Should All Companies Report on Their Corporate Responsibility?

Article excerpt

When senior management, securities analysts, and investors speak about a company's "numbers," it's almost a sure thing they are referring to current profits. During the stock market bubble, attention was given to revenue levels, perhaps to justify using a lower multiple of something to arrive at a target price a stock could reach. Forgotten in the scramble for riches was any consideration of whether the high-flying companies could be sustainable, whether they were successful in meeting the needs of all of their stakeholders, or if they operated as responsible corporate citizens.

In spite of the general inattention, corporate responsibility has long been a subject of interest to some investors. The latest report (2003) from the Social Investment Forum, the industry group of socially responsible investment (SRI), states that more than one in every nine dollars under professional investment management is involved with SRI. This represents use of one or more SRI strategies: screening, shareholder advocacy, and community investing.

As an indication of how mainstream the attention to corporate responsibility is becoming, the Business Roundtable, an association of CEOs of leading corporations, announced in September 2005 the launch of a sustainable growth initiative called "S.E.E. Change." This program challenges companies from every sector of the economy to improve Society, the Environment, and the Economy. The Roundtable encourages companies to accept the S.E.E. Change challenge and commit to business strategies that combine traditional corporate goals of higher profit and lower cost with environmental stewardship and social improvement.

In the areas of most interest to management accountants and financial managers, the availability of relevant information about corporate responsibility is thought to be essential to success. Corporate responsibility (CR) is becoming recognized as the principal indicator of nonfinancial performance as well as a factor that is associated with superior financial results to shareowners, and it is no longer viewed as a public relations exercise designed to improve image.

Public reporting on available performance metrics and strategic programs designed to enhance corporate responsibility, such as S.E.E. Change, is necessary to drive programs within companies so organizations recognize the value that CR initiatives create. The Roundtable encourages use of traditional metrics that track the "eco-efficiency" of natural resource use, but it also urges the use of "value-added" metrics to assess the business impacts of investments in projects designed to increase sustainability.

Fortunately, trends toward greater public transparency of corporate results in social and environmental as well as economic terms are accelerating. Yet the public visibility and importance of CR information for internal decision making poses challenges for information systems not always designed to accumulate and report accurately much more than financial position and the results of operations. And excessive focus on Sarbanes-Oxley compliance hasn't helped.

KPMG International has surveyed corporate responsibility reporting on a global basis five times since 1993. The 2005 version, KPMG International Survey of Corporate Responsibility Reporting (ISCRR), involves analysis of reports from two groups: the largest 250 members of the Global Fortune 500 (G250) and the top 100 (N100) companies in 16 countries. The reports were either separate corporate responsibility reports or material published as a part of a corporate annual report.

The ISCRR shows that the number of companies reporting corporate responsibility information has increased for both G250 and N100 sectors from 2002, the date of the last KPMG survey. In 2005, 52% of G250 and 33% of N100 published separate reports on CR compared to 45% and 23%, respectively, in 2002. If annual reports with CR information are added, the 2005 percentages increase to 64% and 41%. …