Re-examining the value of transparency: Performance driver or burdensome reporting?

For the past 40 years, transparency strategies have been based on the assumption that more data leads to better quality and performance outcomes. But as transparency has morphed into a core concept in the sustainability playbook, some sustainability professionals are starting to question whether expanded transparency actually yields improved performance results.

Like so many initiatives, the genesis of sustainability reporting started out with a relatively simple mission. In the 1980s, public concern over toxic chemical releases and their presence in consumer products led to transparency initiatives such as California’s Proposition 65 in 1986, which required the state to maintain and update a list of chemicals known to cause cancer or reproductive toxicity. (It was subsequently amended to also include substances that cause cancer in animals.) That same year, Congress passed Title III to the Superfund Amendments and Re-Authorization Act (SARA Title III), giving communities the right to know the identity and amounts of hazardous chemicals used in facilities across the nation. This law required an annual public report to be filed by organizations using these compounds, and served as America’s de facto national report card on toxic releases to air, land and water. It placed significant pressure upon companies to reduce their use of such compounds.

Expanded environmental sustainability reporting has also partially filled an important information vacuum left by the inability of policymakers to enact mandatory regulations. The failure to regulate greenhouse gas emissions at the national level during the past three-plus decades, for example, has led to reporting mandates to expand climate-related emission inventories and unimplemented proposals to disclose the financial risk of climate change. Within the private sector, government-required reporting on the materiality of financial risks has migrated into a methodology for voluntarily evaluating sustainability-related risks.

In recent years, the expansion of the sustainability agenda to include more emphasis upon social issues and governance has led to increased reporting. As of 2022, 96 percent of companies worldwide reported on some level of sustainability, up from 91 percent in 2019. 

Does added transparency improve performance? 

The widespread assumption, from all these advancements, is that expanded transparency leads to better performance. But that assumption is now the focus on an increasing debate. Both smaller and medium-sized enterprises and their larger peers face significant reporting challenges. For one, reporting is distinctly different for smaller companies than for larger enterprises due to smaller budgets and staff. As a result, smaller organizations have historically advocated for reduced mandatory reporting or exemptions below de minimus levels. Global-scale companies, meanwhile, that have to comply with the newer European Union Corporate Sustainability Reporting Directive (CSRD) find their compliance investments go well beyond data collection into newer systems and processes. While the CSRD will likely evolve over time, it may, in the short run, divert staff and resources away from investing in direct performance improvements.

Expectations for greater reporting have followed the expanded sustainability agenda to include the inequitable burden of pollution exposures across lower income communities, and diversity, equity and inclusion issues. According to the National Academies of Sciences, Engineering and Medicine, these actions attempt to redress historic inequities and are bringing new data sets — derived from crowd sourcing, data analytics and innovations in pollution monitoring technologies — into the public domain. They have also sparked a backlash from conservative political forces that actively resist using financial climate risk data in portfolio management or reducing cumulative pollution build-up in at-risk communities in permitting and other decisions.

As reporting metrics have multiplied, public understanding of risks has been challenged by the fog of information overload. As far back as the mid-1980s, when petroleum companies were required to post labels on refueling pumps on the possible carcinogenicity of motor gasoline components, the public reaction to this information quickly faded – so much so that most consumers are unaware that such a warning is posted on gasoline or many other products in commerce, such as in the consumer packaged goods space. 

The path to a more effective transparency future

Led by innovations in digital technology, we have entered a revolutionary period of data collection and analysis that challenges even the most informed sustainability professionals to effectively manage ever-increasing volumes of information. At the same time, a number of major companies have withdrawn their participation in business coalitions such as the Climate Action 100+ coalition within the financial sector or have individually retrenched, such as Wal-Mart and McDonald’s, on commitments for ESG goals and reporting, complicating the future of transparency. But there are still ways to move forward. 

1. Develop a new governance strategy for data management. This strategy requires collaboration among data generators and consumers that, given the global nature of sustainability problems, needs to take the form of international agreements on data-sharing and standards. Some regions have already taken steps to share environmental data across borders through the European Environment Information and Observation Network.
2. Prioritize sustainability transparency initiatives. There is a lack of consensus within the sustainability profession on priorities for reporting. In my opinion, six arenas could provide a roadmap for organizations that focus on the need for quality policy and business relevant reporting: biodiversity protection; climate change; water access and consumption; plastics production and waste; supply chain governance; and human rights/inequality. Industry-specific sector and sub-national reporting will also be needed to provide economic opportunities or redress from pollution risks.
3. Foster open innovation. Advancing open innovation goes beyond traditional collaboration and will require both public and private organizations to work together to find better ways to report. This entails the development of more common reporting exchanges across government, industry, communities, universities and other stakeholders and can yield practical advantages through funding, training, research and more for evaluating the implications for data and the risks they seek to ameliorate. For example, the Open Data Cube provides tools for expanding the use of earth observation data from satellites in more than 50 countries. 

For these strategies to be effective, the sustainability community must move beyond the simplistic assumption that more data yields better performance. We must commit to an approach in which the desired performance outcomes guide the generation of data we seek. The conversation has only begun.