Changing Roles of Corporate Social Reporting - Essay Example

Changing Roles of Corporate Social Reporting Introduction Now, Sustainability report appears to play an increasingly significant role for companies as is evidenced by the growing number of companies, which publish the sustainability reports. (KPMG/WIMM 2002:9). For instance , between the May and August 2004 alone , number of companies that publish sustainability has increased by fifteen percent and reasons for this compliance are multiplex and mainly due to increasing legislative compulsion. For instance, both the EU and the France compels large companies to publish the sustainability reports on an annual basis. In 2005, 80% companies in Japan and 71% of UK companies have reported about CSR, which can be described as highest reporting in this area. Between 2002 and 2005, South Africa reported about 17% increase in reporting and this is considered to be a remarkable increase. KPMG research report published in 2005 also demonstrated a significant change in the nature of reporting, and it modified from chiefly environmental reporting until 1999 to sustainability (environmental, economic and social ) reporting of late. (Nehme& Wee 2008:135). CSR is not a new concept. It has been in existence in many parts of the world including Australia since from the nineteenth century. For instance, US Steel is continuously reporting on CSR issues regularly from the twentieth century onwards. Further, as early as 1850, Levi Strauss & Co has stated in its annual reports that it committed to offering a quality product, a best community service and good working atmosphere for its employees. (Nehme& Wee 2008:143). Further, CSR offers more value additions to a company. Some of the advantages of CSR are as follows: Socially responsible companies offers olive branch or positive signals to all of its stakeholders and distinguish themselves from their rivals , thereby augmenting both of their short and long-term gains; HRD perspective – socially responsible companies used to attract higher quality employees. Legal Considerations- socially responsible corporations can thwart hindrance in their business. Philanthropic and ethical considerations- companies have general obligations to the societies they operate from. Under “ noblesse oblige” which connotes the obligation of nobility , the notion that a company as an entity is far more vigorous than any single individual and hence assumes larger obligations toward society. (Nehme& Wee 2008:135). Analysis A company has to look into not only its financial bottom line but also to give due importance to their environmental and social performance. (Figge and Hahn 2001). The GRI states that ‘the triple bottom line of environmental, economic and social performance is to be dealt in a sustainability report. (Schaltegger, Bennett and Burritt 2006: 584). A research study namely “International Survey of Corporate Sustainability Reporting “by KPMG in 2002 exposed that of the top 250 Global 500 companies, about forty five percent of them released a separate corporate report on their social , environmental or sustainability performance. There have been tremendous changes in the corporate social responsibility reporting in recent years. The shift from traditional to more accountability is being now considered by the companies due to various legislative pressures and some are listed below; Enormous pressure from fiduciaries and financial market authorities are being exerted on companies to deal with climate risk. Many companies have introduced ‘Generally Accepted Carbon Accounting Principles “and now major emitters are likely to be prosecuted. Companies in OECD countries have to shift to a low carbon economy now. Over the past few years, the majority of FT500 companies undertook strategic positions by investing in the ‘clean tech “provinces which quadrupled to $2.5 billion. Soaring wholesale electricity prices are anticipated to impact profitability and to promote efficiency and risk management. (Willard 2005:256). KPMG 2005 report also demonstrated a variety of drivers for CSR that business regarded significant. These drivers include ethical considerations (53%), economic considerations (75%), motivation of employees (47%), learning and innovation (54%), risk management or risk reduction (48%), reputation of brand (27%), access to capital or increased shareholder value (40%), fortification of supplier relations (12%), improvement in market position (21%), enhanced association with governmental authorities (8 %) and other causes (10%). Obviously, economic objectives are the most pushing driver for sustainability reporting, which makes senses as it is the responsibility of directors to maximise wealth and profit for the benefit of shareholders (Nehme& Wee 2008:157). Of late, socially responsible investment spotlights on sustainability – a term utilised to define the capability of maintaining a certain state or process for ever. Recently, indexes have been formulated to retort to investor’s ever increasing demand for socially responsible investment. In this respect, the Dow Jones Sustainability index, the FTSE4Good Index, KLD’s Domini 400 Social Index is among the most famous investment index in this cluster. (Nehme& Wee 2008:158). UK’s Pension Disclosure Regulations, 2000 demands all UK based occupational pension funds to divulge the magnitude to which they take into consideration about social, ethical, and environmental considerations while making their investment decision. (Nehme& Wee 2008:159). It is to be noted that there is no empirical evidence that socially responsible investment portfolios outmatch the customary investment portfolios, and it has sent a strong signal that investors are more cautious now while making any investment decisions. (Nehme& Wee 2008:160). There exists both voluntary and mandatory guidelines and standards that companies need to take into account. For instance, in Australia, CSR is regarded as voluntary. However, some obligatory prerequisites have to be complied with both under corporation laws and environmental laws. In France, legislation demands that all French listed companies to incorporate information on how they are handling both the environmental and social impact of their activities in their yearly reports. This law also specifies what type of information should be reported in the annual statements. Other than mandatory reporting of CSR, modern business is compelled to report voluntary statements. Some examples of such voluntary reports of international guidelines and standards are the United Nations Global Compact, the Global Reporting Initiative, AccountAbility’s AA 1000, ISO 14000 and Social Accountability International SA 8000. On the national level , some examples of voluntary guidelines and standards are as follows; Triple Bottom Line Reporting in Australia , the European Union Eco Management and Audit Scheme ( EMAS) in Europe , the King II Code on Corporate Governance 2002 in South Africa , Environmental Reporting Guidelines in Japan and Public Environmental Reporting Initiative (PERI) in the UK and so on. (Nehme& Wee 2008:163). Usually, company will select to adopt international voluntary guidelines or standards that are well demonstrated and bespoken to their requirements. The G3, GRI’s Sustainability Reporting Guidelines has become increasingly famous of late. G3 is the current version and was updated and published in 2006. This offers a better frame work for CSR. Its main goal is to make sustainability reporting as widespread and common as financial reporting. As of 1 November, 2005, G3 has been adopted by more than 750 business organisations in more than 50 nations and have been translated into ten languages. According to KPMG Report, 2005, about 40% of major international companies is publishing their CSR report on the GRI guidelines only. (Nehme& Wee 2008:164). However, some French companies had trouble in reporting all the guidelines in the Global Reporting Initiative since some were too Anglo-Saxon and not appropriate in France. It is to be remembered that well structured CSR could not be a fool proof for prevention of malpractice and frauds. For instance , Enron , earlier to its scandalous collapse , was among the first companies to publish a CSR Report , graded as one of the US’s hundred best employers , honoured with various environmental awards , had a committee of Board that supervised environmental and social issues and was well known for its charities and philanthropic contributions (Nehme& Wee 2008:165). Further, in many companies which claim that they practice ethics in their business, accountability is absent as the corporate social responsibility is voluntary in nature. For example, a Corporate Social Responsibility award was served on Lehman Brothers in 2005 by the Foreign Policy Association. In their annual report, it was stated that they esteemed the strong corporate citizenship as a major component of their culture. Further, they contended that they had leveraged their network of international associations, intellectual capital, and financial vigour to assist to resolve the contemporary critical issues. As Lehman Brothers collapsed and currently taken over by Bank of America, it is evident that the practices of Lehman Brothers were not in tune with the law nor were they for the advantages of consumers. (Nehme& Wee 2008:140). Some MNCs are making their CSR report on voluntary guidelines when there is a severe public criticism. According to Sethi , these voluntary CSR guidelines are suffering from a number of blemishes, which are enumerated as follows; a) they do not have a specific format b) they pay no attention to rights of major stakeholders in their dealings with the company c) have not assimilated into the organisations'’ operating strategies , reward structure or corporate culture and d) do not offer believable or reliable framework or commitment for the companies to communicate with external parties as regards to implementation of the code’s goals. Conclusion A company is not made up of flesh and blood and is it wise to expect a corporation to have a conscience when it has no soul and is accountable for social reporting. The answer is yes as the society is expecting now that corporations should be both environmentally and socially held responsible. Thus, a corporation is expected to have a balanced stride to earn the profit with the implementation of Corporate Social Responsibility. It is right time for the companies to replicate the society they exist in. However, there is no uniform CSR on the international level as of the day which makes it arduous for the proper implementation of CSR uniformly. Hence, I strongly recommend that a uniform, mandatory, country –specific CSR should be designed and to be followed by the companies all around the world to substantiate that they owe a moral obligation to adhere to CSR and their prime aim is not the profit maximisation but to preserve the nature and society. List of References Figge Frank & Hahn Tobias. (2001). Sustainable Value Added Measuring Corporate Sustainable Performance beyond. New York: CSM. KPMG. (2005). International Survey of Corporate Responsibility Reporting 2005 [online] available from < www.kpmg.nl/Docs/Coporate_Site/Publicaties/International _Survey_Corporat_Responsiblity _2005.pdf> [accessed 6 December 2009]. KPMG/WIMM (2002). International Survey of Corporate Sustainability Reporting 2002. Amsterdam: Graduate Business School. Nehme, M., & Wee, C. (2008). Tracing The Historical Development Of Corporate Social Responsibility And Corporate Social Reporting. James Cook University Law Review, (15), 129-168. http://search.ebscohost.com Schaltegger Stefan, Bennett Martin & Burritt Roger. (2006). Sustainability Accounting and Reporting. London: Springer. Willard Bill. (2005). The Next Sustainability Wave. New York: New Society Publishers. Read More