As well as financial performance, are investors also considering a companys sustainability efforts?

As well as financial performance, are investors also considering a company's sustainability efforts?

For the first time, Dutch brewer Heineken has merged its sustainability report into its main annual report. The increased investor interest in sustainability, coupled with the need to account for risks related to climate change, make it likely more major companies will follow suit. Ben Cooper reports.

Heineken's decision to integrate its sustainability report with its main annual report for 2016 represents more than a publishing choice. Rather, it speaks to some important trends in sustainability and environmental, social and governance reporting.

When Heineken published the report, the brewer said it "firmly believes business growth and sustainability go hand in hand". Having made the 'Brewing a Better World' sustainability platform one of its six business priorities, the company said disclosing the programme's progress together with its financial results is "a logical next step". In a statement within the Annual Report, group CEO Jean-François van Boxmeer adds it is "the right thing to do going forward".

Heineken's move reflects the progress being made in the way sustainability data is gathered and published. Perhaps most critically, this is an example of the importance investors are attaching to sustainability. The time when a major company can publish a standalone sustainability report that is more akin to a brochure - brimming with qualitative data and attractive photography but short on quantifiable measures of progress - is fast disappearing.

In the Heineken report, the investor need for hard data on sustainability is met in the same way it is for financial information. Sustainability information is included early in the report, along with the main financial figures, among the financial and operational highlights. Later in the report, there is a further section on sustainability, running to more than ten pages.

Critical metrics covered include a reduction in CO2 emissions in production from 6.7 to 6.5 kg CO2e/hl, representing a 37% reduction compared with a 2008 baseline. In absolute terms, Heineken reports, CO2 emissions have fallen by 5% since 2008, in spite of business volumes rising by 52% in the same period. Meanwhile, water consumption in Heineken's breweries fell to 3.6 hl/hl, a 28% decline from 2008, with the company also reporting it has already met its 2020 target of 3.3 hl/hl for water-stressed areas.

The report states the brewer locally-sourced 49% of agricultural raw materials used in Africa and the Middle East. Heineken is among a growing number of multinationals seeking to align its sustainability objectives with the United Nations Sustainable Development Goals (SDGs). Indeed, reference to the UN SDGs is another theme in its latest report.

In its major markets, Heineken said it invested more than 10% of its media spend in "Enjoy Heineken Responsibly" campaigns and activities.

Of course, standalone sustainability reports can – and do – include detailed quantitative information, which can be every bit as detailed as that found in Heineken's report. Carlsberg, for example, published its stand-alone report just a week after Heineken released its integrated report. Carlsberg's stand-alone document also includes plenty of quantitative data. The Danish brewer reports it reduced energy consumption by 4% to 27.7 kWh/hl from 29 kWh/hl in 2015, representing a fall of 6% from a 2014 baseline. Carbon emissions fell by 10% to 6.3 kg CO2/hl from 7.0 kg CO2/hl in 2015, down 14% from 2014. Meanwhile, energy from renewable sources rose to 17.1% of usage from 15.4% in 2015. The company also said its water efficiency had fallen to 3.2 hl/hl from 3.4 hl/hl in 2015, representing a 6% improvement from 2014.

There are nuances in how companies are approaching publication of their sustainability information. While integrating sustainability and financial reporting, Heineken still sought to focus public attention on sustainability specifically, by issuing a separate statement highlighting its sustainability achievements a week after the information had already appeared in its main report.

However, what publishing sustainability data side-by-side with financial information helps achieve is placing it on the same priority standing as financial reporting. There is far less scope for a company to get away with loose terminology or lack of detail if sustainability information can be instantly compared with the rigour it applies to financial reporting.

Another important factor is the level of third-party authentication sustainability data may receive. While it is possible and increasingly customary for a stand-alone sustainability report to be audited – Carlsberg's, for example, is signed off by KPMG Sustainability – this would be a matter of course in a fully-integrated report.

With regard to auditing, however, there remains considerable work still to be done. The auditor statements in both integrated and stand-alone reports clearly reflect that the level of scrutiny being applied to sustainability information is significantly less detailed than the work auditors carry out in authenticating a company's financials. The statements from KPMG and Deloittein the Carlsberg and Heineken reports, respectively,  are very similar. Both state the auditors provide "limited assurance" that sustainability information is presented in accordance with reporting criteria.

Diageo, which has included sustainability information in its annual report since 2014 and complements this with a fuller Sustainability & Responsibility Addendum, also says it engages independent auditors to "provide limited assurance of environmental performance data (carbon emissions, water usage, biochemical oxygen demand (BOD), and waste to landfill) as well as health and safety data".

Third-party scrutiny of sustainability, and accountability for the claims companies make, are ongoing issues in the sustainability sphere. As integration becomes more commonplace, the gap between the scrutiny offered to sustainability information and that given to financial disclosures will be further highlighted, hopefully leading to faster progress.

Moves to integrate, however, will still largely be voluntary on the part of companies; decisions taken to enhance the effectiveness and credibility of their sustainability strategies, rather than requirements under company law.

Notably, Denmark has probably the most specific company legislation on integrating social and financial reporting. While a number of countries mandate that companies publish non-financial information pertaining to environmental and social factors, Denmark enacted specific legislation in 2009 to compel companies to include environmental, social and governance reporting in their annual reports. However, the devil is in the detail. As is clear from Carlsberg's approach, Danish companies need only reference their sustainability activities and can refer investors to separate sustainability reports.

Most critically, Heineken's move is meeting an increasing requirement of investors. The primary reason for this is the ever-closer association between sustainability considerations and risk, particularly with regard to climate change.

In late-2015, the Financial Stability Board (FSB), an international body that monitors and makes recommendations concerning the global financial system on behalf of the G20, set up a task force to look at climate-related financial disclosures. In its detailed report, published at the end of last year, the FSB's Task Force on Climate-related Financial Disclosures recommends companies include climate-related disclosures in their mainstream financial filings. The report states: "The Task Force believes that publication of climate-related financial information in mainstream financial filings will ensure that appropriate controls govern the production and disclosure of the required information."

Furthermore, it concludes that this will "foster shareholder engagement and broader utilisation of such disclosures, promoting an informed understanding of climate-related risks and opportunities by investors and others". It also, the report adds, ensures that users of climate-related financial disclosures will be able to access information in a timely way, as mainstream financial filings are published at least annually.

As risk associated with climate change becomes an ever-more urgent concern for investors, the likelihood is more will want to see a company's progress on sustainability – scrutinised by independent third parties – side-by-side with financial information.