In Good Company, we argue that increasing transparency is forcing companies to behave better as employers, sellers and stewards. This argument, we realize, may strike some as naïve. If all investors care about is short-run returns, then it’s hard to see how more worthy corporate behavior can become the norm. After all, ”short-termism” has chewed up and spit out many CEOs who attempted to do the right thing in terms of generating long-term sustainable profits, but failed to meet Wall Street’s short-term profit expectations.
But there is good news on this front: U.S. investors are showing a high level of interest in integrated reporting which involves the “integration of a company’s required financial report with its voluntary (except for a few countries) corporate social responsibility or sustainability report.”
In an impressive analysis of investors’ interests – based on crunching 34 million hits of Bloomberg data on firms’ environmental and social performance indicators, along with data from Sustainable Asset Management (SAM) – Robert Eccles and George Serafeim classify twenty-three countries into one of four categories:
- Sustainable countries – where there is “a high degree of integrated reporting by companies and a high level of investor interest in the respective nonfinancial performance metrics”
- Unsustainable countries – where there is “very little interest by investors in nonfinancial performance metrics”
- Sustainable companies countries – where there is “a high degree of integrated reporting by companies but very little interest by investors in nonfinancial performance metrics”
- Sustainable investors countries – where there is “very little integrated reporting by companies but a high degree of interest by investors in nonfinancial performance metrics ”
Eccles and Serafeim find that U.S. investors have a relatively high degree of interest in integrated reporting, and hence they classify U.S. investors as “sustainable.” This calls into question the assertion by many executives that U.S. investors have no interest in long-term, sustainable profits.
However, the U.S. ranks lowest of the 23 countries analyzed in the degree to which companies are using integrated reporting, suggesting that there is still a long way to go to meet investors’ interest in a more sustainable focus in reporting and behavior generally.