Valuing Non-Financial Performance and Sustainability Reporting

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This paper sheds light on the regulatory background of responsible organisational behaviour. Several governments are stepping in with their commitment for corporate governance as they are setting their social and environmental responsibility agenda through different frameworks. Many countries are following the guidelines of the International Labour Organisation (ILO) and the Organisation for Economic Cooperation and Development (OECD). These international organisations have provided highly recognised international benchmarks for transparent and accountable practices. This paper also made reference to some of the relevant European Union(EU) Expert Group recommendations for non-financial reporting. It transpires from the pertinent literature review that businesses are encouraged to adopt the reporting instruments of nongovernmental organisations. Finally, this paper concludes by proposing that the way forward is to have a more proactive government regulation which creates shared value by contributing to the wider societal and environmental objectives.

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Valuing Non-Financial Performance and Sustainability Reporting

  1. 1. Valuing Non-Financial Performance and Sustainability Reporting Dr Mark Anthony Camilleri PhD (Edin.) Aarhus University, Denmark - 19th September, 2013.
  2. 2. Overview of this Presentation • Background of Regulatory Instruments • Intergovernmental Benchmarks and Guidelines • The National Governments’ Regulatory Level • Non-Governmental Regulatory Tools • The Way Forward © Dr M.A. Camilleri PhD (Edin.)
  3. 3. Background of Regulatory Instruments © Dr M.A. Camilleri PhD (Edin.)
  4. 4. • In the mid 1990s, Robert Reich in his capacity as the American Secretary of Labour has asked the International Labour Organisation (ILO) to develop a social label that would certify to consumers which products comply with the ILO labour standards. • The ILO has limited itself to establish minimum standards for working conditions and these have been agreed to by numerous governments. • The Organisation for Economic Cooperation and Development (OECD) had issued guidelines for multi-national corporations (MNCs). They were also entirely voluntary in nature. © Dr M.A. Camilleri PhD (Edin.)
  5. 5. “It is against this background of weak instruments and failed initiatives at the international level that NGOs have begun to target MNCs with increasing frequency and vigour in recent years”, (Newell, 2002:910). © Dr M.A. Camilleri PhD (Edin.)
  6. 6. • The growth of global CSR engagement can also be viewed in the context of the business developments within the international trade law: – For instance, a number of bilateral and regional trade agreements were entered into force in North American and European countries. They contained such provisions about the inclusion of labour, human rights and environmental standards in trade agreements. – However, the World Trade Organisation (WTO) did not necessitate the countries to conform to any product labelling standards. © Dr M.A. Camilleri PhD (Edin.)
  7. 7. Intergovernmental Benchmarks and Guidelines © Dr M.A. Camilleri PhD (Edin.)
  8. 8. International Labour Organisation • ILO promotes dialogue between government, workers’ and employers’ organisations. • It provides assistance and tools to better understand the labour dimension of CSR (ILO Helpdesk Url., 2013). © Dr M.A. Camilleri PhD (Edin.)
  9. 9. © Dr M.A. Camilleri PhD (Edin.)
  10. 10. The Organisation for Economic Cooperation and Development • The Organisation for Economic Cooperation and Development (OECD) promotes policies which improve the economic growth and social cohesion. • OECD guides policy makers, regulators, and market participants in improving their legal, institutional, and regulatory frameworks. • OECD’s principles have shown an acceptable level of adaptability in varying legal, economic, and cultural contexts as they have served as the basis in various reform initiatives by different governments and have been taken up by the private sector in different countries (Jesover and Kirkpatrick, 2005). © Dr M.A. Camilleri PhD (Edin.)
  11. 11. Basic Principles of Corporate Governance (Source: Jamali et al. 2008 ; OECD, 1999) © Dr M.A. Camilleri PhD (Edin.)
  12. 12. European Union’s Recommendations (I) • According to the EU Commission Expert Group (2012), non- financial reporting enables investors to contribute to a more efficient allocation of capital, and to better achieve longer-term investment goals. • It can also help to make enterprises more accountable and contribute to higher levels of citizen trust in business. • Several experts have supported the idea of a principles- based approach, rather than a detailed, rules-based one. © Dr M.A. Camilleri PhD (Edin.)
  13. 13. European Union’s Recommendations (II) • The experts stressed that improving materiality of reports is useful to address the comparability issues. • They advocated that the companies' boards should have ownership on reporting, in order to make it relevant and effective. • There are significant differences in mentalities across different member states, and within economic sectors (EU Commission, 2011). © Dr M.A. Camilleri PhD (Edin.)
  14. 14. The National Government Regulatory Level © Dr M.A. Camilleri PhD (Edin.)
  15. 15. Actors and Exchange Arenas (Source, Midttun, 2009) © Dr M.A. Camilleri PhD (Edin.)
  16. 16. The Relational Framework • There are different expectations and perceptions within each stakeholder relationship, which have to be addressed to develop an appropriate CSR policy (Albareda et al., 2008). • Essentially, this relational approach is based on the idea that recent changes and patterns affecting the economic and political structure may transform the roles and capacities of various social agents (Albareda et al., 2009). © Dr M.A. Camilleri PhD (Edin.)
  17. 17. “Our approach is to encourage and incentivise the adoption of CSR, through best practice guidance, and where appropriate, intelligent (soft) regulation and fiscal incentives”. (UK’s Department of Business Innovation and Skills, 2012). © Dr M.A. Camilleri PhD (Edin.)
  18. 18. Non-Governmental (NGOs) Regulatory Tools © Dr M.A. Camilleri PhD (Edin.)
  19. 19. • The social and environmental accountability standards represent voluntary predefined norms and procedures for organisational behaviour and are often valid on a global level (Rasche, 2010; Smith, 2002:21). • Such accountability standards reflect a shift towards a ‘quasi- regulation’ which are based on substantive and reflexive law approaches (Rasche et al., 2008). – A ‘substantive’ (outcome-based) law approach is regulated by prescribing predefined outcomes; – A ‘reflexive’ (process-based) law approach is regulated by prescribing procedures to determine outcomes in a discursive way (see Hess, 1999, 2001). * Non-Financial Accountability Standards (I) © Dr M.A. Camilleri PhD (Edin.)
  20. 20. Non-Financial Accountability Standards (II) • Performance-oriented standards are more generic in their approach: – Such standards focus on specific areas such as human rights, labour standards, environmental protection and the like (see Jamali, 2008). – Many NGOs are providing a certification for compliance with proposed rules and guidelines as they incorporate their own independent monitoring systems (see Berkhout et al., 2008; Koenig-Archibugi, 2004). • Process-oriented standards are applied across particular industries. © Dr M.A. Camilleri PhD (Edin.)
  21. 21. A Non-Exhaustive List of Standards and Reporting Instruments: © Dr M.A. Camilleri PhD (Edin.)
  22. 22. Accountability (AA1000) © Dr M.A. Camilleri PhD (Edin.)
  23. 23. British Assessment (OHSAS 18001) • © Dr M.A. Camilleri PhD (Edin.)
  24. 24. Eco-management and Audit Scheme (EMAS) © Dr M.A. Camilleri PhD (Edin.)
  25. 25. Fair Labor Association (FLA) © Dr M.A. Camilleri PhD (Edin.)
  26. 26. Global Reporting Initiative (GRI) © Dr M.A. Camilleri PhD (Edin.)
  27. 27. International Standards Organisation ISO 26000 - Social Responsibility © Dr M.A. Camilleri PhD (Edin.)
  28. 28. International Standards Organisation (ISO14001) – Environmental Management System © Dr M.A. Camilleri PhD (Edin.)
  29. 29. Social Accountability (SA8000) © Dr M.A. Camilleri PhD (Edin.)
  30. 30. The United Nations Global Compact © Dr M.A. Camilleri PhD (Edin.)
  31. 31. The Way Forward © Dr M.A. Camilleri PhD (Edin.)
  32. 32. Creating Shared Value through Regulation • Governments can play a pro-active role by setting the regulatory social and environmental standards. – The introduction of standards, phase-in periods and utilisation of innovative technologies can bring operational efficiencies and cost savings to the businesses. – Such measures may improve the environment, and increase the organisations’ competitiveness, simultaneously (Porter and Kramer, 2011; Van der Woerd and Van Den Brink (2004). © Dr M.A. Camilleri PhD (Edin.)
  33. 33. Key Recommendations • Governments may assist businesses by fostering the right type of environment for responsible behaviours; through various incentives (e.g. grants, tax relief, sustainable reporting guidelines, frequent audits et cetera). • The proposed regulatory changes can involve the efficient and timely reporting of sustainable (responsible) practices. • The reporting may be primarily aimed at the larger businesses. • Of course, the governments will have to provide structured compliance procedures (and support where necessary). © Dr M.A. Camilleri PhD (Edin.)
  34. 34. Key Recommendations (II) • The CSR practices and their measurement, their reporting and accreditation should be as clear, concise and understandable as possible for the businesses. • The governments’ reporting standards and guidelines may be drawn from international reporting instruments (e.g. ISO, SA, AA, and GRI). • Businesses should be given adequate and sufficient time (and resources) to comply with the governments' requirements. © Dr M.A. Camilleri PhD (Edin.)
  35. 35. References • Accountability (2011). AA1000: Stakeholder Engagement Standard (AA1000SES). Url: http://www.accountability.org/about-us/publications/aa1000-1.html accessed online on the 30th March 2012. • Albareda, L, Lozano, J.M., Tencati, A., Midttun, A. and Perrini, F. (2008). The changing role of governments in corporate social responsibility: drivers and responses. Business Ethics: A European Review, 17, pp. 347–363 • Albareda, L., Arenas, D., Lozano, J., (2009). The role of NGOs in CSR: Mutual perceptions among stakeholders. Journal of Business Ethics, 88, pp. 175–197. • Berkhout, F., Hertin, J., Wagner, M. and Tyteca, D. (2008). Are EMS Environmentally Effective? The Link between Environmental Management Systems and Environmental Performance in European Companies. Journal of Environmental Planning and Management, 51(2), pp. 259–283. • British Assessment (2011). OHSAS 18001 Certification. Url: http://www.british-assessment.co.uk/ohsas-18001-certification-services.htm accessed on the 3rd December 2011. • Department for Business, Innovation and Skills - UK (2012). Url:http://bis.ecgroup.net/Publications/BusinessLaw/CorporateGovernance/041112.aspx accessed on the 3rd February 2012. • EMAS (2009). EU Eco-Management and Audit Scheme. Url: http://ec.europa.eu/environment/emas/index_en.htm accessed on the 25th February 2012.European Commission (2011). A renewed EU strategy 2011-14 for Corporate Social Responsibility. Url: http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=7010. • EU Commission Expert Group (2012). Sustainable and responsible business European Expert Group on corporate social responsibility (CSR) and SMEs. Url: http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-responsibility/sme/european-expert-group/index_en.htm accessed on the 12th January 2012. • Fair Labor Association (2012). Url: http://www.fairlabor.org/about-us accessed on the 4th May 2012. • Global Reporting Initiative (GRI) (2009). Url: https://www.globalreporting.org/Information/about-gri/Pages/default.aspx accessed on the 3rd November 2009. • Hess, D. (1999). Social Reporting: A Reflexive Law Approach to Corporate Social Responsiveness. Journal of Corporation Law, 25 (1). pp41-84. • Hess, D. (2001). Regulating Corporate Social Performance: A New Look at Corporate Social Accounting, Auditing, and Reporting. Business Ethics Quarterly, 11 (2), pp. 307-330. • International Labour Organisation,(2012). Resource guide on CSR. http://www.ilo.org/public/english/support/lib/resource/subject/csr.htm accessed online on the 23rd April 2012. • International Standards Organization - ISO 26000 (2012). Guidance Standard on Social Responsibility. Url: http://www.iso.org/iso/social_responsibility accessed on the 4th February 2012. • International Standards Organization - ISO 14001 (2012). Environmental Management System. Url: http://www.british-assessment.co.uk/iso-14001-certification services.htm?gclid=CI_osdPUoLACFYt-fAodaR8lYQ accessed on the 4th February 2012. • Jamali, D., Safieddine, A.M. and Rabbath, M. (2008). Corporate Governance and Corporate Social Responsibility Synergies and Interrelationships. Corporate Governance: An International Review, 16, pp. 443–459. • Jesover, F. and Kirkpatrick, G. (2005). The Revised OECD Principles of Corporate Governance and their Relevance to Non-OECD Countries. Corporate Governance: An International Review, 13, pp. 127–136. • Koenig-Archibugi, M. (2004). Transnational Corporations and Public Accountability. Government and Opposition, 39, pp. 234–259. • Midttun, A. (2009). Strategic CSR Innovation - Serving Societal and Individual Needs. Research Report 2/2009 Norwegian School of Management Department of Innovation and Organizational Management Nordberg.Url: • http://web.bi.no/forskning/papers.nsf/b63c43a0385ff61dc1256e620043c6b0/2893041b91f4e4fcc12575690042d6d9/$FILE/2009-02-midttun.pdf accessed online on the 4th March 2012. • Newell, P. (2002). From Responsibility to Citizenship: Corporate Accountability for Development. IDS Bulletin, 33(2) Making Rights Real: Exploring Citizenship, Participation and Accountability. Brighton. OECD (1999). • Organisation for Economic Cooperation and Development, Directorate for Financial and Enterprise Affairs, Url: http://www.oecd.org/document/49/0,3343,en_2649_34813_31530865_1_1_1_1,00.html accessed on the 2nd Janaury 2012. • Porter, M.E. and Kramer, M.R. (2011). Creating shared value: How to reinvent capitalism - and unleash a wave of innovation and growth. Harvard Business Review, (January/February), pp. 62-77. • Rasche, A., Baur, D., Van Huijstee, M., Ladek, S. and Naidu, J. (2008). Corporations as Political Actors – A Report on the First Swiss Master Class in Corporate Social Responsibility. Journal of Business Ethics, 80 (2), pp. 151-173. • Rasche, A. (2010). Collaborative Governance 2.0. Corporate Governance, 10 (4), pp. 500–511. • Smith, D. (2002). Demonstrating Corporate Values – Which Standard for your Company? Institute of Business Ethics, London. • Social Accountability International (2011). Url: http://www.sa-intl.org/index.cfm? Accessed on 3rd June, 2010. • United Nations Global Compact (2012). Url: http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html accessed onthe 20th March 2012. • Van der Woerd, F. and Van Den Brink, T. (2004). Feasiblity of a responsive business scorecard – a pilot study. Journal of Business Ethics, 55(2), pp. 173-86. © Dr M.A. Camilleri PhD (Edin.)
  36. 36. Thanks for your attention! Visit drmarkcamilleri.com

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