Marketing and Comms
New EY Series Highlights Top Sustainability Concerns for Business in 2014

As companies begin their 2014 planning, it is critical to have a firm understanding of the regulatory and sustainability trends that will impact core business. In a new publication series Let’s talk: sustainability, Ernst & Young’s Climate Change and Sustainability Services group highlights the top concerns facing companies in these areas in 2014.

Top trends identified in the inaugural issue include the forthcoming conflict minerals reporting deadlines; the transition to the Global Reporting Initiative’s (GRI) G4 sustainability-reporting framework; reducing risk in the supply chain, particularly in terms of social compliance; and the evolution of the World Federation of Exchanges’ view on environmental, social, and governance (ESG) disclosure.

Conflict minerals

The first filing deadline with the U.S. Securities Exchange Commission for Dodd-Frank section 1502 covering calendar year 2013 is June 2, 2014. This legislation will impact a vast majority of companies as it calls for the investigation of their supply chains for conflict minerals and to report on their source of origin. The important thing to consider is that if you believe you are not subject to the legislation, double check: While companies have a two-year period to claim conflict mineral status as “undeterminable,” it is not the same as a grace period. Penalties for non-compliance could include fines and even jail time.

Non-financial materiality and GRI G4

Year-over-year there has been an increased interest in non-financial reporting from both investors and the C-suite. In fact, a recent Boston College Center for Corporate Citizenship and EY paper found that investors prefer to invest in transparent enterprises due to higher stakeholder-manager trust, more accurate analyst forecasting and lower information asymmetry. Companies are recognizing this growing trend and leading sustainability reporting organizations are seeking to provide clarity and guidance on what is material in a non-financial reporting aspect. Conducting a non-financial materiality assessment this year to assess environmental and social challenges and opportunities can provide a company and its stakeholders with valuable intelligence to better measure, manage and assess the business in the short- and long-term. Additionally, this exercise is critical to laying a proper foundation for future reporting, particularly in light of the Global Reporting Initiative G4 sustainability reporting guidelines.

Social compliance in the supply chain

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Companies can reduce supply chain risk by driving social compliance into the business. Supply chain management is complex and in the spotlight after recent tragedies such as those in Bangladesh. To avoid such catastrophes, as well as the associated costs — both in reputation and capital — companies should take steps in 2014 to map their supply chains, integrate social compliance into the procurement process and systemize collaboration between social compliance and internal audits.

ESG disclosure and stock exchanges

Understanding how ESG disclosures impact companies listed on various stock exchanges will be important moving into 2014. Stock exchanges around the world — such as the Johannesburg Stock Exchange and the London Stock Exchange, both members of the World Federation of Stock Exchanges — are beginning to recommend their listed companies report on select environmental and social indicators, or explain why they do not. This trend is likely to spread since the NASDAQ OMX and New York Stock Exchange are participating in the Investor Network on Climate Risk Sustainable Stock Exchanges Working Group, which is currently collaborating on a standards proposal. Now is the time for companies to establish systems for capturing key ESG metrics and develop a process for measuring non-financial data before such guidance becomes mandatory for listed companies on main US exchanges.

In 2013 we saw a number of sustainability related issues reach the mainstream — non-financial reporting and materiality, ESG disclosure and supply chain risk were chief among them. In 2014, these trends will continue to grow. Accounting for the concerns set out in Let’s talk: sustainability can help companies separate themselves from their competitors and strengthen their business now and position them for increased revenue moving into the future.

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