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A whole year has passed since we published our 2011 Sustainability Trends to Watch. Now, it’s time to look at the important issues regarding sustainability reporting in 2012. Although many of the trends from last year still hold true, this year we anticipate seeing more of the following:

1. Return on Investment in Sustainability Initiatives

Although sustainability- and CSR-related initiatives have long been thought of as non-financial, the truth is quite the opposite. Capital investments in projects that increase energy efficiency and/or develop on-site renewable energy, along with publication of a CSR report, can positively influence a company’s bottom line.

The increased awareness that “corporate responsibility (CR) reporting enhances financial value” was a key finding of KPMG’s International Corporate Responsibility Reporting Survey 2011. The survey found that for companies reporting on sustainability, financial value comes from two sources: direct cost savings and enhanced reputation in the market. Further information on sustainability reporting and return on investment can be found in a recent article published by Addison.

Of particular interest in the KPMG report was how the issues that drive business reporting have changed. In 2008, economic considerations topped the list, with 58 percent of companies considering them a priority. Today only 32 percent identify economic considerations as a major driver, compared with 67 percent that emphasize improving their reputation or brand and 58 percent that cite ethical considerations.

Another study linking sustainability to financial performance is a working paper recently published by Harvard Business School, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance.” In examining two comparable sets of firms over an 18-year period, the authors found strong evidence that “the High Sustainability firms significantly outperform the Low Sustainability firms, measured in both accounting and stock market terms.” The study also showed that “High Sustainability firms have a longer-term time horizon, have more long-term investors, and place a greater emphasis on measuring and reporting non-financial information.”

Shoe and sportswear producer Puma was one of the first companies to attempt to put a dollar value on environmental impact, by looking at the effects of its direct operations and supply chain and issuing an environmental profit-and-loss statement. Other companies that have followed suit include luxury fashion houses Gucci and YSL and Dow Chemical, which has partnered with The Nature Conservancy to explore the relationship between Dow’s business and the ecosystems in which it operates.

2. Sustainability Topics in the Annual Report

The 2011 trend toward integrated reporting is still gaining momentum, with a growing number of companies such as Pfizer including more sustainability information in their annual reports.

The reason is that the sustainability audience is the annual report audience, even though shareholders are often not perceived as consumers of sustainability-related information. If CEOs are citing in their CSR that efforts to address the company’s sustainability will be a key driver of revenue and/or cost reductions in the years ahead, don’t shareholders have a vested interest in that information?

For companies that are hesitant to radically alter their reporting process and commit to full-on integration, including at least some sustainability information in the annual report is a way of making sure the information reaches both audiences. Philips, GE, BASF and Johnson & Johnson have taken this approach, and we expect to see many more companies following their lead in 2012.

3. Supply Chain Transparency

In 2011, Addison also identified supply chain engagement as a trend to watch, citing the example of suicide rates at Foxconn, a supplier to many electronics companies, to highlight the perils of ignoring supplier performance.

Twelve months later, Apple turned around its performance in this sphere and was ranked second out of 26 IT companies in the DNV Clear Links Report, a study that ranks how firms are managing their supply chains vis-à-vis social, environmental and “emerging” issues. Other leaders in supply chain transparency include Timberland, Disney and Gap.

As we rang in the New Year, the California Transparency in Supply Chains Act also came into effect, a law that requires companies to disclose their efforts to ensure that their supply chains are free from slavery and human trafficking.

According to Julie Tanner, Assistant Director of Socially Responsible Investing at Christian Brothers Investment Services (CBIS), “[Although] the law may have California’s name in its title … its effects will be felt far beyond the state. Most major retailers and manufacturers doing business in California will need to comply, regardless of where they are headquartered.”

Given these developments, it is perhaps no surprise that Greenbiz is hailing 2011 as “The Year of Supply Chain Sustainability.”

4. External Assurance

With more companies than ever communicating on their sustainability, those wishing to stay ahead of the pack are turning to external assurance to differentiate their reports. A KPMG survey found that almost half (46 percent) of those companies who do report on sustainability now include a formal assurance statement in their report, up from 40 percent in 2008.

However, this is one trend that is not consistent globally. Providing external assurance has been much more prominent in Europe than in North America. GRI’s Year in Review reports that assured reports from the USA represented just three percent of the total number of assured reports worldwide. Nevertheless, GRI has said it is confident that an increase in the number of assured reports will be seen in next year’s survey.

5. Employee Engagement on Sustainability

In what Canadian Business for Social Responsibility has called “the most encouraging trend of all,” an increasing number of companies are realizing that introducing innovative employee volunteer programs as part of an integrated environmental, social and governance (ESG) platform can enhance their “employment brand.”

CA Technologies, for example, has a “CA Together in Action” worldwide volunteer month, which provides employees with the opportunity to contribute their time and talent during business hours to the communities where they live and work. Intel, Salesforce.com, LinkedIn, PepsiCo, Campbell’s Soup and Addison also offer their employees the opportunity to volunteer on company time.

Companies who have yet to follow their lead should take note: U.K. employment engagement consultancy LeapCR found that almost half of workers in the U.K. would be more likely to stay with an employer that allows its workforce to donate time or raise money for charity during work hours, with more than one in 10 saying they would take a “significant” cut in pay to work for a company that encouraged such initiatives.

6. Shareholder Activism

Finally, no recap of 2011 would be complete without an acknowledgment of the Occupy Wall Street (OWS) movement, which began in the U.S. and spread to many other countries by year’s end. One of the key issues highlighted by OWS was economic inequality. Considering the heightened awareness of such issues and the growing importance to business of sustainability topics, Addison anticipates that the number of shareholder resolutions will continue to grow annually. Indeed, nearly 400 environmental and social shareholder resolutions were filed for the 2011 proxy season, more than double the annual average in the last decade.

The number of such resolutions rose even more dramatically within the energy sector, by roughly 50 percent over 2010 totals. The Interfaith Center on Corporate Responsibility has filed shareholder resolutions ranging from farmworkers’ rights at Kroger to lending practices at Wells Fargo.

Many people—more specifically, investors—from all walks of life are expecting corporations to become more transparent in their operations, and are eager to make their opinions heard where it matters most: at the annual shareholders’ meeting.

In conclusion, corporate sustainability and social responsibility reporting is still maturing, and many companies are only now realizing the benefits of measuring their performance and disclosing their material metrics. From including sustainability information in annual reports to providing more transparency in their supply chains, companies are letting the spotlight shine on more areas of their operations than ever before. Though many are initially hesitant to do so, such disclosure is resulting in improved reputations, more engaged employees and better-informed shareholders.

To learn more about Addison’s outlook for 2012 and our sustainability practice, please contact Senior Sustainability Strategist Judy Sandford.