In Brief

Sustainability investing continues to grow in popularity, but the lack of standardization in sustainability reporting poses a challenge for investors wishing to maximize the social responsibility, and minimize the social damage, of their investments. The authors, who previously studied sustainability ratings issued by the mass media, now turn their attention on rankings used by the investing community itself. The findings indicate that they may be a more reliable barometer of a company’s commitment to environmental, social, and governance impact; nevertheless, further research into the long-term link between sustainable practices and value creation is needed.

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Sustainability is not a new concept. In 1987, the United Nations World Commission on Environment and Development described sustainable development as meeting “the needs of the present without compromising the ability of future generations to meet their own needs” (Our Common Future: Report of the World Commission on Environment and Development The commission added that sustainable development “must share certain general features and must flow from a consensus on the basic concept of sustainable development and on a broad strategic framework for achieving it.” This article discusses the current state of sustainability standards and companies’ reporting on their sustainability activity. Many challenges remain to setting up a truly robust and thorough system of sustainability standards: the existence of competing frameworks, the absence of uniform reporting standards, different measures of materiality, inconsistent reporting measures, boilerplate language, the difficulty of comparing companies, and a disparity between company and investor views. Nevertheless, these issues also represent opportunities for accounting and auditing professionals.

Standards Setting and Reporting Initiatives

As Exhibit 1 shows, there have been several standards setting bodies and reporting initiatives in the sustainability field. While the CDP (formerly Carbon Disclosure Project), the Dow Jones Sustainability Index (DJSI), and the Global Initiative for Sustainability Ratings (GISR) provide ratings to measure environmental impact, the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB) focus on reporting.

Exhibit 1

Commonly Referenced Standards Setting and Reporting Initiatives

Year founded; Type; Audience; Form of report; Focus CDP; 2000; Reporting and rating; Investors and other stakeholders; CDP questionnaire; Provide investors with climate change, water, and carbon data DJSI; 1999; Rating; Investors; RobecoSAM questionnaire; Evaluate the sustainability performance of the largest 2,500 S&P firms through a family of indices GISR; 2011; Rating; Investors and other stakeholders; Center of Ratings Excellence (CORE) program; Steward an ESG ratings standard to accelerate the contribution of organizations worldwide to sustainable development GRI; 1997; Reporting; Broad set of stakeholders; Sustainability report; Empower sustainable decisions through established standards and a global, multistakeholder network IIRC; 2010; Reporting; Providers of financial capital; Integrated annual report or standalone report; Establish integrated reporting and thinking within mainstream business practice for both public and private sectors SASB; 2012; Reporting; Investors in U.S. public companies; SEC 10-K, 20-F filings; Establish and improve industry-specific metrics for investors in the United States Source: Deloitte, Sustainability Disclosure: Getting Ahead of the Curve, p. 3 CDP = former Carbon Disclosure Project; DJSI=Dow Jones Sustainability Index; GISR=Global Initiative for Sustainability Ratings GRI =Global Reporting Initiative; IIRC=International Integrated Reporting Council; SASB=Sustainability Accounting Standards Board

The IIRC, a global group of regulators, investors, companies, standards setters, nongovernmental organizations (NGOs), and the accounting profession, released its sustainability framework in 2013. The IIRC Framework provides guidance governing the content of an integrated report, the overall purpose of which is to disclose how a company creates value. This type of report includes both financial and non-financial information and includes sustainability-related information in an integrated way. The AICPA states, “The development of Integrated Reporting is designed to enhance and consolidate existing reporting practices to move towards a reporting framework that provides the information needed to develop the global economic model to meet the challenges of the 21st century” (

The GRI launched its set of standards in October 2016. These are the first global standards for sustainability reporting and are based on the previous GRI G4 Guidelines, which were phased out on July 1. More recently, SASB issued its Conceptual Framework in February 2017 and an exposure draft with standards for 79 industries in October 2017; the comment period for the exposure draft ended January 31, 2018. While the GRI focuses on a global audience, SASB focuses on U.S. companies and industries; in fact, SASB has developed its own Sustainability Industry Classification System. Rather than classify companies by revenue source, SASB classifies companies by sustainability characteristics, including risks and opportunities. Jean Rogers, CEO and founder of SASB, described the differences between the GRI and SASB in a letter to the SEC (July 1, 2016):

GRI advances an expansive sustainability agenda rather than focus on investor decision making. Its guidance is designed for companies to voluntarily report to a broad range of stake-holders—employees, interest groups, policy makers, suppliers, customers, communities, and others, in addition to investors. On the other hand, SASB … is focused on investors’ interests and reporting of material sustainability-related information in SEC filings.

Most recently, in July 2017, the AICPA issued Attestation Engagements on Sustainability Information (including Greenhouse Gas Emissions Information). This new guide applies when CPAs perform an exam or review pertaining to sustainability information, such as a sustainability report, a greenhouse gas emissions statement, or a citation of a sustainability framework (such as the SASB framework). The guide assists CPAs with interpreting and applying the clarified attestation standard, Statement on Standards for Attestation Engagements (SSAE) 18, Attestation Standards: Clarification and Recodification. It supersedes SOP 13-1, Attest Engagements on Greenhouse Gas Emissions Information. A new appendix was added in March 2018 to include illustrative reports for engagements to review or examine information submitted to the DJSI.

In addition to the above, the Global Impact Investing Network (GIIN) offers Impact Reporting and Investment Standards (IRIS) to guide companies reporting their social and environmental performance. IRIS facilitates investors who focus on social or environmental value when selecting organizations in which to invest; this type of investor is a prominent and influential subset of the larger investment community. IRIS focuses on not only social and environmental impact information, but also profile (e.g., social or environmental goals), financial information, and operational information. Using performance data obtained by select organizations, GIIN produces benchmarks and industry-wide analysis.

Current State of Reporting

Although sustainability reporting in the United States is presently voluntary, corporations have increased their reporting on these issues. The Governance and Accountability Institute (GAI) reports that approximately 81% of S&P 500 companies issued a sustainability report in 2015, compared to less than 20% in 2011. By 2016, over 13,000 companies had produced more than 80,000 reports globally ( KPMG’s 2017 survey reveals that sustainability reporting is standard practice for large and mid-cap companies worldwide ( This extent of sustainability reporting is encouraging.

Corporations are moving in the right direction; however, more work needs to be done to improve the quality of sustainability reporting. In its Conceptual Framework, SASB points out that sustainability reports lack focus on the sustainability issues most important to investors. A PricewaterhouseCoopers survey reveals that nearly three-quarters of investors are neutral or somewhat dissatisfied with current environmental, social, and governance (ESG) reporting practices (PWC’s ESG Pulse 2016: Investors, Corporates, and ESG: Bridging the Gap, Similarly, 80% of sustainability-related comment letters submitted to the SEC in 2016, in response to SEC Concept Release 33-10064 (Business and Financial Disclosure Required by Regulation S-K, August 2016), called for improved sustainability-related disclosures in SEC filings and/or market standards for these disclosures. Most recently, SASB states in its 2017 report, State of Disclosure: An Analysis of the Effectiveness of Sustainability Disclosure in SEC Filing, that “by and large, companies continue to take a minimally compliant approach to sustainability disclosure, providing the market with information that is inadequate for making investment decisions” ( Accordingly, sustainability reporting is still a work in progress.


There are numerous challenges hindering the widespread adoption of sustainability reporting, and these challenges are somewhat interrelated.

Competing frameworks.

Competing frameworks and standards designed for different audiences create challenges for investors and companies; for example, the GRI reporting framework focuses on a broad audience, whereas SASB focuses on industries. The majority of companies have been using the GRI framework, making it the traditional standard for sustainability reporting; however, companies that use the GRI framework were not consistent about the specific version of the guidelines (e.g., G3, G3.1, or G4) they follow (Ganesh M. Pandit and Allen J. Rubenfield, “The Current State of Sustainability Reporting by Smaller S&P 500 Companies”, The CPA Journal, June 2016, All prior versions of guidelines are, however, superseded as of July 1, 2018. Furthermore, many investors indicate a preference for SASB standards or a company’s internally developed methodology rather than GRI standards (PricewaterhouseCoopers 2016). Because the SASB Framework is specifically tailored to U.S. corporations and SEC filings, it is likely that SASB will gain traction for U.S. corporations going forward. “Global collaboration to harmonize frameworks and metrics will … be important to achieving greater consistency and comparability across reporting entities” (PricewaterhouseCoopers, Sustainability Reporting and Disclosure: What Does the Future Look Like? July 11, 2016, The AICPA guide suggests that companies clearly disclose how they measure sustainability information, especially when they use more than one set of criteria, given the variety of available frameworks.

Although the SEC and U.S. GAAP govern the reporting of financial information, there is no similar standardization for the reporting of sustainability information.

Absence of a standard.

Although the SEC and U.S. GAAP govern the reporting of financial information, there is no similar standardization for the reporting of sustainability information. “Performance indicators across ESG topic areas do not distill down into one standardized unit of measure, as is the case with the dollar in traditional financial reporting. For example, energy consumption is measured differently around the world; some use gigajoules, while others use kilowatt-hours. Social topics are measured in headcount, training hours, and injury rates, among other factors” (Deloitte, Sustainability Disclosure: Getting Ahead of the Curve, 2016, Without a standard for reporting, companies have a hard time creating information of value, and investors have a hard time using this information to make decisions.

Measurement uncertainty.

Many types of sustainability information cannot be measured with a high degree of accuracy; this “measurement uncertainty” may occur due to the measurement tool, the incompleteness of the data, or the accuracy of conversion and other factors (e.g., calculating the units of methane and nitrous oxide resulting from the combustion of fossil fuels). The AICPA guide provides illustrations of measurement uncertainty and suggests that companies describe the circumstances surrounding the high measurement uncertainty and provide a range of reasonable values to measure this information.

Different measures of materiality.

Measurement uncertainty creates further challenges for CPAs when trying to determine materiality. Materiality within the sustainability reporting context is not necessarily the same concept as materiality as defined by U.S. securities laws. Jean Rogers pointed out in SASB’s July 1, 2016, letter to the SEC that “underlying this problem is the fact that sustainability information disclosed outside Commission filings (which is where most sustainability information is disclosed today) is generally formulated without applying the standard for materiality used under federal securities laws.” Sustainability disclosures are, therefore, not considered “investment-grade” with respect to the information provided about sustainability risks and opportunities. SASB suggests a two-step test to determine whether sustainability issues may have a material financial impact; specifically, management should consider both the likelihood of a trend or uncertainty occurring and the consequences of such an occurrence if it were to come to fruition. This is the same test the SEC uses for companies trying to determine whether to disclose information in management’s discussion and analysis (MD&A). The AICPA guide, which is aimed at CPAs performing an exam or review, says that CPAs should consider materiality differently depending on whether the engagement relates to an entire sustainability report, an identifiable section of a sustainability report (e.g., a presentation of greenhouse gas emissions), or only specified indicators.

Inconsistent reporting methods.

Investors currently obtain sustainability information four different ways: 1) stand-alone reports, 2) investor questionnaires, 3) shareholder resolutions, and 4) SEC filings; each reporting method has its limitations. The majority of S&P 500 companies produce stand-alone reports on sustainability; however, these reports are often geared more toward marketing purposes and target a broad group of stake-holders. The concept of materiality is more broadly defined and is therefore of limited use for investment decisions. Furthermore, companies have been known to “green-wash,” or primarily focus on information that is favorable.

Although most companies produce stand-alone reports, other companies use questionnaires or shareholder resolutions. The problem with questionnaires and resolutions is their cost to registrants and the additional work entailed by the companies. Large companies can typically receive hundreds of survey requests with questions from investors, analysts, and sustainability ratings groups.

Finally, companies are starting to increase sustainability disclosures in SEC filings; however, SEC filings often contain sustainability disclosures that lack specificity and are deemed to be boilerplate.

Boilerplate language.

Although three-quarters of SASB’s disclosure topics are being addressed in statutory filings, more than 40% of these disclosures consist of such boilerplate language (SASB 2017). Only approximately 24% use specific, discrete metrics, as shown in Exhibit 2.

Exhibit 2

Sustainability Disclosures in SEC Filings for Fiscal Year 2016

Source: SASB, The State of Disclosure 2017: An Analysis of the Effectiveness of Sustainability Disclosure in SEC Filings, p. 12.

SASB points out that disclosures are more effective when they are specific; metrics without related discussion and analysis are not as helpful. Accordingly, SASB recommends that companies combine metrics with narratives to enhance the accuracy and comparability of the data. SASB’s Conceptual Framework provides the following criteria for evaluating metrics:

  • Fair representation: Metrics should accurately describe performance related to the disclosure topic.
  • Useful: Metrics should help companies manage operations and help investors perform financial analysis.
  • Applicable: Metrics should be based on definitions applicable to most companies within an industry.
  • Comparable: Metrics should provide both quantitative and qualitative information. The quantitative data will facilitate benchmarking within an industry, and the qualitative information will facilitate comparisons.
  • Complete: Metrics should provide sufficient information to interpret performance relative to sustainability.
  • Verifiable: Metrics should support effective internal controls to verify data and provide assurance.
  • Aligned: Metrics should be based on those already used by companies.
  • Neutral: Metrics should be unbiased and provide objective disclosure of performance.
  • Distributive: Metrics should provide a range of data within an industry or across industries to allow users to differentiate performance.

An illustration of the relationships between these criteria can be found in Exhibit 3.

Exhibit 3

Anatomy of a Sustainability Report

Source: SASB Conceptual Framework, February 2017, p. 1.


One criterion listed above, comparability, is particularly challenging. In its State of Disclosurereport, SASB provides the following example relating to fuel use and air emissions to illustrate the difficulty in comparing companies given the absence of a standardized format:

Royal Caribbean: “We have also taken a number of other steps to improve the overall fuel efficiency of our fleet, including our new ships on order, and, accordingly, reduce our fuel costs. We continue to work to improve the efficiency of our existing fleet, including improvements in operations and voyage planning as well as improvements to the propulsion, machinery, HVAC, and lighting systems. The overall impact of these efforts has resulted in a 21.4% improvement in energy efficiency from 2005 through 2014, and we believe that our energy consumption per guest is currently the lowest in the cruise industry.”

Carnival Corp.: “We are designing more energy-efficient ships that will enter our fleet in the future, while continuing toward reducing the fuel consumption of our existing fleet. We had voluntarily set a goal of delivering a 20% reduction (per unit) from our 2005 baseline of CO2e emissions from shipboard operations by 2015. We achieved our goal one year ahead of schedule and have set a new goal to achieve a 25% CO2e emissions reduction (per unit) from our 2005 baseline by 2020. We measure our ability to use direct energy efficiently by calculating the amount of primary source energy we consume.”

It is notable that Royal Caribbean and Carnival both use metrics and provide additional discussion relating to these metrics; however, it is difficult to compare these companies or to measure their performance compared to the industry. SASB points out that a lack of comparability exists across most issues in every industry: “In choosing to buy, sell, or hold a security, investors adopt an essentially economic perspective … This type of decision cannot be made effectively when comparable information is not available” (State of Disclosure). If sustainability reporting were more standardized, perhaps investors and other users would have an easier time comparing information between companies and evaluating a company’s performance over time.

While 60% of companies believe their sustainability disclosures facilitate investors’ comparison of companies, 92% of investors do not agree.

Investors versus companies.

The above example is one illustration of the difficulty in comparing sustainability-related issues across companies. The problem may be exacerbated by the disparity between company and investor views on sustainability. While 60% of companies believe their sustainability disclosures facilitate investors’ comparison of companies, 92% of investors do not agree. When asked about the quality of sustainability reporting, all the corporate organizations report they are confident with the quality, whereas 71% of investors report they are not confident (Pricewaterhouse-Coopers, ESG Pulse 2016). Accordingly, companies will need to more fully consider the needs of investors when deciding which sustainability information gets disclosed and what format these disclosures take.

Opportunities for CPAs

While there has been progress in sustainability reporting, there is more work to do. The demand for useful sustainability reporting creates opportunities for CPAs. CFOs are responsible for collecting quality data and providing meaningful disclosures, and meaningful sustainability reporting requires accurate and reliable information. “The growing desire for assurance presents an opportunity for CFOs in particular and their corporate finance organizations to lead the development or refinement of sustainability reporting initiatives. CFOs, already responsible for corporate transparency in the form of orderly and accurate financial reporting, have the tools and resources to capture the potential influence of ESG issues on enterprise performance and valuation” (Deloitte 2016). CFOs will play an important role in determining which sustainability metrics are material and useful to stakeholders. Investors’ information needs should be an important consideration.

Both internal and external auditors will likely play a more important role in the disclosure process. Internal auditors will be instrumental in helping companies strengthen their internal controls so that they may more effectively report on sustainability, while external auditors will be instrumental in providing assurance on sustainability disclosures. The CDP and the DJSI award additional ratings points for companies that obtain some form of external assurance. Approximately 43% of corporations presently have sustainability information certified or audited by independent third parties, and 29% have the information certified by an ESG officer within the company (PricewaterhouseCoopers, ESG Pulse 2016).

Interestingly, there is often no consistency as to the form of assurance reporting when companies do obtain such assurance (Pandit 2016; Arthur Radin, “Sustainability Assurance Reporting: A Nascent Niche, Likely to Grow,” The CPA Journal, July 2016, The AICPA guide is a step in the right direction since it provides detailed guidance to CPAs performing examinations and reviews relating to sustainability information. Appendices D, E, and F provide several illustrations of examination and review reports, depending on the type of sustainability reporting (e.g., an entire sustainability report versus a report on specified indicators). According to Susan S. Coffey, the AICPA’s executive vice president of public practice, “Licensed CPAs have provided high-value sustainability assurance services under general attestation standards for decades, but until now there was no subject matter-specific application guidance covering areas other than reporting on Greenhouse Gas Emissions” (“AICPA Issues New Sustainability Attestation Guide,” July 27, 2017, The new AICPA guidance is likely to help CPAs perform more consistent examination and review services, which will in turn further distinguish the external auditor’s role in providing assurance services. The ultimate goal is to maximize confidence in the credibility and reliability of sustainability information.

Opportunity is sometimes coupled with risk. While proponents encourage increased involvement by CPAs in sustainability reporting, others caution CPAs about taking on sustainability-related services (Edward A. Weinstein and Stanley Goldstein, “Sustainability—Not GAAP Measurement: A Unique Opportunity,” The CPA Journal, June 2016, Regardless of one’s position, CPAs cannot deny that sustainability reporting is becoming increasingly important to the profession. CPAs have an obligation to stay informed, to communicate, and to be active participants in shaping the future course of sustainability reporting.

Jill M. D’Aquila, PhD, CPA is a professor of accounting at the Davis College of Business, Jacksonville University, Jacksonville, Fla.