Reporting & Disclosure

Reporting and disclosure is a growing movement within corporate social responsibility, due in large part to the efforts of particular stakeholder groups namely, civil society, governments, and investors. Disclosure of factory or producer-level compliance as measured through monitoring and independent verification remains underdeveloped, largely because firms maintain the need to keep supplier information for competitiveness purposes.  However, the drivers for reporting may come to outweigh this consideration, as more firms release this information in response to stakeholder demands.

CSR reporting is the process of corporate disclosure about the positive and negative impacts of their business operations concerning labor standards, the environment, economic development, human rights.  Some attribute the start of the push for CSR reporting to the Bhopal and Exxon Valdez disasters of the early 1980s.  The Bhopal incident led the US Congress to pass the Community Right to Know Act which mandated corporate disclosure of use and release of toxic chemicals (Toxic Release Inventory).  Similarly, the Exxon Valdez oil spill prompted a group of socially responsible investment firms, public pension funds, and environmentalists to establish the Valdez Principles, later renamed the CERES Principles.  These two examples illustrate the fine line between voluntary and mandatory stimulus that drives the CSR reporting movement.

CSR reporting has come a long way since the 1980s when reporting on occupational health and safety and environmental dominated.  In addition to a general increase in the overall number of companies producing CSR reports, the past five years have seen rapid growth and expansion of CSR reporting to include a broad focus on social, economic, and governance issues. 

                  Firms producing CSR reports

                        Source: KPMG survey of sustainability reporting

While health and safety remains the most common issue reported by companies - according to the KPMG study 91% of firms reported on OHS, 55% of the firms surveyed also report on human rights, and a much lower percentage, 27%, report on freedom of association.  Furthermore, CSR is no longer limited to high impact industries, although these industries do boast higher proportions of reporters than other industries.  A recent study by KPMG indicates that efforts to obtain third party verification have increased, with approximately 25% of all companies surveyed seeking verification.

One of the more important recent milestones in CSR reporting was the establishment of the Global Reporting Initiative in 1997 culminating in the establishment of GRI as an independent organization and the recent release of the 2002 Sustainability Reporting Guidelines following an extensive process of stakeholder consultation, public comment and revision.  The GRI aims to develop the globally accepted CSR reporting framework.  Similarly, AccountAbility has developed a set of process guidelines, called AA1000, designed to support and complement the GRI sustainability reporting guidelines. 

There are a number of other reporting initiatives in circulation, but few have achieved the level of recognition that the GRI and the AccountAbility have received.  Nonetheless, it would be premature to say that there is a global consensus around the nature and process of CSR reporting and the preeminence of any one professional reporting institution.
 
Increased transparency around CSR, driven by a system of improved and credible reporting, can be a key determinant of some categories of business benefit, creating a mechanism through which free riders are exposed and CSR sensitive buyers and suppliers are increasingly likely to be rewarded by CSR-sensitive clients and consumers. 

Challenges and questions related to CSR reporting in developing countries:

• Insufficient demand for disclosure.  It is likely that broader adoption of CSR reporting in developing countries is hindered by insufficient motivation (weak drivers) for CSR reporting among firms in developing countries due to weak demand for data among groups utilizing CSR data (e.g investors, consumers and business partners).  It is possible that the drivers for CSR reporting would be more robust if the relationship between CSR performance and traditional indicators of firm performance and risk were better understood by key stakeholders in the financial markets and among business leaders. CSR reporting might be more likely to succeed in developing countries if reporting focused on those areas of mutual interest among stakeholders in the developing and developed world, particularly governments, although additional research is necessary to determine the extent to which this is true.
• Insufficient Capacity for CSR reporting.  Beyond the question of whether a market exists for the data generated by CSR reporting lies significant concern over the capacity of firms in developing countries to deliver on implementation.  It is likely, however, that data is already collected for the purposes of satisfying internal CSR demands of external business partners, e.g. through supply chain compliance requirements.
• Lack of awareness about CSR reporting concepts among companies in developing countries may pose an unnecessary constraint to acceptance of CSR reporting; many firms are already undertaking CSR activities (community affairs, health programs, labor standards, etc.) but do not recognize it as such.  Similarly, many companies are already collecting information about CSR performance for their business partners suggesting that reporting should not pose a significant burden for companies engaged in supply chains or business partnerships with existing CSR compliance programs.
• Lack of credible verification.  It is likely that until a credible verification mechanism for CSR reporting is established and utilized by companies in developing countries, the utility of CSR reporting in responding to stakeholder demands will be limited. Furthermore, as with codes of conduct monitoring, the notion of credible verification is likely to be understood differently by civil society activists and institutional investors, yet both are likely to require a system they can trust.
• Lack of commonly recognized reporting standard.  Despite the progress achieved by GRI, there remains a lack of a consensus around CSR reporting standards against which corporate performance could be measured which may hinder the interest of developing countries who may perceive the movement as too nascent to warrant involvement.
• Uncertain market benefits.  An ultimate goal of a firm’s CSR reporting is to build stakeholder trust and it is not clear whether the dominant reporting strategies undertaken by firms in the developing or developed world has been successful in achieving this goal.

Mandatory Reporting Requirements
While many of the following examples relate to environmental reporting, this indicates the first step in a trend toward CSR reporting more broadly.  CSR reporting among firms has seen a rapid increase in reporting on social issues despite an initial focus on environmental issues.

Top