By Verschoor, Curtis C.
Strategic Finance , Vol. 94, No. 6
Following the lead of European-based companies, companies in the United States and around the world increasingly report non-financial information addressing their impact on the environment and key stakeholders such as customers, suppliers, employees, the community, and the general public. The titles of these reports often include phrases such as "corporate responsibility" (CR), "sustainability," "environmental, social, and governance" (ESG), or "triple bottom line" (which includes economic, social, and environmental issues).
According to the KPMG International Survey of Corporate Responsibility Reporting 2011, corporate responsibility reporting has become a de facto standard for business, and it enhances the financial value of companies that do it. The KPMG survey analyzed the reports of more than 3,400 companies from 34 countries, including the 250 largest compavies in the world (G250). Ninety-five percent of the G250 now report on their corporate responsibility activities, including almost 60% of China's largest companies that already report using corporate responsibility metrics. Of the G250 companies that don't report on corporate responsibility, two-thirds are based in the United States.
KPMG says, "With almost half of the largest companies already demonstrating financial gains from their CR initiatives, and with the increasing importance of innovation and learning as key drivers for reporting, it is clear that CR has moved from being a moral imperative to a critical business issue." Topping the list of business drivers motivating companies to report on their CR activities is reputational or brand considerations (cited by 67% of the G250), with ethical considerations also high on the list (58%).
Large, publicly held corporations have taken the lead in corporate responsibility reporting with 70% doing so but KPMG notes that other companies can benefit as well. The report states, "While family-owned and private equity-owned companies may face a different level of scrutiny than publicly traded companies, this does not exempt them from accounting for their positive and negative impacts on society, particularly in the modern information age."
The KPMG survey notes that 80% of G250 companies utilize the general guidelines for sustainability reporting published by the Global Reporting Initiative (GRI). The GRI guidelines suggest the areas of environmental, social, and governance topics that should be disclosed, but there's considerable variation in how much information companies report and how they report it. Efforts are under way to improve reporting. The GRI is currently considering an updated fourth generation (G4) guidance document expected to be released sometime in 2013, and a group of business professionals has formed the U.S.-based Social Accountability Standards Board (SASB) with the aim "to develop reporting standards and benchmarks for environmental, social, and governance issues."
Thirty-five percent of G250 companies currently don't include information on corporate governance or control mechanisms in their CR reports. This has led one-third of the G250 companies to restate previously reported information. The practice of providing independent assurance is also quite divergent, with only 45% of all G250 companies--and only 13% of U.S. companies--engaging an external reviewer. Of those that undertake assurance, more than 70% engage major accounting organizations.
The BSR/GlobeScan State of Responsible Business Poll 2012 reports that "companies can build trust by being increasingly transparent about business practices and by measuring and demonstrating positive social and environmental impacts." BSR, a U.S.-based nongovernmental organization (NGO) whose mission is to build a just and sustainable world, said respondents to the poll remained pessimistic about the amount of public trust in business. A total of 556 BSR members completed the survey: 51% from North America and 25% from Europe. …