M Business 5th Edition by Ferrell,Geoffrey Hirt,Linda Ferrell

Exercise 2

Sustainability measurements might soon become part of annual reports. Investors are demanding information from companies about their sustainability efforts and how environmental regulations will affect costs of operations. As sustainability concerns and the threat of climate change increase, some predict that environmental metrics will become part of generally accepted accounting principles.
ExxonMobil Corp. made headlines with its decision to publish a report explaining to investors how environmental regulation will affect the costs of drilling oil and gas. These costs are considered risks by the organization because they will likely increase the price of oil and gas, which impacts shareholders. ExxonMobil estimates that by 2040 the costs of environmental regulation in developed nations such as the United States and the European Union will cost the company $80 per ton of oil and gas.
ExxonMobil's decision to disclose the costs of environmental risks is a breakthrough for the industry. Although the Securities and Exchange Commission requires standardized annual reports to include some data of how climate change can affect earnings, this information is often minimal. More than one-third of insurance companies, for instance, do not disclose climate-change risk in their reports. However, as investors demand more disclosure, global firms are beginning to comply. More than 80 percent of firms on the London Stock Exchange and Deutsche Börse release this information.
Organizational initiatives have been developed to provide guidance for organizations in sustainability reporting. The Global Reporting Initiative, for instance, provides measurements for standalone reports. The Climate Disclosures Standards Board collaborates with business professionals and accountants to develop a global framework for sustainability disclosure in mainstream reports. 5
Why are investors demanding more environmental information from companies?