CEOs today are under immense pressure to strengthen their companies while navigating complex demands — from driving growth and managing risks to building trust with stakeholders. Increasingly, sustainability has become a critical part of this balancing act, with many executives feeling the weight of expectation. In fact, a survey by the IBM Institute for Business Value found that 51% of CEOs view sustainability as one of the top challenges for their businesses. But this isn't just about ethics; it’s about resilience and competitive advantage. Sustainability is emerging as a core strategy for forward-thinking leaders.
Companies that prioritize environmental, social, and governance (ESG) factors often see enhanced financial performance and increased investor interest. Part of the prioritization is getting on board with reporting and disclosures. The key is understanding that sustainability disclosures and reports aren't just compliance paperwork — they are strategic assets that provide immense value to you and your management team. As the adage goes, you cannot manage what you don't measure.
By being transparent about your sustainability efforts, you can make better decisions, boost your company's reputation, and gain a competitive edge. So, rather than viewing sustainability disclosures as hurdles, see them as opportunities to drive growth and innovation.
What Are Sustainability Disclosures?
Sustainability disclosures are reports that communicate a company's environmental, social, and governance (ESG) performance to stakeholders. They enhance transparency, build trust, and demonstrate a company's commitment to responsible practices.
Although most are not currently required by law, sentiment is slowly changing. For example, in March 2024, the Security and Exchange Commission (SEC) passed a rule mandating that SEC-registered companies will soon have to report on climate-related risks in their annual reports to the SEC. These reporting requirements aim to improve transparency for investors and provide a comparable reporting framework. Additionally, states are passing their own climate disclosure legislation — extending reporting requirements beyond just publicly traded companies. For example, California’s disclosure requirements include scope 3 reporting for companies that do more than $100M in business in the state each year.
There are various types of sustainability disclosures that companies use to communicate their commitment to responsible practices, including:
Sustainability/ESG Reports
Sustainability and ESG reports are comprehensive documents outlining a company's environmental, social, and governance performance. They are typically large documents that provide stakeholders with insights into strategies, goals, and achievements in the three focus areas. This is one of the most common disclosures, with 98.6% of S&P 500 companies and 93% of Russell 1000 companies publishing a sustainability report in 2023.
Greenhouse Gas (GHG) Emissions Reports
GHG emissions reports take a deep dive into a company's emissions. They provide baseline and yearly data on a company's carbon footprint, looking at changes over time and analyzing the impact of different business processes and emissions reduction strategies. Then, they outline current and future approaches to drive ongoing emissions reductions.
Environmental Product Declarations (EPDs)
EPDs are standardized documents providing quantifiable environmental data about a product's life cycle from cradle to grave.
For instance, a carpet manufacturer might publish an EPD that details the environmental impacts of their carpet tiles, including raw material extraction, energy use during production, transportation emissions, and end-of-life disposal. This transparency allows architects, builders, and consumers to make informed decisions when selecting products for building projects.
Health Product Declarations (HPDs)
HPDs assess the chemical makeup of products and their potential health impacts. They provide transparency about product ingredients, focusing on how they affect human health.
By disclosing this information, companies contribute to healthier buildings and increased consumer confidence. For instance, a flooring manufacturer might provide an HPD for its vinyl flooring, listing all chemicals used and highlighting the absence of harmful substances like phthalates or formaldehyde. This information can make products more desirable for developers aiming to achieve green building certifications like LEED or WELL.
Corporate Social Responsibility (CSR)
Corporate Social Responsibility (CSR) covers a company’s efforts to positively impact society beyond its core business activities. CSR covers areas such as ethical labor practices, community engagement, environmental conservation, and philanthropy. Through CSR, companies demonstrate their commitment to sustainable and ethical practices, building trust and loyalty among stakeholders.
SIDE NOTE: This term was used more commonly a few years back, then took a backseat to ESG, and is re-emerging now as a less triggering term.
The Benefits of Sustainability Disclosures for CEOs
Embracing sustainability disclosures offers significant advantages, turning potential challenges into strategic benefits.
"You Can't Manage What You Don't Measure"
Creating disclosures necessitates thorough data collection, providing a new framework of information that empowers informed decision-making and provides metrics for ESG reporting. This data helps identify inefficiencies, track progress, and set measurable goals. For example, by measuring energy consumption across facilities, a company might discover that certain plants are less energy efficient and target them for upgrades, leading to cost savings.
Adding Value for Customers
Customers increasingly value transparency and sustainability. A recent PwC report found that consumers are willing to spend 9.7% more for sustainably produced goods and services. This sentiment has been seen across consumer studies over the last few years. Even more eye-opening, another report found that 25% of consumers stopped doing business with a company during 2023 due to its social or environmental behavior.
Providing detailed sustainability data meets customer demands for responsible products and services, enhancing trust and loyalty while potentially opening new market segments.
Positioning Products for the B2B Market
Similar to general consumers, there is a growing demand for sustainable products in the B2B sector. According to a Bain & Company report, 36% of purchasers would change suppliers if their sustainability needs aren't met, and that number jumps to 57% if changes aren't made by 2027. Meeting this demand can secure existing clients and attract new ones.
Using Data to Reduce Waste & Innovate
Data gathered from sustainability disclosures can identify wasteful practices, leading to more efficient operations. This insight is crucial for optimizing processes and reducing costs. No CEO wants to waste resources; by understanding where waste occurs, companies can take targeted actions to eliminate it. Additionally, reducing waste can lead to innovative products and services. Repurposing waste materials can create new revenue opportunities and differentiate a company in the market.
Construction Using Products with Pre-Consumer Recycled Content
A great example is using pre-consumer recycled content (PCC) to create new products. PCC is material diverted from the waste stream during the manufacturing process before it reaches consumers and is reused in other products. This is a double win for companies, turning a disposal cost into a profit opportunity and helping to create a positive sustainable image. Two examples of PCC products are pressed wood (particle board) and spackle for drywall. Pressed wood products can be made by bonding wood scraps and offcuts, and PCC spackle consists of gypsum dust from cutting drywall. Both are commonly used in construction as a low-cost and environmentally friendly alternative.
Embrace Sustainability for Success
Sustainability disclosures are powerful tools for CEOs, offering valuable data for decision-making, meeting customer demands for transparency, and increasing profits. By viewing these disclosures as strategic advantages, you can drive growth and stay competitive in an increasingly sustainability-focused market.
In reflecting on the broader series, including our discussions on the FSA Credential and the evolution of sustainability reporting, it's clear that disclosures serve a greater purpose than compliance. Sustainability provides value, and being able to quantify and apply sustainability-related data is critical. It creates a foundation for transparency, accountability, and trust that drives long-term success.
It's time to proactively embrace sustainability practices. Leverage these tools to enhance your business and meet evolving market demands. For expert guidance on integrating sustainability into your company strategies and reporting, reach out to Emerald Built Environments, A Crete United Company. We are your partner in building a sustainable future.
