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November 09, 2011
CR Reporting on Upswing, but Improvements in Implementation and Assurance are Needed
    by Robert Kropp

KPMG surveys the state of Corporate Responsibility reporting among the world's largest companies, and helps the Global Reporting Initiative produce a database of corporate sustainability disclosures.


Corporate Responsibility (CR) reporting is on the increase among large companies throughout the world, as a new survey by KPMG reveals. And while CR reporting by the 100 largest US companies lags behind that of eight other nations, 83 of those companies now issue CR reports, compared to 74 in 2008.

However, as the survey points out, "The Americas seem to have focused so far on communication rather than CR processes. This is clearly an area of attention for companies in these geographies, as an imbalance between reporting and actual implementation might increase reputational risks." In other words, US-based companies have yet to fully incorporate what they report into their business practices.

An area in which the imbalance is clearly described is the use of assurance to verify CR data. "Companies without an external assurance program not only run the risk of restatements in the future, but also send the message that CR information is not held in as high regard as financial information, which is frequently assured in most businesses," according to KPMG.

Only 13% of the largest US-based companies conduct assurance activities on their CR reports; only Russia, also at 13%, and Singapore (seven percent) fared as poorly as the US in the countries surveyed.

Why do companies engage in CR reporting? More than half of the respondents list reputation or ethics as driving forces behind the practice. Employee motivation, innovation, and risk reduction were also commonly cited as drivers. "Somewhat surprisingly," the survey states, "Economic considerations, which had ranked second in 2008, are now less frequently cited as a driver than either employee motivation or innovation and learning."

The marked decline of economic considerations as a driver suggests yet another imbalance between reporting and implementation, especially when considered in light of the estimation that today, fully 80% of a company's value comes from what used to be considered externalities. When such considerations as competitive advantage, regulatory preparedness, and even cost savings are cited as drivers by less that one-quarter of respondents, most companies still have a ways to go to "significantly change their processes and approach to product development and supply chain efficiencies," as KPMG points out.

Standardized CR metrics are essential for developing effective benchmarks that measure performance against both internal objectives and external competitors. In the years since KPMG published its 2008 survey, the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI) have become the platform of choice for reporting by a majority of the world's largest companies.

GRI has also been instrumental in the uptake by companies of integrated reporting, in 2008, four percent of the world's largest companies had experimented with some form of the practice, a framework in which financial information is reported alongside environmental, social, and corporate governance (ESG) data. GRI is a founding member of the International Integrated Reporting Committee (IIRC).

Mervyn King, Deputy Chairman of the IIRC and Chairman of GRI, said that integrated reporting "equips companies to manage their operations, brand and reputation strategically and to manage better any risks that may compromise the long-term sustainability of the business."

For its part, KPMG "supports the development of integrated reporting as the next step in improving the value of corporate reporting. "At present, however, it is clear that most (62 percent) of those that claim to integrate CR, only go as far as including a special section in their annual report," the report finds.

"While the growing percentages are encouraging," the report continues, "In many cases, integrated reporting is largely approached by combining information into one document rather than fully integrating it into the regular reporting framework of the organization."

So while the widespread adoption of CR reporting by the world's largest listed companies is encouraging (KPMG points out that privately-owned companies face less pressure to produce CR reports, although "this does not exempt them from accounting for their positive and negative impacts on society, particularly in the modern information age"), much work remains to be done for the practice to become consistently meaningful to stakeholders.

The imbalance between reporting and implementation, the lack of assurance, and the superficial nature of most integrated reporting at present all have to be addressed before stakeholders can have confidence that CR reporting accurately reflects the long-term risks and opportunities for companies.

A step toward improving the transparency of corporate sustainability disclosures was announced today by GRI. Its Sustainability Disclosure Database allows investors and other stakeholders to access the reports of more than 3,000 organizations. GRI describes its database as "a hub for sustainability disclosure, featuring sustainability reports that use the GRI Guidelines and those that follow other guidance."

"Users can compare the level of transparency of companies, benchmarking by sector, size and location," GRI stated. "People who are interested in organizational sustainability data can find out what indicators companies are reporting on, and how their transparency compares to other companies."

The database was built with the support of KPMG Spain. Describing the database as "the most important transformation in corporate transparency and disclosure in recent decades," José Luis Blasco Vázquez, Partner in charge of Climate Change and Sustainability Services at KPMG for the Europe, Mediterranean, and Asia (EMA) region, stated, "A significant percentage of the hundred largest global asset managers already take into account non-financial criteria when building investment portfolios. This database assists investors in accessing more robust and comparable information, bringing sustainability data into closer alignment to financial reporting data."

 

 
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