4.4 What motivates Governments to get involved?

There is a general understanding that Governments have a primary role to play in moving society to a sustainable model of development (The Group of Friends of Paragraph 47, 2012).1 The Group of Friends of Paragraph 47 is an example of a group of countries who acknowledge the importance of sustainability reporting and its inclusion in Paragraph 47 of the outcome document of the United Nations Conference on Sustainable Development Rio+20 to advance corporate transparency, accountability and trust.23The countries part of this group trust in their joint efforts to promote best practices in sustainability reporting and making it a reality. This trust was the reason of their commitment and motivation for getting actively involved in promoting “an economically, socially and environmentally sustainable future for our planet and for present and future generations.”4 The number of Governments, market regulators and stock exchanges adopting sustainability reporting policies and regulation around the world is growing.5 In 2016 stock exchanges have issued 44 reporting instruments, compared to 23 identified by GRI in 2013.6 Governments and policy makers are increasingly acknowledging the importance of sustainability reporting to promote transparency in capital markets and closely following the trends set by the corporate sector and responsible investment demands.7 However, scaling-up sustainability strategies by the world’s largest companies and investors will also constitute a major contribution to sustainable development.8 Although there is unprecedented demand for corporate transparency, accountability and sustainability reporting, less than 10% of large EU companies report on their ESG risks on a regular basis (GRI, 2015).9 The potential of Governments, companies and investors as been recognized in international commitments as the Sustainable Development Goals10 ratified by the United Nations in September 2015, and at the Paris COP21 climate change accords.1112

Apart from the positive examples of the joint efforts with the Paragraph 47, Sustainable Development Goals and Paris COP21 climate change accords, Governments sustainability reporting’ initiatives have been disjointed and fragmented, as reported by investors when describing policymakers intervention (UNGC and Accenture study, 2014).13 The corporate sector and investors have expressed their belief in a joint commitment to action between the private sector and policymakers to reshape markets and systems to reward sustainability leaders. By engaging with Governments and policymakers, the corporate sector can lead the way to promoting and facilitating sustainability reporting best practices. The lack of commonly accepted definition for sustainability may add to the Governmental fragmented action and it is also at the origin of a fragmented global action.14 Alignment between Governments, policy makers, corporate sector and investors is needed for further action.

Notwithstanding the conservative attitude of certain corporations, international developments can push Governments to get involved. The resistance of the corporate sector and of investors may contribute to push back Government intervention. Amongst companies’ concerns are the high costs of implementing a sustainability strategy into their business model and also struggle to communicate with investors on the business value of sustainability. On the investors’ perspective, they question the link between integrating sustainability into the investment process and the return on investment. According to the UN Global Compact and Accenture (2014) “investors see the benefit of sustainability but are at odds with business leaders on measuring its value.”15 There is a gap between what companies say to investors regarding the quantification and reporting of their sustainability commitments. Investors believe companies overestimate their sustainability performance. The same UN Global Compact and Accenture study (2014) reported that 74% of business leaders say their company measures both positive and negative impacts of their activities on sustainability outcomes; but only 17% of investors believe this to be the case for the companies in which they invest. Moreover, 47% of CEOs report that they routinely incorporate sustainability issues into discussions with financial analysts, against just 27% of investors who believe this to be the case. Investors also see challenges in short-termism is a concern for investors, 71% believe that short-term financial investments are making sustainability efforts more difficult for companies and 49% of the investors surveyed identified quarterly reporting requirements as an important barrier to further progress. This is where Governments can help, by creating a long-term focused regulatory landscape favorable to the investors’ long-term horizon.16