It’s Time for Triple Bottom Line Reporting

Companies around the world have started to realize that investors are not interested solely in financial performance. Corporate greed and exploitation have created a renewed interest in compassion and sustainability. This is where triple bottom line (TBL) reporting comes in. TBL entails reporting on economic, social, and environmental issues. Separate from an annual report, TBL reporting focuses on a company’s performance in such factors as pollution, health and safety, human rights, child labor, and other social and environmental issues.

If the SEC required TBL reporting, it would meet the growing investor demand on issues of corporate sustainability, as well as provide a mechanism for U.S. companies to demonstrate their leadership on such issues and to answer critics. In a period of scandals and uncertainty, it is a perfect time for the SEC to take a bold step in rebuilding investor confidence. U.S. environmental policies and ethical standards are being questioned by foreign commentators, who point to the United States’ actions with regard to the Kyoto Treaty and the Johannesburg Summit. As an economic leader, the United States should be setting a precedent, not following Australia and European countries that have been at the forefront of global environmental policy.

The primary reason for TBL reporting is to provide investors with the information they want in order to make decisions. The increase in social and environmental funds makes it easy to see the need for such information. Many corporations already provide such information voluntarily. They promote their environmental and social accomplishments in either their annual report or a stand-alone report. Companies in the manufacturing, energy, and forestry industries use similar reporting techniques as a means of answering their critics. The problem with ad hoc individual reporting is that without comparability and consistency standards, the current reports are not useful to investors. Without regulated reporting standards and guidelines, they represent little more than a positioning strategy.

Implementing such a requirement would not be as demanding as one might think. Much of the information that would be required in such a TBL report would already have been gathered. Some environmental and social data is already gathered for compliance with other regulatory bodies. Information on social, humanitarian, and service activities is already maintained for public relation campaigns. By requiring such a report, the SEC would provide a user-friendly format that has been verified by an external source.

McDonald’s issues a “social responsibility report.” Levi Strauss & Co. maintains a code of conduct known as the “global sourcing and operating guidelines.” Nike, GM, Canon, 3M, and Ben & Jerry’s all issue similar types of reports on sustainability or social responsibility. All the Big Four currently offer some type of consulting or analysis service on environmental and social issues, such as Pricewaterhouse-Coopers’ “value reporting” and Deloitte Touche Tohmatsu’s “sustainability reporting scorecard.” The most widely accepted standard appears to be the Sustainability Reporting Guidelines set forth by the Global Reporting Initiative (GRI). The GRI was formed by special interest groups and is currently working with the UN to develop international standards for TBL reporting. With companies trying to meet investor demands and a global movement toward standardization, the SEC should take the initiative and work with different groups to put forth such a requirement.

The companies that already issue similar reports do so for two reasons: to meet investor demand, and to gain recognition for actions performed. Companies such as Shell and Nike have used this type of reporting to rebuild their reputations after receiving negative publicity for poor environmental and social decisions.

Companies are under greater scrutiny from media coverage and watchdog groups. By requiring TBL reports, the SEC would be holding corporate America accountable for their actions. Those who can build reputations as leaders in environmental and social policies will succeed. Those that ignore such responsibilities will fail.

Companies can also derive financial benefits from TBL reporting. They can catch the attention of new investors, as well as attract and retain employees. TBL reporting allows for transparency of a company’s environmental and social accomplishments, weaknesses, and future goals. Companies that strive for success may meet eligibility standards to be a part of certain environmental or social funds. Failure to meet such requirements could hinder stock performance.

On the surface, increased reporting requirements may appear to mean more paperwork, more audits, and a greater cost of doing business. However, TBL reporting is a growing trend that will eventually have to be addressed. Without an SEC requirement, continued reporting will be little more than promotional materials of little use to investors. The additional costs of reporting are minimal, while the benefits of a required report could be everlasting.

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