Corporate Social Responsibility (IVOR nr. 77) 2010/6.5:6.5 Private regulation on sustainability reporting

Corporate Social Responsibility (IVOR nr. 77) 2010/6.5

6.5 Private regulation on sustainability reporting

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Despite the near absence of public regulation in this field, sustainability reporting has gone mainstream among the largest multinational companies. A KPMG International Survey showed that nearly 80 per cent of the largest 250 companies worldwide have issued sustainability reports in 2008, while another four per cent integrated CSR information into their annual reports (KPMG Survey).1 The drivers for reporting seem to be ethical considerations, innovation, risk management and investors. It has also been reported that the integration of CSR information into annual reports is increasing. On average, among the largest companies in 22 countries from different continents, the rate of reporting is 45 per cent.

It is highly likely that this upward trend is the result of more specific criteria and guidance on sustainability reporting that have been developed at the private regulation level. A number of international CSR initiatives are now deeply rooted and have reached a new maturity.2 In this section, some of these initiatives will be examined. In particular, the GRI's Sustainability Reporting Framework, which includes the GRI Guidelines, provides clear guidance for organisations in disclosing their sustainability performance.3 In the following sections of this chapter the most important initiatives for corporate sustain-ability practice will be explored.

The GRI was initiated in the US in 1997 by the UNEP and CERES, a national network of investment funds, environmental bodies and other public interest groups. The purpose was to develop a framework for businesses concerning sustainability issues.4 Its creation also involved the participation of companies, consultants, NGOs and universities. Research conducted by the French sustain-ability rating agency Vigeo indicated that the GRI has now become the most widely-used sustainability reporting framework around the globe (Vigeo Research).5 More than 1,500 companies, including many of the world's leading companies, have declared their voluntary adoption of the GRI Guidelines.6

The GRI Guidelines outline the core content of sustainability reporting, which is generally relevant to organisations of all sorts and sizes. The GRI Sector Supplements aim to complement the GRI Guidelines by providing sector specific guidelines for 12 sectors that require specialised guidance, including the automobile sector, financial services, mining and metals and NGOs. Their objective is to capture the unique set of sustainability issues faced by different sectors'.7 Indeed, their development represents genuine progress because it allows a comparison between similar organisations with fixed and comparable indicators that better reflect the integration of internationally recognised objectives and principles of social responsibility.8 Furthermore, additional indicators for specific themes (e.g. human rights, biodiversity) were developed. The GRI also promotes functional coherence with other instruments, such as the Global Compact and the Earth Charter.9

Companies can register their GRI Report with the GRI, which report will subsequently become available to the GRI network. A list of the companies that have registered GRI reports since 1999 is accessible to the public through the GRI website.10 Moreover, the GRI can verify the 'Application Level' of a company by providing information regarding the extent to which the GRI Guidelines have been utilised. However, in order to remain independent and avoid potential conflicts of interest (i.e. consulting on its own Guidelines), the GRI does not provide consulting services for reporting. Furthermore, the GRI

'does not engage in any assurance, auditing, verification [or] certification'.11 Therefore, the so-called Application Level merely informs readers of a particular GRI report of the extent to which the GRI Guidelines and other reporting framework elements have been applied in the preparation of that report. The Application Level does not assess the value or the quality of the report's content.12 The GRI does offer an 'application level check'. In addition, a 'plus' mark (+) can be declared by the reporting company itself if external assurance has been applied to its GRI report.13 This is certainly an incentive for companies to carry out an external audit of their GRI reports.14 It goes without saying that the auditing of non-financial information differs substantially from financial auditing, considering the type of expertise and methods involved.15

In this regard, AccountAbility, an international think-tank and advisory group, has created the AA1000 AccountAbility principles intended for use by organisations developing an accountable and strategic approach to sustainability. In particular, these principles require that an organisation actively engage with its stakeholders, fully identify and understand the sustainability issues that may have an impact on its performance, and then use this understanding to develop responsible business strategies and performance objectives.16

The UN Conference on Trade and Development (UNCTAD) also works to improve sustainability reporting by companies. It promotes the use of comparable responsibility reporting indicators. In 2008, UNCTAD published the Guidance on Corporate Responsibility Indicators in Annual Reports' as a voluntary tool to incorporate concise and comparable CSR indicators within annual financial reports.17 The guide consists of 16 indicators, along with a reporting methodology, designed to provide quantitative and comparable information on CSR issues. The objective of this guide has been developed with reference to the GRI Guidelines and IFRS.18 In 2008, a Memorandum of Understanding was signed between UNCTAD and the GRI, whereby UNCTAD formally endorsed and recommended the GRI to all of its Member States and its corporate sector.

As illustrated above, private regulation has produced more concrete tools for sustainability reporting than the limited number of general guidelines imposed on companies by means of public regulation mentioned in section 6.4. In addition, it is relevant that private regulation has also impacted the further development of public regulation on sustainability reporting. For example, in the case of the Danish legislation on CSR reporting (seesection 6.4), supporting explanatory material directly refers to a number of international guidelines such as the GRI Guidelines and the UN Global Compact Principles.19 Furthermore, the sustainability reporting imposed on state-owned Swedish companies must be prepared in accordance with the GRI Guidelines. An explicit reference to this requirement can be found in the Swedish Guidelines for external reporting by state-owned companies:20

State-owned companies shall apply these [GRI] guidelines. In those cases where the state is one of a number of joint owners, the Government intends, in consultation with the company and the other owners, to endeavour for these guidelines to be applied in the jointly-owned companies. These guidelines are based on the principle of ‘comply or explain’, which means that a company can deviate from the guidelines if a clear explanation and justification of this departure is provided. This design enables the guidelines to be applicable and relevant to all companies, regardless of size or industry, without having to abandon the main purpose of the accounting and reporting. The board shall describe in the annual report how the guidelines have been applied during the past financial year and comment on any deviations.

It is interesting that the Swedish legislator makes use of the 'comply-or-explain' mechanism when requiring that state-owned companies comply with the GRI Guidelines in their sustainability reports. The same mechanism is also used in the legislation of many European countries where companies have been obliged to report on their compliance with the national corporate governance code in their annual reports.

Another salient aspect is the fact that CSR reporting initiated by private regulation is not used exclusively by shareholders. Actually, several internal and external stakeholders of a company also benefit from the accessibility of this information, namely: rating agencies, pension funds, banks, NGOs, employees and consumers. They use sustainability reporting as follows:

1.

Rating agencies: as a source of information on which to base the rankings that they provide to sustainability indices and institutional investors regarding the environmental, social and governance factors (ESG) that determine the sustainability level of a company;21

2.

Pension funds, institutional investors and asset managers: to gather ESG information on companies they invest in and to use this information in line with set sustainability criteria integrated in their asset management policies ('socially responsible investment');22

3.

Banks: to assess and manage the reputation, environmental and social risks of their corporate customers, especially in project financing,23 and to comply with the Equator Principles;24

4.

Employees:to feel good' about their company, and to know what is going on in their company from a CSR perspective;

5.

NGOs: to collect information on the companies in order to address specific issues they disapprove of, but also to make proposals for partnerships or joint projects, eg environmental NGOs can cooperate with companies in the fields of water management, sustainable fishing or oil exploration;25

6.

Consumers: to assist consumers in responsible purchasing,26 for example by providing information on environmental and social aspects related to the production of consumer goods, including energy consumption, recycling and sustainable disposal of products.27

As sustainability reporting provides transparency regarding corporate matters, ie a focal point of CSR, and fulfils a need of many stakeholders, it can be concluded that the developing private regulation outlined in this section 6.5 is valuable and important.

Deze functie is alleen te gebruiken als je bent ingelogd.