Sullivan opened the panel by speaking about the importance of a more holistic view of corporate performance. While noting that neither traditional financial reporting nor sustainability reporting, on their own, provide a sufficient view of performance, she affirmed that it is critical for companies to focus on multiple capitals when making decisions. Such thinking, she said, leads to integrated reporting, which takes the necessary broad view of the interests of the company’s stakeholders and its value creation potential. Reporting on sustainability, she said, can be combined with financial reporting, and companies are taking first steps to communicate this broader perspective to the public.

Current Regulatory Conditions

Sullivan then invited White to discuss the state of integrated reporting in the United States. White began with the SEC, saying that the ground rules have not changed much since they were initially set in 1975. “You’re only required to make disclosures of material information,” he said, noting that even the commission’s 2010 release on climate change only covered materiality in that context. He then elaborated on the Supreme Court’s definition of materiality, which is that there is a “substantial likelihood” that the information “would … impact the total mix of information” for a “reasonable investor.”

In 2016, however, the SEC, as part of an initiative on disclosure effectiveness, put out a release asking for information on a number of related topics. While sustainability information was only covered in a few pages of the release, thousands of responses concerned sustainability disclosures. Some of these contained suggestions for line-item disclosures, which White noted do not have to be tied to the materiality standard. Others suggested that the SEC create its own standards, incorporate the Sustainability Accounting Standards Board into itself, or allow a third party to set sustainability standards. Respondents also raised concerns about sustainability reporting to date being mainly promotional and unsupervised. Despite all of this, the SEC’s report on the response to the release did not mention sustainability.

White further stated that, while many companies are providing sustainability information, none of it is making its way into SEC filings. Nevertheless, he said, “you do need to pay attention to that data that you’re creating, because the SEC is looking at it.” The Division of Corporate Finance (DCF) has staff to make sure that disclosures match official filings. “You will get comments if they see that there is an inconsistency between what you’re saying in the two different places,” he said.

With a new chair and director of Corporate Finance in place under the Trump administration, White said it is unclear what direction the SEC will move in next. He did note that the initial focus appears to be on making initial public offerings easier. Of sustainability, he said, “Don’t count on them getting to this part of the concept release in the short term.” Therefore, investor demand will likely be the driving factor in corporate sustainability reporting.

Turning to the subject of controls, White said that the reliability and credibility of sustainability is very important, both because of the comparability of information across companies and the need for trust. The responsibility for this, he said, lies with boards of directors because “they have a fiduciary responsibility.” He also noted cases where boards have been sued for not having reliable sustainability information. To ensure credibility, he recommended that boards subject sustainability reports to the same disclosure controls as financial reports, and that the information be professionally audited.

White finished by citing the example of a Coca-Cola sustainability report, prepared by Ernst & Young and reviewed in accordance with a list of specified criteria.

GE’s Integrated Reporting Strategy

Sullivan then turned to Briggs, inviting him to describe GE’s approach. GE’s latest integrated report, she noted, contains a statement on the front page that it “shows investors GE through the lens of management.” Briggs said that this perspective is the result of the compliance-driven nature of management’s discussion and analysis in 10-K reports, which inhibits giving a full sense of management’s viewpoint. He noted that, when GE launched its disclosure effectiveness initiative several years ago, investors told him they were focusing on sell-side analyst assessments of the 10-K rather than the 10-K itself.

As a first step, GE released a proxy summary to provide more usable and relevant information, a tactic adopted by many public companies since. Building on that, the company revamped its 10-K in 2015, making it more forward looking. “We wanted to create a 10-K that provided strategic context for our business results, showed where we were trying to get to, and really tried to bring together the critical information that management is telling investors,” he said.

In 2016, he continued, GE published its first integrated summary report, which “combines the most critical information from our proxy statement, our annual report, and our sustainability website.” The addition of sustainability was driven by increasing investor interest: he noted that assets under management at firms that focus on environmental, social, and governance (ESG) issues are up 33% over the past two years and even passively managed investors are focusing more on ESG.

Briggs further said that the purpose of the integrated summary report was to condense the 400 pages of its full public reporting in order to broaden the audience for its disclosures. The revamped 10-K, he noted, is still more than 250 pages, and the proxy statement exceeds 60. “Did we really expect all of our retail investors to wade through all of that information?” he said. He also noted that even passive investors with large governance analysis departments still had only a few hours at best to devote to any single report. The summary provides a 10–15-minute overview while referring readers to the complete information on GE’s website for further analysis.

White asked whether GE tracked website hits on the different reports. Briggs said it did, noting that hits on the old 10-K were fewer than 100, while the initial revamped report received over 2,700. Furthermore, the 2016 integrated summary report had over 6,100 hits in its first 15 days of release, and hits on other reports more than tripled versus the previous year.

Sullivan asked if the integration of sustainability information into the summary report changed the way GE looked at its disclosure controls and processes, as well as governance. Briggs replied in the affirmative, saying that the sustainability information received the same vetting as the financial information, including reviews by the disclosure committee, the audit committee, and the full board of directors.

An International Perspective: ArcelorMittal

Finally, Sullivan asked Twete to share details of the steel manufacturer ArcelorMittal’s integrated reporting strategy, noting that the company is European-based, but does much of its business in the United States. “It’s a difficult thing to do, integrated reporting at a country level for a major corporation that’s based elsewhere,” Twete said. The company began by examining where its products fit in with sustainability frameworks, such as the “six capitals” of integrated reporting. Twete noted that the many different frameworks (e.g., GRI, SASB, IIRC) led to uncertainty about which elements and practices to incorporate, making the company’s initial integrated report in 2016 a first step. The audience for the report, she said, was “local stakeholders,” whether environmental groups and other nonprofits or government entities.

Twete said that feedback on the report has been “very positive,” and that the reaction to it and a similar report from its South African operations has pushed the corporate reporting in the same direction. She also said that the local reports had their own benefit, as they allowed investors to focus on the operations in a particular country. Furthermore, U.S. investors have appreciated the level of voluntary disclosure.

Like GE, ArcelorMittal puts all of its sustainability information through the same control and review processes as its financial information, Twete said. The company’s U.S.–based finance team was reluctant to let some of the information go public; her team’s response has been to stress the company’s position as a global industry leader, with the accompanying responsibility to be at the forefront of important policy trends. Twete said that she has encouraged her team to push the envelope in this regard, saying, “If someone’s not at your desk yelling at you about what’s in this report, we are failing.” Twete also said that Volkswagen’s decision to stop talking about emissions was a clear red flag: “If you were a very cognizant investor and you were reading those very closely, you could have seen this coming.”

Question and Answer

White asked Sullivan to estimate the percentage of companies with control processes for sustainability disclosures similar to those used by GE and ArcelorMittal. Sullivan said that 20% of reporters obtain external assurance for these figures, which provides a rough indication of the strength of their controls. Sullivan then asked the panel about whether they thought these integrated reporting efforts would continue. Briggs responded that GE has every intention of doing so, saying that the summary report often provides a foundation for the larger integrated report, lessening the already substantial workload and costs.

White said, “you do need to pay attention to that data that you’re creating, because the SEC is looking at it.”

An audience member asked about how well integrated reporting addresses the disparity in wealth flow between the developed and developing world, most of which comes from commercial enterprise. Twete responded with an anecdote about ArcelorMittal’s dealings with BMW, which asked the company if it could prove “beyond a shadow of a doubt” that no child labor was used in its supply chain. The company maintains an awareness of such issues in its reporting, hopes that its transparency pushes its peers to do the same, and presupposes that customers want to work with companies that provide this kind of transparency.

Another audience member asked Twete whether ArcelorMittal’s legal department had advised not making certain disclosures to prevent liability. Twete said that ArcelorMittal’s counsel was “very progressive” and had not pushed back against voluntary disclosure. “I think the bottom line is, if you really wanted the information, you could find it,” she said; more up-front disclosure in integrated or sustainability reports just saves stakeholders that work. While concerns have been raised about the company potentially showing its hand to the competition, Twete said that the benefit to the customer relations outweighs that risk.

White added that, in his view, the most progressive advice he gives is that strong controls strengthen the reliability of the information. Briggs further stated that information on a company website is already subject to liability under securities laws, and that putting such information into an SEC-filed document raises questions of incremental liability.

As a final question, Sullivan asked the panel for its predictions for how integrated reporting will develop. White’s response was concise: “Controls, controls, controls.” Briggs recommended that companies think about their disclosures and avoid disclosing only the information that “looks good or sexy in a given year.” Finally, Twete said that sustainability is “all about risk management,” and that this viewpoint can be useful in leading management towards understanding integrated thinking. Sullivan agreed, saying that more companies are realizing that the absence of disclosure can also expose them to risk. “The importance of the credibility, accuracy, and reliability of this information cannot be emphasized enough,” she said as she ended the panel.

Kristen B. Sullivan, CPA, CGMA partner at Deloitte and Touche LLP, moderated the panel.
Aaron Briggs, JD executive counsel for corporate securities and finance at General Electric;.
Marcy Twete division manager of corporate responsibility for the Americas and executive director of the USA Foundation at ArcelorMittal.
John White, JD partner at Cravath, Swaine, & Moore LLP and former director of the SEC’s Division of Corporate Finance, were the panelists.