A Call for Mandatory Corporate Social Responsibility (CSR) Reporting
By Ron Robins
May 26, 2010, Canada′s CBC Radio carried this story: Eleven workers have died making products for Apple and Dell at a Chinese factory. Workers at this plant are now asked to sign a contract pledging that they will not kill themselves!
This is a horrific story, but what kind of corporate social responsibility (CSR) does Apple, Dell, or any other company bear in such situations? I think most people agree that such companies bear a lot of responsibility. Oddly enough both Apple and Dell publish CSR reports and do have rules of conduct for their suppliers. However, it is obvious something went tragically wrong in this case.
I believe that CSR information—information pertaining to all environmental, social, and governance (ESG) activities of a company—should not only be standardized and government mandated, but also independently reviewed and audited too—just like financial reports.
Mandatory CSR reports needed by investors and all stakeholders
CSR reports are important for investors, employees, consumers and stakeholders of all kinds. Each group has its own reasons for wanting to know about a company′s ESG activities.
Investors and investment analysts want to know the full liabilities and opportunities of a company. Potential employees wonder if it is a good company to work for.
Consumers worry about product reliability, safety, and environmental effects. Governments need CSR reports on companies they are working with, or to whom they are offering tax-breaks or other incentives—if only for their political survival should some negative problem arise from the company′s activities.
CSR reports are good for companies too
The CRReporting Awards 2010 (CorporateRegister.com), says about 4,000 CSR reports will be published in 2010. Almost half of them are from European companies, roughly 15 per cent each from North America and Asia, and under 5 per cent from the Middle East and Africa. Around 20 per cent of all CSR reports are by companies producing their first report.
Company managers not familiar with CSR should read the following carefully. According to OWW Consulting companies engaging in the CSR framework:
â€¢ Improve financial performance
â€¢ Reduce exposure to non-financial risk
â€¢ Help identify new products and new markets
â€¢ Enhance brand image and reputation
â€¢ Increase sales and customer loyalty
â€¢ Improve recruitment and retention performance
â€¢ Create new business networks
â€¢ Increase staff motivation, contribution and skills
â€¢ Improve trust in the company and its managers
â€¢ Improve government relations
â€¢ Reduce regulatory intervention
â€¢ Reduce costs through lower staff turnover
â€¢ Reduce costs through environmental best practice
There are even more good reasons for companies to engage in CSR and issue CSR reports. Companies may take actions pre-emptively when they realize disclosing something remiss might lead to difficulties for them; they can demonstrate that they are good members of the communities where they operate; and, assuming the CSR reports show the companies are in good standing, they can use them for promotional purposes and good PR.
However, there is one more very big reason for companies to create a CSR report: it is that the production of it necessitates a CSR focus and as a side benefit it increases the value of a company, according to Lammertjan Dam of the University of Groningen, Netherlands.
As the outsourcing problem for Apple and Dell exemplifies, companies have to be proactive on CSR issues or they can be caught off guard with sudden stock declines, sales losses, and untold liabilities when something negative happens to them.
Just printing a glossy annual CSR report does not work anymore. 24/7 updating of CSR issues is necessary, not only via press releases but also on the company′s website too. Proactive engagement with stakeholder communities is an asset today.
Calls for government mandated CSR reporting from around the world
CSR concerns are rapidly gaining in the Middle East. In November 2009 the Sustainability Advisory Group found that, “â€¦a common thread of opinion from executives operating in countries ranging from the UAE to those in Saudi Arabia, Bahrain and Lebanonâ€¦ Governments need to do more to require and incentivise business to adopt Corporate Social Responsibility…”
In a just released May 27 strategic report, Carrot and Sticks: promoting transparency and sustainability, reveals that, “a total of 142 country standards and/or laws with some form of sustainability-related reporting requirement or guidanceâ€¦ two-thirds are mandatory [by government]â€¦ A more active role for government regulators in sustainability reporting should be encouraged.”
Sustainability in this report refers to environmental, social, and governance (ESG) factors—the areas dealt with in CSR reports. (The reports′ sponsors were: the United Nations Environment Programme [UNEP]; the Global Reporting Initiative [GRI]; Unit for Corporate Governance in Africa, University of Stellenbosch Business School; and KPMG.)
Three countries stand out with regard to CSR regulations. The first is Denmark, which was the first western country to require non-financial (i.e. CSR) information in their largest companies′ annual financial reports. The second is Indonesia, which has taken a global lead by passing a law requiring all public companies to issue CSR reports; and third, perhaps the biggest impetus for CSR reporting, came in January 2010, when the U.S. Security Exchange Commission (SEC) asked all U.S. public companies to regularly disclose climate-related risks in their annual reports to investors.
There is little doubt that we will have near universal government mandated CSR reporting for all public companies sometime in the next five to ten years. Companies have to get prepared for best CSR practices and reports. Even if companies produce good CSR reports, as appeared to be the case with Apple and Dell, things can fall badly between the cracks.
CSR reports need to be standardized, rigorously completed by outside, reliable third parties, and then audited by licensed auditors competent to do the job. CSR and ESG factors are among the big issues for the next decade. Governments need to see them as being of comparable importance to financial statements and reports.
June 9, 2010