Striking a Balance in Disclosure, Defining Materiality
Governance & Accountability Institute’s Coppola said there is a fine balance to how much information is wise to disclose, a significant obstacle for companies.
“I read an article where a company was sued for not disclosing some environmental data that turned out to be material, and a bunch of pension funds are chasing after them, saying that the information was material to the average investor or the educated investor.That is relevant to this discussion because on one side you could be disclosing too much too loosely, saying the wrong thing and getting in trouble. Or, on the other side, you could be too tight with your information and wind up getting in just as much trouble.”
Ann Condon, Director of Resource & Environmental Strategies, GE, agrees there is a balance, one that lies in between a company’s disclosure practices and their overall business strategy.
“It’s about balancing the requests, evaluating them against the company’s business, and identifying the data that matters to execution of those strategies,” she said. “The biggest challenge in disclosure for a large, diversified company like GE is both aggregating the data, then navigating disclosure of the data against potential legal constraints, competitive safeguards and time frames.”
Additionally, this balance can be achieved through open-ended communication with shareholders, Condon said.
“We believe the path through this tension is dialogue,” Condon said. “As a result, we reach out to selected stakeholders to learn more about what they are really looking for.”
Condon said this has informed GE’s approach to structuring their communications with shareholders, prioritizing the many sustainability issues they could focus on, and developing clear strategies, especially for partnerships to address the next generation of sustainability issues collaboratively.
Condon said it’s also important to simply be mindful of the shareholder’s desires.
“Our shareholders are also our customers. We must respectfully and responsibly consider their concerns, interests and requests and be as transparent as we reasonably can without compromising our interests,” she said. “At the same time, it can be hard to tell GE’s story: we’re not your run-of-the-mill manufacturer. We’re broad, we’re deep, we’re global, and we’re developing technology used by the world’s biggest industries.”
At the end of the day, it is crucial for companies to understand the benefits that come with not only presenting themselves as sustainable and transparent, but to be as sustainable and transparent as their claims are.
“Companies, particularly the large caps and even small and mid-cap companies, are better understanding the advantage that they gain by presenting themselves as more sustainable, and responsible, and backing their claims with reliable data sets, third party assurance and material information,” Boerner said. “That separates the brochure generators from the sustainability leaders in industries and sectors. And that is what investors and stakeholders are tuning in to.”