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Corporate Reporting that Fosters Innovation

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When a company integrates ESG and financial goals into their business strategies, they are likely to increase innovation, create cost savings and enhance stakeholder value. Integrated reporting, which presents ESG metrics alongside traditional, legally required financial metrics in a company’s 10-K annual report, reinforces this approach.

The Benefits of Integrated Reporting
Traditional shareholder reporting is singularly focused on accounting for a firm’s tangible assets, whereas integrated reporting captures a broader view of how a business uses its capital to profit today while sustainably preparing for future value creation. This type of reporting emphasizes the interdependency of financial and ESG progress, bringing to light the relevance of nonfinancial disclosure to company growth.

Integrated reporting is also likely to improve a company’s reputation with stakeholders—shareholders, customers, employees and community members—who are concerned about social responsibility. It is particularly valuable for the investor who seeks reassurance that the company they invest in is taking a long-term view and managing future risks.

While adoption of integrated reporting has been slower in the United States than in many countries, some U.S. companies have fully committed to integrated reporting.

A More Holistic Approach to Value Creation
Clorox® is a long-time leader in integrated reporting, including using performance indicators that range from reducing greenhouse gas emissions to improving employee engagement. The company believes ESG initiatives are best positioned to create value when they are integral to business strategy. As a result, their more sustainable products account for about 40% of Clorox’s growth in recent years. Clorox’s sustainability initiatives have also averaged $15 million in cost savings annually.

An example of Clorox’s sustainability initiatives is their approach to improving their bleach, which targeted value creation for consumers, the environment and the company. The outcome was concentrated bleach that reduced volume by a third.

The benefits of this innovation included significant reductions in packaging, savings in transportation costs and an improved environmental footprint. At the same time, consumers gained access to a superior-performing product that is easier to handle and store. Specifically, introducing concentrated bleach has resulted in an annual savings of 16 million pounds of paper, 10 million pounds of plastic, 225,000 megawatt hours of electricity and 196 million gallons of water. It has also increased sales.

The Future of Reporting to Stakeholders
Integrated reporting both reflects and reinforces corporate commitment to integrating ESG goals into overall business strategy. This integration supports innovation and risk management that can enhance shareholder value over time—and it is likely to become more widely adopted in the years ahead.

As of 03/31/2018, The Clorox Company represented 3.2% of TNA of the Parnassus Mid Cap Fund, 3.2% of TNA of the Parnassus Core Equity Fund and 1.5% of TNA of the Parnassus Fixed Income Fund.