Managing and reporting environmental, social and governance (ESG) business practices help companies compete in a business environment characterized by finite natural resources, changing legislation, and heightened public expectations. Transparent, substantive reporting allows companies to gain strategic value from existing sustainability efforts and identify emerging risks and opportunities. ESG issues can pose significant risks to business. Without proper disclosure stakeholders and analysts cannot ascertain whether the company is managing its ESG exposure.
The link between strong sustainability management and value creation is increasingly evident. A 2012 Deutsche Bank review of 100 academic studies, 56 research papers, two literature reviews, and four meta-studies on sustainable investing found 89% of the studies demonstrated that companies with high ESG ratings also showed market-based outperformance.
More than 1,200 institutional investors managing more than $33 trillion have joined The Principles for Responsible Investment and publicly commit to seek comprehensive corporate ESG disclosure and incorporate it into investment decisions.
The majority of large corporations also recognize the value of sustainability reporting. As of December 2012, 53% of the S&P 500 and 57% of the Fortune 500 published a corporate sustainability report; 63% of S&P 500 reporters utilized the Global Reporting Initiative (GRI) Guidelines. According to a 2011 KPMG report, 80% of Fortune Global 250 companies produce GRI-based sustainability reports.
Industry peerslike Darden Restaurants, Dunkin Brands, and Starbucks have identified relevant ESG factors and address them through sustainability reports.
In contrast, Chipotle Mexican Grill which stated in 2010 that its “commitment to serving Food with Integrity will continue to have many beneficial impacts,” and “it is constantly working to get all of the ingredients it uses from sustainable sources”, has very limited information on its policies and progress toward achieving its objectives.
Shareholders request Chipotle issue an annual sustainability report describing the company’sshort- and long-term responses to ESG-related issues. The report should include objective quantitative indicators and goals relating to each issue where feasible, be prepared at a reasonable cost, omit proprietary information, and be made available to shareholders by October 2014.
The report should address relevant policies, practices, metrics and goals on topics such as: greenhouse gas emissions, pesticide use management, waste minimization, energy efficiency, labor standards and practices, and other relevant environmental and social impacts.
We recommend Chipotle consider using the GRI Sustainability Reporting Guidelines to prepare the report. The GRI is an international organization developed with representatives from business, environmental, human rights and labor communities. The Guidelines cover environmental impacts, labor practices, human rights, product responsibility, and community impacts. The Guidelines provide a flexible reporting system which allows the omission of content irrelevant to company operations.
We also recommend Chipotle consider drawing on the expertise of the Equitable Food Initiative (EFI). The EFI is a collaborative effort of retailers, workers and growers focused on reducing risks in food supply chains. Its standard was adapted to reduce duplication of other industry-leading certifications and has attracted Costco and Bon Appetit as project partners.