.” These takeaways are:
The acronym “ESG” is down but certainly not out. As noted above, 24 percent of companies used “ESG” in their report title, down from 35 percent in 2023
Sustainability reports are getting longer, not shorter. As noted above, the average report in 2024 was 80 pages.
More companies are now living in a double material world. The number of companies that completed a “double materiality” assessment rose from nine percent in 2023 to 27 percent in 2024. Double materiality refers to the concept that companies should report on both how sustainability issues materially affect their financial performance and how their activities materially impact society and the environment.
CEOs are increasingly accountable for ESG strategies. CEOs were described as ultimately responsible for company ESG strategy in 32 percent of reports, compared to 18 percent in 2023.
DEI will survive. Despite backlash, 94 percent of companies used the term “DEI” in their 2024 ESG reports.
Sustainability reports are being issued with less pomp but with more circumstance. As noted above, fewer companies issued press releases announcing sustainability reports in 2024. However, more companies maintain ESG microsites as part of the company’s website.
The EU CSRD and IFRS disclosure frameworks begin to surface. Thirteen percent of 2024 reports referred to the European Union’s Corporate Sustainability Reporting Directive (CSRD). See E.U. ESG Disclosure Requirements Will Affect Many U.S. Companies, October 2023 Update.
External assurance increasingly includes “Social” data points. Thirty-two percent of companies that obtained assurance included both environmental and social data, an increase from 22 percent in 2023.
Company ESG goals are in a transition phase. Fewer companies provided an ESG goals progress section in 2024 than in 2023.
Responsible AI enters the ESG chat. Twenty-one percent of companies mentioned responsible use of artificial intelligence in their 2024 sustainability report.
Audit Committee Takeaways
As noted in prior Updates, ESG disclosure is becoming an important aspect of the audit committee’s work. Audit committees that are not already doing so should focus on what ESG disclosures their company makes, how the company collects ESG information, how the disclosures impact financial reporting, and on the controls and procedures to which sustainability disclosures are subject.
Both the G&AI and the Teneo reports highlight another aspect of sustainability reporting oversight: While sustainability reporting has been voluntary in the United States, mandatory reporting will soon be a reality for many companies. G&AI states:
“As a result of the flurry of new climate reporting regulations introduced over the past few years, mandatory sustainability and climate reporting will soon be inescapable for many companies. With EU CSRD reporting beginning in 2025 and SEC and California reporting in the U.S. slated to follow shortly after, the next few years will be a critical proving ground for companies navigating the transition from voluntary to mandated reporting.
“Companies should use these next few years to review their existing disclosures, identify gaps, and develop strategic plans before the reporting deadlines. Companies who are experienced in reporting against voluntary frameworks like GRI, CDP, TCFD, and SASB will be well-positioned to produce high-quality disclosures, and the interoperability of many voluntary reporting standards with mandatory standards will ease the transition burden. Whether by the CSRD, U.S. SEC, or California, many companies will soon be required to obtain assurance over their disclosures, making it imperative to have robust data collection and control procedures in place.”
Audit committees should consider whether management is prepared for this transition and how the company’s reporting will be impacted by mandatory sustainability disclosures.
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