"Seamlessly joined." In an ideal world, that's how Thomas Keller, CFO of Codelco, sees the public disclosure of all financial and non-financial information published by Chile's state-owned mining giant. With such "integrated" reporting, Codelco's many stakeholders — from investors to employees to NGOs — would receive one report every year packed with financial stats as well as environmental, social and governance (ESG) performance indicators, giving them "the real picture of how the company is facing and managing its material issues," says Keller.

The reality, however, is somewhat different. CFOs like Keller say combining their firms' financials and non-financials into a single integrated report is too wieldy of an exercise for the time being. At many companies, non-financial reporting is simply not yet robust enough. So Codelco will continue to publish two separate tomes — a statutory financial report every April and a voluntary "sustainability" report a few months later.

In Good Company

Even so, Codelco is pushing the envelope on non-financial reporting. In 1999, it became the first company in Chile to publish a sustainability report and was among 398 Latin American companies to do so last year, out of around 5,000 worldwide, according to CorporateRegister.com, a corporate social responsibility (CSR) information provider. The roster of other Latin American companies raising the stakes of sustainability reporting includes utility Endesa Chile; Gas Natural Argentina; cement manufacturer Cemex of Mexico; and Natura Cosmetics and financial institution Itaú Unibanco, both of Brazil.

Codelco's latest sustainability report joins those of 61 other metals and mining firms worldwide and follows new sector-specific reporting standards, from disclosure about exploration strategies to indigenous-rights policies.The report also discusses the impact of the devastating 8.8 earthquake that hit central Chile in February last year, forcing the company's mines in the area to close temporarily, and Codelco's role in providing technical advice during the successful rescue of 33 miners trapped in another firm's mine in northern Chile last summer. What's more, this year, Codelco's entire board of directors, not just the CEO, was involved in reviewing and approving the report, providing a strong signal to stakeholders about sustainability's overall growing profile in the company, according to Keller.

As the global trend toward corporate environmental and social accountability gains momentum, some experts say performance reporting in these areas is on the cusp of change. Seen by stakeholders as a proxy for the long-term value creation of the firms in which they're involved, non-financial reporting across the region is gaining credibility. "As CSR and sustainability get into the business, senior management wants this information [and] the board wants this information," according to Robert Eccles, professor of management practice at Harvard Business School and author of several books on non-financial reporting. "It's not this ancillary PR activity, which is sort of where it started."

But there's still work to be done to fully shake off the aura of PR surrounding sustainability reporting. For a number of reasons, companies around the globe are struggling to make sustainability reporting as credible as their financials. One reason? "There are some companies that 'greenwash' — basically saying they're green and picking a few small anecdotes out of a multibillion dollar business to show that [they're] doing the right thing," says Eric Orts, a Wharton professor of legal studies and business ethics. However, that's not stopping other companies from raising the bar.

Nowhere is this clearer than in Latin America. While veteran sustainability reporters are ramping up the breadth and depth of their disclosures, others are responding to growing public awareness of CSR and embarking on new reporting efforts.

My Carbon Is More Neutral Than Yours

One country that provides reason for optimism is Brazil. Despite the challenges, its companies are leading the way, according to experts. "It's sort of a competitive green thing," notes Neil McIndoe, director of partnerships at London environmental data provider Trucost. McIndoe spent much of last year working on a project for Brazil's Bovespa stock exchange. Having seen the results of a project that Trucost had done in conjunction with Standard & Poor's to create what McIndoe calls a "carbon optimized" version of the S&P 500, Bovespa hired Trucost to do something similar with its large IBr-X 50 listed firms.

Bovespa's approach made sense to McIndoe. As he saw it, Brazil's largest listed companies "are in a decent position" to promote their green credentials to investors worldwide. "They have some natural advantages there," he says, citing the country's abundant hydropower and efficiently produced ethanol as examples. Last year, Trucost measured Brazil's 48 largest companies against more than 700 metrics and found that their environmental "footprint" — that is, the costs associated with environmental damage a company and its supply chain causes as a percentage of revenue — was on average 4.85%, compared with 7.27% for companies listed on the U.K.'s FTSE 100 index.

Nonetheless, participating in Bovespa's new Efficient Carbon Index was going to be a stretch for all but the most proactive green IBr-X 50 companies that volunteered for the project. Bovespa required the 48 companies to provide researchers with greenhouse gas data from up and down their supply chains, something that wasn't readily available among individual suppliers, or had never been reported before. McIndoe found many simple mistakes, such as decimal points being in the wrong place. "Some companies would have the data, many wouldn't," he recalls, which meant the firms leaned heavily on Trucost to guide them and verify the data.

Launched in November, the inaugural index was deemed a success, with a dedicated fund set up off the back of it. McIndoe says it's a good start, although it does underscore why companies generally struggle with sustainability initiatives and how they are measured and reported. But McIndoe sees those obstacles as short term. In a sense, it's a virtuous circle. "We've noticed that when people start to report it, they start to manage it, and typically do a pretty decent job," he notes.

'The Moment of Truth'

But how to start? "The biggest mistake happens at the very basic level — deciding what goes into the report," according to Nelmara Arbex, deputy CEO of the Global Reporting Initiative (GRI), one of a handful of organizations that has developed sustainability reporting standards for companies to follow, which are similar to the international accounting standards used for financial reporting.

Arbex says many companies underestimate the importance of starting off with a strong foundation of metrics. "If you don't do this right, it becomes an expensive exercise and it's much less interesting for stakeholders," she notes. "If you do it right, you can keep the system going on for years and years and keep improving on it." Before joining the Amsterdam-based NGO in 2006, Arbex spent several years in her native Brazil overseeing the corporate responsibility program of Natura Cosmetics, which is now considered a frontrunner of sustainability reporting not just in Latin America, but worldwide.

Eccles agrees with Arbex about keeping reporting processes simple on the one hand, but to the point and free of PR fluff on the other. "Here's where it becomes moment of truth," he adds. "CEOs like to say, 'ESG is good for shareholders; we're not just being green; it's good for business.' If that's true, let's get more specific. What is it about ESG? Is it cost savings? Is it faster revenue growth? Shared wallet with customers? Better supply chain management? Lower risk? And how does this improvement in a nonfinancial metric contribute to an improvement in a financial metric?" Ultimately, companies should strive to deliver nonfinancial information with the same quality of analysis and control systems overseeing it as with financial information, he says.

That's easier said than done. As companies march closer and closer to that goal, the irony is that the senior executive best positioned to ensure that happens — the CFO — is often also sustainability reporting's "biggest barrier," according to Eccles.

In the past, he says, the closest that CFOs and their finance teams — often reluctantly — got involved in this area was when they were "called upon to provide analytical support for the overall assessment of sustainability initiatives," Now, in tandem with their nitty-gritty financial reporting responsibilities, "?nance is often charged with measuring and reporting sustainability performance — the range of impacts on the environment and society." That expanded role is not always in finance's comfort zone, however. "It is information that CFOs don't immediately have their hands on and doesn't come out of their financial reporting systems," Eccles notes.

That said, there's growing evidence of how companies' sustainability reporting can have an impact on their balance sheets. Indeed, more and more analysts are scrutinizing these reports, Eccles points out. Meanwhile, socially (or sustainable) and responsible investing (SRI) is now an US$11 trillion business, according to London-based asset manager Threadneedle Investments.

It's not just the role of finance that can raise the credibility of sustainability reporting, notes Eduardo Sanzana, Codelco's head of environment, community and government. His small team at headquarters in Santiago works with managers from across the company, including finance, to compile the mining firm's sustainability reports. He points out that in recent years, external auditors have assessed Codelco's sustainability reports. Many other companies are increasingly doing the same — last year, the proportion of companies reporting under GRI that voluntarily had their reports assured increased to 47% (664) from 45% (510) the previous year. But Sanzana says more can be done to give stakeholders comfort that the information in reports is honest and accurate. That's where regulations come in, he asserts.

According to Sanzana, the first step in that direction is to follow the lead of a minority of countries, including South Africa, whose market regulators make it mandatory for listed companies to produce such reports. The next step is to ensure measures are in place to deter "greenwashing," and discourage companies from simply going through the motions. "I've seen a lot of reports in Chile, and a lot of them are very light in terms of information," he notes. "It should be stricter in my opinion."

Echoing Sanzana, Wharton's Orts says, "At a minimum, the information needs to be reliable. But if there's no incentive for companies not to provide information that's false and there's no penalty, then it's a problem." Government regulation could help, he adds, but "it's an open question as to how far."

GRI's Arbex, however, says there's enough encouraging evidence in Latin America indicating that sustainability reporting can thrive under self-regulation. She argues that in Latin America, society rather than government holds a bigger sway over companies in this regard–"society expects companies to behave in a certain way, but not because of government stepping in with regulations, and companies [in Latin America] aren't waiting for regulations." To that end, several Latin American companies are at the cutting edge of reporting, she says, including her former employer, Natura.

Reporting for Duty

Indeed, in many aspects of sustainability, "Natura is a bit of a shining star," notes Trucost's McIndoe, citing, among other measures, the company's new procurement initiatives requiring suppliers to uphold stringent "green" criteria. "When I recently visited them, they had a huge project looking at all their procurement, and they were putting into their procurement decisions strong environmental, social and governance criteria. If a company didn't meet these criteria, they would not be suppliers for Natura."

As for sustainability reporting, Natura has joined a small, elite group of companies. Along with the likes of Southwest Airlines and United Technologies in the U.S.; Dutch health care and lighting company Philips; Danish pharmaceutical company Novo Nordisk and German sportswear firm Puma, it has now embarked on the Holy Grail of sustainability — integrated reporting.

Demonstrating the full, high-level support that such reporting receives, Natura's 143-page publication for 2010 begins with a letter signed by six executives, including CEO Allessandro Carlucci and CFO Roberto Pedote, and succinctly outlines the financials and nonfinancials for the year. Alongside an overview of the factors helping the company increase net revenue by 21% year on year to R$5.1 billion (US$3.3 billion) and achieve an 8.8% rise in net income to R$744 million, the report also puts a spotlight on ESG, such as a program investing in education, which received a record R$10 million in funding, 168% more than in 2009.

Its integrated reporting includes not only the goals set out to serve stakeholders that were achieved, but also those that were behind schedule or not achieved. For example, Natura reports that because of unforeseen complications, it needs to extend the period to 2013 from 2011 for achieving a 33% reduction in its relative greenhouse gas emissions. (By the end of this year, it will achieve a 21% reduction.) Such transparency and honesty appears to have been well received by the investor community — as the report notes, Natura's share price rose 37% in 2010, compared with a gain of 1.3% for Brazil’s main stock market index, Ibovespa.

Transparency and credibility are "important issues for us, likewise for the care that we have with regards to the relationship with our audiences," according to Natura’s director of corporate matters and government relations, Rodolfo Guttilla. "For this reason, it is something that we are always discussing," he adds, noting how Natura has spent the past decade continuously seeking ways to improve its sustainability reporting, by, say, increasing the use of Internet and other interactive technology to enrich its data collecting and analysis.

For sure, it's a big investment, but other companies will soon be joining Natura in those ESG efforts, experts predict. "Companies are beginning to understand that this is not going to go away; they are going to have to report it so they should try to do it in a systematic way," says Trucost's McIndoe. "I don't think it gives great joy to many companies that do it. But I'm not sure that's true for the financial reporting either."