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  • Writer's pictureDaniel Goelzer

With Sustainability Reporting on the March, Protiviti Has Ten Questions Directors Should Ask

Updated: Nov 14, 2020

The rapid growth in voluntary public company sustainability, or environmental, social, and governance (ESG), reporting is one of the major corporate disclosure developments in the past decade. During a relatively brief period, and without (in the U.S. at least) any government mandate, this type of reporting has gone from the exception to the norm for large (and many smaller) public companies. This development has implications for audit committees because of their oversight of company disclosure and the controls and procedures to which disclosures are, or should be, subject.

The Governance & Accountability Institute (G&A Institute), which tracks sustainability reporting, has issued a paper that illustrates the spread of such reporting from the 500 largest public companies to the next tier of the Russell 1000. And, consulting firm Protiviti, picking up on the G&A Institute’s prior reports, has published a series of questions that boards and managements of the growing list of companies that issue sustainability reports should be asking.

G&A Institute

As discussed in G&A Finds That Ninety Percent of the S&P 500 Publish a Sustainability Report, July-August 2020 Update, the G&A Institute reported earlier this year that 90 percent of companies in the S&P 500 Index issued a sustainability report in 2019, up from 86 percent the prior year. On October 26, the G&A Institute issued 2020 Flash Report Russell 1000®: Trends on the sustainability reporting practices of the Russell 1000 Index companies, which expands the analysis to the Russell 1000. This report finds that 65 percent of the companies in the Russell 1000 published sustainability reports in 2019, an increase from 60 percent in 2018. Among the 500 companies in the index with the smallest market cap, sustainability reporting increased to 39 percent in 2019, up from 34 percent in 2018.

Like its S&P 500 report, the G&A Institute’s Russell 1000 report looked at whether companies that published a sustainability report used one of the recognized disclosure frameworks, such as the Global Reporting Initiative’s (GRI) disclosure framework, the Sustainability Accounting Standards Board’s (SASB) disclosure standards, or the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The G&A Institute research also tracked disclosure through responses to the CDP Climate Change Questionnaire and disclosure of company alignment with the United Nation’s Sustainable Development Goals (SDGs). It found that, in 2019, 47 percent of the reporting companies used GRI, 23 percent referenced or aligned with SASB, and 14 percent mentioned or aligned with the TCFD. In addition, 32 percent included disclosure of alignment with the UN’s SDGs, and 41 percent responded to the CDP questionnaire. Some companies presumably report under more than one framework or disclosure vehicle.

The G&A Institute notes that a growing number of the Russell 1000 companies obtained external assurance for their environmental and/or social disclosures and that “external assurance often indicates strong internal reporting and management systems.” In 2019, 24 percent of the Russell 1000 reporters sought such assurance, about two-thirds of which were in the largest half of the index by market capitalization.

The Russell 1000 industry sectors with the highest percentage of companies that issued sustainability reports in 2019 were Utilities, Materials, and Energy; all 38 of the companies in Utilities issued such reports, as did 82 percent of those in Materials (46 companies out of 56 in the sector) and 37 percent of those in Energy (37 reporting out of 45 in the sector). The industry sector with the lowest percentage of companies issuing reports was Communication (29 non-reporters/59 percent of the 49 companies in the sector). Second-from-the-bottom was Information Technology (73 non-reporters/46 percent of the 157-company sector). These industry sector results are similar to those G&A reported in July for the S&P 500.


Because of the increasing frequency of, and investor demand for, ESG reporting, directors are becoming increasingly involved in overseeing these disclosures. Citing the July G&A Institute report on the S&P 500 (referenced above) and the accelerating pace of TCFD and SASB disclosure by public companies, consulting firm Protiviti has developed a list of ten questions that boards and management teams of companies that issue sustainability reports should be asking. See 10 ESG Reporting Questions Directors Should Consider.

These questions, with a brief excerpt from Protiviti’s commentary on each, are:

  1. Have we set compelling sustainability targets and goals that appeal to the marketplace? “ESG should be integrated into the overall corporate strategy rather than be a mere afterthought, making it equivalent to a compliance activity.”

  2. What story are we telling the street? “Directors should inquire whether the company’s ESG storyline is resonating in the market and impacting the company’s valuation.”

  3. Can we integrate our ESG reporting with financial reporting? “[I]t may be more meaningful to investors to integrate ESG reporting into financial reports, quarterly earnings calls and investor roadshows consistent with the convergence of investor interest in financial and ESG performance.”

  4. What reporting framework are we using, and why? “The use of an established framework, such as the SASB’s, is an effective way to avoid ‘greenwashing,’ or overstating ESG efforts.”

  5. What accountabilities have we set for ESG-related performance? “ESG performance should be integrated with financial and operational performance monitoring; otherwise, it may become an appendage and receive less C-suite attention.”

  6. Is our ESG reporting satisfying the needs of the investment community and other stakeholders? “The board should inquire as to management’s process for engaging and understanding the expectations of ESG stakeholders.”

  7. What are our ESG risks, and how well are we managing them? “ESG objectives and activities * * * should be considered through the company’s enterprise risk management lens.” Protiviti notes that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development have issued guidance on this process. See Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks (October 23, 2018).

  8. What have we done to ensure that our ESG-related disclosures are reliable? “Directors should gauge management’s confidence that the company’s disclosure controls and procedures are effective as they relate to ESG metrics and reporting.”

  9. Does -- and if not should -- our independent auditor have a role in ESG reporting? “ESG reporting may elevate the importance of independent attestation over time, particularly for companies active in the capital markets.”

  10. How has the COVID-19 pandemic affected our ESG reporting? “For example, the approach to social issues around health and safety, the distributed workplace, and overall employee wellness has changed.”

Protiviti describes companies that are not already issuing a sustainability report as “outliers” and urges their directors to ask management to explain why such a report is not being prepared. “Bucking this undeniable trend could mean much more than just being left behind. It can lead to high-profile proxy battles over ESG-related topics, threats to board seats, institutional investors redirecting capital elsewhere, and brand erosion. That is why quality and transparent ESG reporting should be a board priority.”

Comment: One of the themes of the Update has been that audit committees need to be aware of the ESG disclosure revolution. Sustainability disclosures are increasingly recognized as material in a securities law sense. However, these disclosures are often not subject to the same controls and procedures as are traditional financial disclosures. It is not uncommon for a company to begin its sustainability reporting journey by issuing a document prepared by company officials with substantive responsible for ESG issues or for investor relations, with little input or oversight from the board, senior management, or those involved in securities law disclosure. This raises risks that the sustainability report may be inconsistent with other company disclosures or that the accuracy of the information presented may not be verifiable. These risks should be of concern to audit committees because of their responsibility for disclosure oversight and for related controls and procedures. The Protiviti list is a good catalog of the kinds questions that audit committees and full boards should be asking as their oversight of sustainability reporting matures.

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