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September 22, 2010
As CSR Reporting Goes Mainstream, Standardized Approaches Are Needed
    by Robert Kropp

A report by the United Nations Conference on Trade and Development finds that investors seeking environmental, social, and governance information need greater comparability.

In a report published this month, the United Nations Conference on Trade and Development (UNCTAD) examines the corporate social responsibility (CSR) practices of the world's 100 largest transnational corporations (TNRs), as well as the sustainable investment practices of the world's 100 largest institutional investors.

The report, entitled
Investment and Enterprise Responsibility Review: Analysis of investor and enterprise policies on corporate social responsibility, determines that "CSR has emerged as an important area of soft law self-regulation," and "that private policy at a large enough scale can have an impact similar to, or sometimes even greater than, public policy."

According to the report, CSR has traditionally been relegated to a separate function within corporate activity, one that did not address core business considerations. More recently, however, "CSR has come to be viewed as a firm wide activity involving the active management of core business processes as part of the social responsibility of a firm," the report continues.

The report finds that although most of the largest TNCs now issue CSR reports, the quality of those reports continue to vary widely. As an example, 86 of the TNCs studied now report climate change information. However, the report observes, direct comparison of corporate performance on climate change is "difficult or impossible," because "not all companies report the same kind of information or to the same extent."

Because of the lack of direct comparison in CSR performance, investors and other stakeholders have found it difficult to use the information for investment decision-making. However, the now widespread reporting of CSR gives policy makers the opportunity to address key development challenges, through the passage of legislation, for instance, or "mandating…standardized reporting through stock exchange listing requirements."

The report also finds that the integration of environmental, social, and corporate governance (ESG) information into investment decision-making has become increasingly common among the world's largest institutional investors, as has engagement with investee companies on ESG issues. According to the report, the increased reliance on ESG information by investors offers regulatory bodies the opportunity "to strengthen the mechanisms through which institutional shareholders are able to influence the ESG practices of the companies in which they invest."

On the other hand, despite the interest in ESG issues on the part of investors, only 13 of the top 100 institutional investors publish an annual report on their sustainable investment policies and practices. "If institutional investors provided more comprehensive reporting" on their own sustainable investment policies and practices, as well as on the ESG practices of companies, "this could encourage improvements in TNC practices," the report states.

While finding that ESG investment analysis would benefit from improved reporting, the report concludes that "attention should also be paid to the need for improvements in the coherence and consistency of ESG analysis itself."

"Issues of sustainability are not exclusively technical issues," the report continues, "And therefore any evaluation or analysis of the sustainability of enterprises would benefit from inputs from a range of stakeholders."


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