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October 17, 2008
We Need Mandatory
Corporate Social Responsibility (CSR) Reporting
by Ron Robins*
I favour mandatory CSR reporting. Let′s
face it, companies coming clean on their environmental,
social and governance (ESG) practices are now being seen
important by nearly everybody. ESG issues are essential
in informing us about long-term opportunities and risks
for individual companies. Therefore, CSR reporting
should be as mandatory as audited financial statements.
As revealed by
Watson Wyatt recently, ESG analysis is one of the
six big macro trends among institutional investors. And
in most developed countries, over 80% of investors are
interested in this too.
For small companies, this might be costly, so perhaps a
reduced form would be better for them. But for large
companies with big societal impacts, CSR reports should
be standard practice.
Also, stockholders reading a company′s CSR report need
to be assured that what they are reading is factual and
reliable. Today, we see a proliferation of differences
in CSR reports in their methodology, construction and
reporting styles. There are no universally accepted
standards, such as Generally Accepted Accounting
Principles (for financial statements). And for North
American companies, few are externally audited or have
what are called an ‘assurance statement.′ The latter
means an external reviewer provides an independent audit
of the report, and we hope, with some useful commentary
as well. Some companies have gone the route of creating
an external advisory panel of highly respected
individuals who review and comment on the report. Many a
Japanese company has just one respected individual
placing a comment within the CSR report. That might be
alright for some, but for most investors, it would seem
inadequate.
As in accounting, to avoid conflicts of interest, the
people who create the CSR report should not be the same
ones who audit it.
Not only should these reports be required, but they must
be audited and opinion given by qualified ‘assurers.′
This suggests some form of standardization in the design
of these reports and the qualification of whom may
perform such audits and offer opinions. Currently there
is an enormous variety of CSR reporting methodologies.
But three key ones are emerging. They are: the
‘AA1000AS,′ created by the Institute of Social and
Ethical AccountAbility (usually called, simply
AccountAbility) from London, England; the ‘ISAE 3000′
which has been developed by the accountancy profession;
and the ‘Global Reporting Initiative (GRI) Guidelines,′
developed collectively by numerous CSR professionals and
stakeholders. The first two of these are considered an
assurance standard in the CSR reporting industry.
However, the ISAE 3000 is the only standard that has
developed a global following so far.
So when you review a CSR report, check
to see how it was created and who assures its data and
statements before taking it seriously. Also, check for
statements of independence of the assurance provider to
the company as well as any disclaimers! This obviously
is important for those who rely on these reports in
assessing socially responsible investment rankings.
The idea of separating non-financial reporting from
financial reports may well change in the years ahead.
From an investors′ standpoint, it is probably preferable
to have them integrated into one report rather than as a
separate report that the investor has to request.
From the research which I have seen, it is clear that
the greatest number of CSR reports that have some type
of independent scrutiny are from European companies. In
North America, given its particularly litigious climate,
it seems that some companies, and especially those who
might perform an assurance or auditing function, steer
away from doing this work because of the danger of being
sued. This is a pity, and ways around this problem need
to be found.
Companies should realize that it can be very beneficial
for them to engage outside consultants in the CSR
reporting process. Such consultants can help them in
enhancing their data quality and provide information on
how to continuously improve their CSR performance. Thus
benefits to their bottom line can accrue. In turn,
organizations which provide ratings on ethical and
socially responsible investments may give them higher
rankings, resulting in higher prices for the company′s
stocks and bonds.
Unsurprisingly, countries in Europe and Asia
particularly, are increasingly likely to mandate CSR
reports for all companies. Norway seems set on this
path, according to
Responsible Investor. And in the UK directors of
public companies must now disclose environmental and
social risks that are material to the company′s
operations. Eventually I believe we will see countries
everywhere mandating CSR reporting for public companies.
These reports will be largely uniform in structure,
contain generally agreed upon ‘reporting principles,′ be
audited by professionally licensed assurance providers,
and contain a standard ‘assurance statement.′ Without
these safeguards investors are disadvantaged in
understanding, comparing, and knowing how to act upon
CSR reports.
Special note. Much of the above information came from an
extraordinary, first-of-a-kind, study: Assure View.
The CSR Assurance Statement Report, recently
released by, and available from,
http://www.CorporateRegister.com/.
I highly recommend anyone interested in CSR or ethical
investing to read this report. Please note though, that
opinions expressed in this editorial are my own.
*
Ron Robins, MBA, is founder, Investing for the
Soul (http://investingforthesoul.com/),
Huntsville, Ontario, Canada. He advocates, teaches, and writes
on the subject of ethical investing. To contact him,
e-mail
to Ron Robins or call 705-635-3034.
© Ron
Robins, 2008. |
