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Corporate Responsibility Reporting And Auditing Lecture (1)

Presentation given to my class of Postgraduate MSC Corporate Governance students at Birkbeck, University of London, on Feb 25 2010.

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Corporate Responsibility Reporting And Auditing Lecture (1)

  1. 1. Corporate Responsibility Reporting and Auditing Toby Webb, Lecturer, Corporate Responsibility, Birkbeck College, University of London, February 25 2010 [email_address]
  2. 2.   Corporate Social Responsibility Reporting: What is it? <ul><li>An attempt by large companies to communicate about non-financial impacts on society </li></ul><ul><li>Began in printed form as self produced reports, continues to be more 'push' than 'pull‘ </li></ul><ul><li>Now both print and online form, HTML, flash, likely to migrate to web 2.0 ( Cadbury, BT ) and mobile / handheld marketing in future </li></ul><ul><li>Companies seek to promote themselves to media, employees, stakeholders. All say shareholders not interested! (But a growing group may be changing this, slowly…) </li></ul>
  3. 3. Where does it come from? <ul><li>1970s America: Financial and industrial firms </li></ul><ul><li>Interest rose in 1970s in corporate accountability, slow response </li></ul><ul><li>Waned in 1980s, increased again 1990s </li></ul><ul><li>1990's interest began around environment, fair trade </li></ul><ul><li>1993 Traidcraft claims first modern report. Others include Body Shop , Shell </li></ul><ul><li>90% plus of the FTSE100 claims to 'report' i.e. product some information now. Huge drop off in FTSE 350 and AIM listed firms </li></ul>
  4. 4. What are the modern drivers? <ul><li>Stakeholder expectations / NGOs </li></ul><ul><li>Environmental impacts (Climate change, waste, recycling) </li></ul><ul><li>Recruitment and retention / reputation </li></ul><ul><li>Regulatory disclosure drivers: </li></ul><ul><li>UK / Taiwan / Denmark / Sweden / France / Germany / Netherlands / Japan </li></ul>
  5. 5.   <ul><li>CSR reporting now including more hard data on performance (H&S and Climate Change) in biggest firms </li></ul><ul><li>Scepticism: NGOs and many others cynical. Honesty in reporting improving slowly </li></ul><ul><li>Tools growing in use: </li></ul><ul><li>Global Reporting Initiative (1100 firms, 2009) </li></ul><ul><li>Global Compact COP’s(2000-3000, 2008) </li></ul><ul><li>Impact on quality debatable! Companies not innovating quickly. Communications a major issue! </li></ul><ul><ul><li>How is reporting changing? </li></ul></ul>
  6. 6.   <ul><ul><li>Corporate governance; Although 92 percent of G250 companies disclose a corporate governance code of conduct or ethics, only 59 percent report on incidents of non-compliance with the code. </li></ul></ul><ul><ul><li>Supply chain : Nearly all G250 companies have a supply chain code of conduct, but only half disclose the details of how it is implemented and monitored. </li></ul></ul><ul><ul><li>Climate change : While 62 percent of G250 companies disclose information about climate risks, 69 percent of N100 companies do not . Whereas understanding the risks starts with understanding the footprint, a large part of the G250 (41 percent) need to develop this. Carbon footprint reporting is focused largely on the own operations. </li></ul></ul><ul><ul><li>Source: </li></ul></ul><ul><ul><li>How is reporting changing? KPMG (2008) says: </li></ul></ul>
  7. 7.   <ul><ul><li>Formal assurance : Formal third party assurance of G250 reports jumped from 30 percent to 40 percent in the past three years, and the trend is similar at the national level with 39 percent of N100 reports containing formal assurance. </li></ul></ul><ul><ul><li>Third party commentary : Twenty seven percent of reports included other types of third party commentary, such as stakeholder panels or subject matter expert statements . </li></ul></ul><ul><ul><li>Providers : Major accountancy organizations are the leading providers of assurance in corporate responsibility reporting. </li></ul></ul><ul><ul><li>Standards and quality: The consistency and quality of assurance approaches is demonstrated by an increase in the use of standards. G250 companies are less likely to ask for reasonable (positive) assurance than N100 companies. </li></ul></ul><ul><ul><li>How is reporting changing? KPMG (2008) says: </li></ul></ul>
  8. 8.   What do academics say about reporting? <ul><li>Adams and Frost (2006) </li></ul><ul><li>Lack of research focus in academia on link to strategy </li></ul><ul><li>Companies make general disclosures: 71% of Aus. reporters give no data on performance! </li></ul><ul><li>41 % of UK firms fail to offer targets in reporting… </li></ul><ul><li>Case study approach shows lack of consistency in approaches: due to difference in firms , making comparison difficult </li></ul><ul><li>Perhaps 5000 companies reporting world-wide, a growing trend </li></ul>
  9. 9.   What do academics say about reporting? <ul><li>Morsing and Schultz (2006) </li></ul><ul><li>Discuss risks of raising head above public parapet </li></ul><ul><li>Stakeholder expectations a moving target: need for reporting to evolve </li></ul><ul><li>Increasingly sophisticated approaches needed </li></ul><ul><li>Suggest three models exist: </li></ul><ul><li>Information strategy / Response strategy / Involvement strategy </li></ul>
  10. 10.   What do academics say about reporting? <ul><li>Morsing and Schultz (2006) </li></ul><ul><li>“ Information strategy ”: </li></ul><ul><li>One way communication &quot;telling, not listening&quot; </li></ul><ul><li>Marketing and communications driven towards influencers / stakeholders </li></ul><ul><li>Management believes company is always right, only explanation needed </li></ul>
  11. 11. <ul><li>Morsing and Schultz (2006) </li></ul><ul><li>Response strategy: </li></ul><ul><li>Firm seeks change in public behaviour </li></ul><ul><li>Looks for external endorsement from stakeholders, undertakes quantitative research </li></ul><ul><li>Response strategy still one sided: seeks to convince stakeholders as passive actors </li></ul>
  12. 12. <ul><li>Morsing and Schultz (2006) </li></ul><ul><li>Involvement strategy: </li></ul><ul><li>Dialogue based, invites negotiation, accepts change is needed </li></ul><ul><li>Stakeholders involved to promote support of CSR work </li></ul><ul><li>Ongoing relationship with stakeholders, intergrates concerns in policy, initiatives </li></ul><ul><li>Examples: Novo Nordisk, Vodafone </li></ul><ul><li>Further academic reading : Chen, S. Bouvain, P.(2009) &quot; Is Corporate Responsibility Converging? A Comparison of Corporate Responsibility Reporting in the USA, UK, Australia, and Germany “. Journal of Business Ethics (2009) 87:299–317 </li></ul><ul><li>Crowther, D. Aras, G. (2009) &quot; Corporate Sustainability Reporting: A Study in Disingenuity ?“. Journal of Business Ethics (2009) 87:279–288 </li></ul>
  13. 13. Auditing and Verification of CSR / Sustainability reporting <ul><li>Using external service providers to add credibility to reporting </li></ul><ul><li>KPMG / PWC / SGS / Niche assurance providers </li></ul><ul><li>Involves statement at back of report by assurer on quality of info </li></ul><ul><li>Much more common in Europe, esp. UK than USA </li></ul><ul><li>Has little credibility with critics, who claim conflicts of interest </li></ul>
  14. 14. Recent developments in reporting Investors begin to ramp up pressure: <ul><li>Feb 2010: Investors with over $2.1trn (€1.5trn) of assets call for better corporate reporting on ESG . 86 major companies targeted RE reporting requirements of the UN Global Compact initiative. </li></ul><ul><li>I n 2008, the engagement resulted in 33% of laggards subsequently submitting their reports, whereas in 2009 positive responses increased to 47.6% – 50 out of 105 companies – including from firms such as BHP Billiton, Severn Trent, The Gap and LVMH. </li></ul><ul><ul><li>The investor coalition praised 44 companies, including Bayer, Nikon and Inditex, for producing high‐quality sustainability reports deemed useful for investors. </li></ul></ul><ul><ul><li>Investors in the coalition all signatories to the UN‐backed Principles for Responsible Investment Initiative (PRI) (include funds such as Aviva Investors, Boston Common, and Nordea Investment Funds) </li></ul></ul>
  15. 15. Recent developments in reporting Reporting begins to shift towards better communication: <ul><ul><li>Companies start to grasp that no-one reads CR/SD reports </li></ul></ul><ul><ul><li>Still have to produce them, even in recession </li></ul></ul><ul><ul><li>Firms starting to think about how to communicate messages from them </li></ul></ul><ul><ul><li>Major concerns about how to do this. Complex CR issues hard to simplify </li></ul></ul><ul><ul><li>Companies concerned about Greenwash accusations ( Starbucks ) </li></ul></ul><ul><ul><li>Innovation slowly happening, but patchy… Independent partners sometimes used (Oxfam, INSEAD, with Unilever , and SAB Miller ) </li></ul></ul>
  16. 16. Recent developments in reporting Resources on sustainability accounting: <ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul>