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June 22, 2005
KPMG Finds More Than Half of Fortune 250 Issuing Standalone Sustainability Reports
    by William Baue

Surveying the top 250 companies in the Fortune 500, the percentage rises to almost two thirds when considering annual financial reports that address corporate responsibility.


Last week, KPMG International released its 2005 International Survey of Corporate Responsibility Reporting. Later in the week, KPMG LLP, a US firm associated with KPMG International, released a statement that it "takes full responsibility for the unlawful conduct by former KPMG partners" in selling illegal tax shelters from 1996 through 2002, as revealed by a US Justice Department investigation. "[W]e deeply regret that it occurred," the statement continued.

One interpretation of the link between these two releases is it is simply another example of a company promoting corporate responsibility on one hand while acting irresponsibly with the other. Another interpretation is that corporate responsibility reporting is not a testament of ethical purity, but rather the practice of disclosing and taking accountability for positive and negative corporate social responsibility (CSR) or sustainability performance.

Given that this is KPMG's fifth such survey since 1993 (the last iteration was in 2002), only the most jaundiced observer would consider the firm's Global Sustainability Services division too tainted to produce a worthwhile report. Adding to the reliability of the report is the fact that University of Amsterdam Professors Ans Kolk, Mark van der Veen, Jonatan Pinkse, and Fabienne Fortanier helped conduct the survey.

"The KPMG study is a valuable and statistically-based look at the rise of public non-financial reporting among the world's largest companies," said Riva Krut, a vice president at Cameron-Cole, an environmental management services (EMS) consultancy. Dr. Krut has been tracking sustainability reporting since 1993.

The report surveys the top 250 companies of the Fortune 500 (dubbing this group the Global 250, or G250) as well as the top 100 companies in the 16 countries where KPMG operates (dubbed the National 100, or N100). The countries include Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, South Africa, Spain, Sweden, UK, and US.

The survey found a substantial increase in the percentage of companies issuing standalone CR reports, from 45 percent (112 companies) in 2002 to 52 percent (129 companies) in 2005 for G250 companies. For N100 companies, 33 percent (525 companies) issued CR reports in 2005, up from 23 percent in 2002. The statistics rise even higher when adding companies that discuss CR in their annual financial reports instead of in a separate CR report, reaching 64 percent (161 companies) of G250 companies and 41 percent (658 companies) of N100 companies in 2005.

More striking was the expansion of the scope of the reports in the past three years, shifting from predominantly Environmental, Health, and Safety (EHS) reports to full-fledged sustainability reports covering social, environmental, and economic factors.

"Whereas in 2002, 75 percent of reporters were issuing EHS reports and 14 percent were issuing sustainability reports, this has flipped in 2005, with 68 percent providing sustainability reports and 14 percent EHS reports," Dr. Krut told SocialFunds.com.

Other notable findings included the number of companies using the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, with 40 percent of reporters referencing GRI as providing their reporting framework. Also, almost three quarters (74 percent) of respondents noted that their CR behavior is driven by economic factors, while more than half (53 percent) said that it is driven by ethical considerations.

Some of the report's findings were surprising.

"The quality of reporting is not improving in line with the quantity of reports or their expanded scope," said Dr. Krut. "On some key issues, such as reporting on management systems, performance outside of EHS areas, targets, and assurance statements, the survey finds little being reported."

"I would like to have seen comments from CSR champions within some of these reporting companies, to tell us about the work they are doing to promote their programs within their firms," she continued.

The survey finds a spike in CR reporting in the financial services sector, rising 138 percent since 2002 in the G250. The survey also finds increased CR reporting in almost all countries, most dramatically in South Africa, where the number of separate CR reports has risen from 1 to 18 in the last three years. KPMG remained coy about attributing causation, citing academic opinion later in the report to explain the reasoning.

"Increased corporate governance requirements, including the adoption of the King Code of Corporate Governance (King II) for all listed companies, and the advent of the first Socially Responsible Investment (SRI) Index in an emerging market, the Johannesburg Securities Exchange (JSE) SRI Index, have increased the level of transparency and accountability required from companies operating in South Africa," stated the report in a special section on regions with emerging CR reporting. "Moreover, investors and analysts are becoming increasingly interested in how South African companies are managing their levels of social and environmental responsibility outside South Africa by expecting disclosure of CR issues 'up in Africa'."

While most countries exhibited increasing CR reporting trends, the Scandinavian countries of Norway and Sweden bucked this trend, with decreasing prevalence of CR reporting.

"As companies in these countries are such leaders in CSR, I would be interested to know what the reasons are for this finding and if this reflects something of significance for CSR or for reporting practices," Dr. Krut said. "What do they know that we haven't yet figured out?"

 

 
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