Paul Holmes 17 Nov 2003 // 10:03AM GMT
More and more companies are producing social and environmental reports to supplement their annual financial reports, according to a study by the Public Relations Society of America. But another study, conducted by Burson-Marsteller, suggests non-governmental organizations continue to view most of those reports with skepticism.
PRSA predicts that the practice of corporate social responsibility disclosure through special annual “social reports” will grow in 2004 and will increasingly emphasize ethical codes and corporate governance, based on a survey of 30 companies issuing such reports. The survey sheds light on how companies view “social reports” as part of an effort to be more socially and environmentally responsible.
The news comes at a time when some experts are calling for a more formal policy on social reporting in the U.S. and asking the SEC to consider requiring triple bottom line reporting—already mandated in some European countries. A study group convened last year by the Kenan I nstitute of Private Enterprise says existing CSR reporting initiatives are so broad and various that they confuse corporations and NGOs alike.
All but one of the companies surveyed by PRSA said that they would continue their social reports, even in the face of recent lawsuits, and many indicated a desire to expand their reporting. There had been some concern that a suit filed against Nike by critics of its overseas labor practices would lead some companies to abandon or curtail social reporting, since claims made in those reports may no longer be protected by the First Amendment and could leave companies open to lawsuits under California’s tough truth-in-advertising laws.
But nearly every company surveyed indicated that their social reports were “very” or “somewhat valuable” in their efforts to be socially and environmentally responsible. In fact, of those companies who plan on issuing a “social report” in the coming year, three in four plan to increase information about their social and environmental activities.
More than two in five respondents also said that they would increase performance goals and the reporting of progress against those goals. Additionally, more than one-third of these companies plan to increase encouragement of stakeholder feedback on the reports, and one-quarter will add new sections on either ethics or governance.
“We believe this is the first empirical sampling of how companies plan to handle their social responsibility disclosure in the wake of recent ‘commercial speech’ and First Amendment public dialogue,” said Reed Bolton Byrum, president and CEO of PRSA. “It’s encouraging to see that the companies surveyed will not only persevere in social reporting, but are also extending their commitment to basic principles of such disclosure—transparency and accountability—to shareholders, as well as to “more traditional” social-responsibility stakeholders and interested parties.
“This is a time when rebuilding trust in business is critically important, so we are urging—and will work to implement—maximum two-way communications between companies and all of their publics.”
The survey was conducted in association with Business for Social Responsibility.
But while the continued commitment of corporations to social and environmental reporting is encouraging, there are clear signs that most companies will need to do more to earn the trust on NGOs and other critics.
Almost four-fifths (79 percent) on NGOs surveyed by Burson-Marsteller and Roper ASW said that while these reports are either “very” or “fairly” useful, only 44 percent of the reports are considered believable.
Says Bennett Freeman, managing director of B-M’s social responsibility practice, “Using the Internet and global media, NGOs have dramatically increased the pressure on companies to account for their performance beyond the bottom line. A company’s social and environmental report card increasingly
influences consumers’ purchasing behavior and trust in corporate America.”
According to the 56 NGOs surveyed, the most important approach a company can take to improve a report’s credibility is to acknowledge non-compliance, poor performance, or significant problems—suggesting that NGOs expect corporate responsibility communications to be straightforward and thorough. Other factors that boost confidence in TBL reporting are comprehensive performance metrics, third-party certification and standardization of reporting. Less effective factors are case studies and independent research.
Says Freeman. “NGOs and other stakeholders are more likely to acknowledge progress and success if companies are candid about problems and even mistakes. Corporations need to focus on the implementation of substantive policy commitments even if that process is uneven or incomplete.”
The research also reinforces the critical role that CEOs play in building corporate reputation. NGOs believe CEO reputation accounts for 52 percent of a company’s reputation. Says Freeman, “While this finding presents an opportunity for executives to claim leadership on responsibility issues, it also carries a serious obligation.
“The majority of NGOs (66 percent) believe the chief executive, more than any other individual or institution, bears the greatest burden for restoring trust in corporate America. There is an onus on corporate leaders to demonstrate a credible and consistent commitment to responsible business practices inside and outside the organization.”
The Kenan Institute’s study group, including representatives from Hewlett-Packard, Starbucks, and NGOs such as Amnesty International and Oxfram, issued a series of 18 recommendations for CSR reporting, under six broad categories. The government should:
· Promote transparency and disclosure practices;
· Encourage adherence to internationally accepted social and environmental standards;
· Offer resources to improve governance institutions worldwide;
· Strengthen U.S. government coordination and capacity to promote global CSR;
· Convene multi-stakeholder dialogues to encourage and strengthen global CSR practices; and
· Provide incentives and use government procurement policies as tools to promote global CSR.
“The U.S. government already has a wide range of public policies that promote global CSR—there are many competing standards, guidelines, and initiatives that clutter the international marketplace,” says James Reeves, the Institute’s associate project director. “The central point of our project was to identify the areas that both activists and businesses could agree on the appropriate areas for governmental involvement.”
The study group also recommended that the SEC establish a blue ribbon commission to consider rulemaking to require triple bottom line reporting on social, environmental, and financial issues as part of their annual filings. The SEC currently requires companies to report material environmental liabilities, but has come under much criticism for failing to enforce this rule.
Yet another survey, published by CSR Europe, Deloitte and Euronext suggests that social and environmental performance is on course to become a significant aspect of mainstream investment decisions within the next three years. The survey, Investing in Responsible Business, shows that a majority (52 percent) of fund managers and analysts and 47 percent of investor relations officers believe the trend will soon become a reality.
Six out of ten fund managers and analysts say they have noticed a growing interest in socially responsible investment over the past two years. An even greater number (69 percent of fund managers and analysts) expects the SRI market to grow over the next two years. The European SRI retail market is currently estimated to be worth EUR12.2 billion, while the European SRI institutional market represents EUR336 billion.
The financial community now sees a direct link between non-financial risks and shareholder value: eight out of ten fund managers and analysts believe that the management of social and environmental risks has a positive impact on a company’s market value in the long-term.
And while six out of ten survey respondents noted an improvement in companies’ communication practices on social and environmental performance, 56 percent think it can still get better. Italy, Spain and the Netherlands are the least satisfied with the quality of information provided (65 percent), while the U.K. is an exception with more respondents satisfied (44 percent) than dissatisfied (38 percent).
“The European financial community has made significant strides forward in understanding CSR and recognizing the importance of social and environmental performance in making investment decisions. CSR issues are becoming more relevant to their work of fund managers and financial analysts: many of them are realizing that CSR is not an add-on, but imperative to a company’s daily management,” says CSR Europe’s chair Etienne Davignon.