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In a year when a raft of scandals has further lowered the public's estimation of the ethics of Corporate America, some companies are trying to show they care. How? In addition to annual or semiannual reports, they're putting out so-called corporate responsibility reports chronicling data that show they're sensitive to social or environmental concerns. In 2001, 45% of the 250 largest global companies published such reports, up from 35% three years ago, according to a triennial study by KPMG. Says Eric Israel, a partner at the firm, which tracks such reporting: "It's a trend that's here to stay."
That's the good news. The bad news is that no common standards govern the statistics or assertions in these reports, leading to what some fear is a mishmash of incomplete and possibly misleading information. "Quality is a mixed bag," says Arvind Ganesan, director of business and human rights at Human Rights Watch, an activist group.
"Many reports just don't have a human-rights section," he continues. "On health and safety issues, you want details on what has and hasn't gone wrong. On human-resources issues, I've seen companies that have a code of conduct -- but very little information as to how that's implemented." In the U.S., the reports are seldom vetted by outsiders or auditors.
GOOD, BAD, AND GLIB. What to do? To make the reports more reliable, the nonprofit Global Reporting Initiative is trying standardization. GRI was inaugurated in 1997 as a joint project of the Coalition for Environmentally Responsible Economies and the U.N. Environment Program. It went independent in April, 2002, although representatives from both seminal groups are still on the GRI board. Other board members include Jamshed Irani, director of Indian conglomerate Tata, and Mark Moody-Stuart, retired chairman of Royal Dutch/Shell, along with representatives from organized labor.
So far, so good. Companies such as Ford, Nike, and AT&T have been following GRI's evolving recommendations for standards. And advocates of the approach see momentum building. "In companies which are by definition bad for the environment, there's a lot of peer pressure" to produce responsibility reports, says Israel. Most major mining, forestry, chemicals, and transportation companies now publish environmental sustainability reports. So do most worldwide electronics and computer giants, carmakers, and oil and gas companies.
Still lagging: the financial-services industry. That's ironic, says Israel, since finance companies are pressing for sustainability information from the companies they invest in. Finance companies have a more limited environmental impact than say, mining companies, but advocates point out that a well-produced sustainability report would give stakeholders information about labor practices, employee training, and subsidies received from governments.
AMERICA TRAILS. "As an investor, promoting transparency is very important to the finance industry," says Israel. "But then they have to practice what they preach." According to an Ernst & Young study, 67 finance and insurance companies are among the world's 250 largest global corporations. Yet, less than 20 produce responsibility reports.
While the U.S. has long prided itself on providing more corporate transparency than many of its trading partners, companies in some Asian and European countries have been more willing to publish responsibility reports than their American peers, the KPMG data show.
Government intervention and regulation may be key. For example, Japan recently released guidelines for producing sustainability reports, and 72% of the 100 largest companies make them available. The British government requires pension funds to report on what percentage of their investment portfolios are in funds deemed to be socially responsible -- and 49 of the country's 100 biggest companies provided that information last year.
FRENCH INITIATIVE. Beginning this year, French companies that want to be listed on their country's stock exchanges must provide information on their social and environmental performance. In 1999, just 4 of France's 100 largest outfits put out such reports. Last year, that number had risen to 21, and the new rules are expected to see almost every major company comply by yearend. In contrast, no such requirements or guidelines exist in the U.S., and only 36 of the 100 biggest U.S. companies provide corporate responsibility reports.
At the 10-day World Summit on Sustainable Development in Johannesburg that opened Aug. 26, GRI presented 50 statistical measures that it suggests companies use to gauge their progress. These include disclosure of the amount a company makes in charitable donations and the amount of government subsidies it receives.
GRI also is asking all companies to publish data on emissions of certain pollutants, and statistics on payroll, accident rates, and collective bargaining agreements. While some will no doubt continue to balk at providing such detailed information, Israel says standard benchmarks are necessary to help the reports gain credibility.
"Reporting in this way sets expectations. You set a certain level of responsibility," says Israel. "If you report and you can't deliver, the results can be devastating." In short, such reports can hold companies accountable, which may be exactly what some are afraid of.
By Kimberly Weisul in New York Edited by Beth Belton
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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