June 9, 2010
A Call for Mandatory Corporate Social Responsibility
(CSR) Reporting
By Ron Robins, Founder & Analyst -
Investing for the Soul
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:
• Improve financial performance
• Reduce exposure to non-financial risk
• Help identify new products and new markets
• Enhance brand image and reputation
• Increase sales and customer loyalty
• Improve recruitment and retention performance
• Create new business networks
• Increase staff motivation, contribution and skills
• Improve trust in the company and its managers
• Improve government relations
• Reduce regulatory intervention
• Reduce costs through lower staff turnover
• 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, “…a common thread of opinion from executives
operating in countries ranging from the UAE to those in
Saudi Arabia, Bahrain and Lebanon… 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 guidance… two-thirds are mandatory [by
government]… 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.
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