Tracey Rembert is the Director of Investor Programs at Ceres and leads its Investor Initiative for Sustainable Exchanges. She works closely with institutional investors to improve their investment practices on climate and sustainability issues, and helps investors better promote environmental, social and governance (ESG) practices at global corporations through shareholder engagement, regulatory advocacy, and strategic joint initiatives. She currently leads a coalition of investors focused on engagement with stock exchanges to improve ESG reporting standards across markets.

Christopher P. Skroupa: What are the reporting trends this year in regard to climate and sustainability issues?

Tracey Rembert: It seems 2016 is shaping up to be both the “Year of the Consultation” and “the Year of Mandatory Climate Reporting.” Let me start with climate reporting. Within Ceres, we have been working with institutional investors and stock exchanges to drive a basic standard for disclosure that is market-wide, mandatory, and across the spectrum of sustainability reporting issues. We communicate with stock exchanges widely to foster collaboration among them to set a floor for reporting on sustainability matters, and that work is difficult at times because each market—when you do convince them to move forward—wants to do its own thing. And yet, investors have been quite clear and increasingly more vocal that they prize consistency and comparability across markets to be able to better use the sustainability data that is reported. We work with the United Nations, and its Sustainable Stock Exchanges initiative, to drive that conversation of collaboration. Ceres brings the voices of investors to the table in those talks, to ensure that what is being discussed is useful to investors in their investment decision-making processes.

As part of this disclosure conversation about standards, and stock exchanges providing listing rules and guidance to issuers on such topics, climate reporting has now sprinted past other issues this year because of several factors.  There has been a pivotal buildup of increasing climate risk in particular sectors, like oil and gas, agriculture, and mining. The Paris Climate Agreement last December (COP21) resulted in heightened attention by institutional investors on deficiencies in climate reporting when 196 countries decided it was time to move on the issue—but we still didn’t have standardized disclosure on very basic things like Scope 1 and 2 emissions data. The Financial Stability Board’s (FSB) new Task Force on Climate-related Financial Disclosures has also fueled the fire regarding synergy of standards around climate disclosure. We are seeing more and more investors seeking mandatory reporting of sustainability information, and that usually starts with an ask for mandatory climate reporting.

A report by the Climate Disclosure Standards Board and Organisation for Economic Co-operation and Development (OECD) from earlier this year noted that the recent Paris climate accord, coupled with escalating climate risks to major industries, has led to the increased introduction of mandatory reporting schemes around the world.

Their findings indicate that 15 of G20 countries now have mandatory reporting regimes for climate change disclosures, and nine schemes encourage reporting of information other than emissions data, such as risks and strategies.

Investors are also being pressured by clients or beneficiaries to integrate sustainability factors into their investment process; with that comes the need for more data. And that brings me to the Year of the Consultation.

Whether it’s climate reporting or broader reporting, regulators, the European Commission, stock exchanges and others are launching comment periods around various aspects of sustainability reporting right now. With most of these launches of new reporting standards and proposed obligations, comes a request to the market to send in feedback on these proposals. Added to that, investors have pressed firmly since last September for stock exchanges to—at minimum—create voluntary reporting guidance for their listed companies on sustainability matters. So far, over 20 exchanges have committed to producing that guidance. Investors expect to get commitments from at least half of the 68 members of the World Federation of Exchanges by the end of 2016. These proposed guidance documents herald new calls for comment periods. Investors are definitely going to need to pace themselves this year, as already in the first quarter, we have seen a significant number of consultations launched—with no end in sight.

Skroupa: What is driving the momentum for higher company participation in the reporting debate?

Rembert: Over the last five years, companies have largely not been present or vocal for these discussions to establish reporting standards. Investors feel that companies need to be honest and active at the table, otherwise, the standards are going to be decided without them. We are seeing a small uptick in company participation in these consultations, particularly in regard to stock exchange rules or big government comment periods—such as the European Commission’s Non-financial Reporting Directive. Frankly, a lot of that work is still to come. We anticipate that more investors and stakeholders will be pushing, pulling, prodding, and politely asking companies to be at the table to ensure the reporting standards work for them as well. This engagement would help ensure companies don’t mount a major backlash at the last minute, which may well happen if they have not been part of the process. There are healthy reasons why companies need to be at the table for reporting to be successful. We are in this interesting phase during 2016 where companies are keeping quiet, particularly when it comes to any kind of mandatory provisions around sustainability reporting. And yet, they see the writing on the wall and understand that it’s advantageous to be part of the decision-making process rather than watch from the sidelines.

Skroupa: Why is there a need for change in regard to the emerging leadership and practices?

Rembert: We have seen some leadership by particular companies, however they usually focus on one particular bit of sustainability performance or sustainability disclosures. Recently, Unilever has advanced as a leader on a number of initiatives around environmental and social performance disclosure.

There has also been an emergence of European and a few U.S. institutional investors that are challenging short-termism: both a push back on quarterly reporting and quarterly earnings guidance, short-term pay incentives, and short-term outlooks of risk. These shifts tie into a longer-term and more sustainable view of the corporation. The confluence between a push for long-termism and the push back on short-term reporting is a trend to keep an eye on, especially by very large asset owners and asset managers.

Part of this debate too is around business model resiliency. A really sustainable company should be able to articulate its long-term value creation plan, as well as its strategic scenario planning for shifts and pressures on its industry or business model, and investors are responding well to that discussion. Companies are realizing that shareholder engagements and resolutions around resiliency and scenario planning are actually quite reasonable based on the changes in certain industries during the last few years. Think coal, autos, electric utilities, and large agricultural players. Companies are stepping up and disclosing more. For example, oil and gas companies are engaging more earnestly with shareholders and some are beginning to respond to calls for a two-degree scenario assessment of their sector’s long-term prospects. Companies are starting to understand that their ongoing business propositions depend on addressing sustainability issues in a profound way. There is a multitude of financial gain when these measures are upheld and communication flows top-down, not just from the bottom-up. There are particular industries showing leadership in specific sectors, such as Levi Strauss & Co on water practices, or General Mills on sustainable commodities, or a number of European Firms on humane treatment of animals. There are a few companies too such as Unilever or Ikea that tackle a number of impactful systemic issues all at once. We hope to see more companies step up as full-spectrum sustainability leaders, but right now, it tends to be more issue-oriented leadership.

Skroupa: How has the reporting process developed, and what work is being done to align the differing components?

Rembert: There is a little bit of a tension here. Companies complain often of survey and disclosure framework fatigue. Yet they appear unable to raise their voices clearly to push back on investors and stakeholders about what works for them. We need companies to stand up and be more ardent to vocalize their preferences. At the same time though, investors are consistently saying that they need more uniform, comparable reporting. Stock exchanges, regulators, and companies all attempt to focus on their own thing, to report in their own way, in order to best represent their business in their country—however our market has become incredibly intertwined, rendering this impossible. Investors are increasingly universal owners. They need that comparability and consistency because they are trying to compare companies in the same industry across different markets, contrasting regulatory regimes, and diverse cultural regions. There is a schism between the desire for flexibility versus comparability, consistency, and alignment. We are going to see some messiness in the next few years to assuage this tension between investors, regulators, exchanges and companies. We will all be the better off for it. A floor will settle out of what is a minimum standard for reporting across all sizes of companies and markets. There will always be a push by the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), as well as supporters of integrated reporting, to establish that ceiling. Organizations such as Ceres are working also to set a floor by enlisting stock exchanges to draft standards and rules, so companies strive to rise above that “lowest common denominator” on a wide basis. Investors will still attempt to push particular companies and sectors to aspire to a ceiling of reporting, to constantly innovate and push out the best practice of disclosure. For a long time it has been a voluntary push for basic disclosures, however investors are now increasingly supporting a mandatory floor for which no company will fall below. You will see a lot more engagement around this in the coming three to four years. Ceres has engaged with the World Federation of Exchanges for several years now to develop that floor—and it just launched 33 sustainability reporting indicators to kick-start that process. With so much progress in so little time, who knows how far we might come by 2020. My hopes are on listing rules by the largest stock exchanges covering a broad swath of sustainability disclosures.

When 2016 wraps up, I think you’ll see—after dozens of consultations to get us there—half of the market beginning to roll out voluntary reporting standards for sustainability data, and a good chunk of those starting to move towards mandatory climate reporting provisions. So buckle up.