Sustainability Reporting and Communications

In order to know whether or not sustainability and corporate social responsibility (CSR) initiatives and their related commitments are actually improving the company’s performance it is necessary to have in place procedures for reporting and verification, each of which are important tools for measuring change and communicating those changes to the company’s stakeholders.  Hohnen and Potts described reporting as “communicating with stakeholders about a firm’s economic, environmental and social management and performance” and verification, which is often referred to as “assurance”, as a form of measurement that involves on-site inspections and review of management systems to determine levels of conformity to particular criteria set out in codes and standards to which the company may have agreed to adhere.[1]  Verification procedures should be tailored to the company’s organizational culture and the specific elements of the company’s CSR strategy and commitments; however, it is common for companies to rely on internal audits, industry (i.e., peer) and stakeholder reviews and professional third-party audits.  Verification procedures should be established before a specific CSR initiative is undertaken and should be included in the business case for the initiative.

The scope and sophistication of CSR reporting has come a long way since the idea first came up in the mid-1990s, when only a handful of companies reported on social responsibility issues and activities in addition to their regular financial reports.  Today almost all of the largest global companies produce reports on their environmental policies and activities, often providing interested parties with a whole range of documents that can be accessed in a separate yet highly visible section of the company website.  Other international standards, such as the UN Global Compact, explicitly incorporate reporting as a fundamental requirement for demonstrating a commitment to sustainability.  Specifically, companies participating in the Compact are required to make an annual “Communication on Progress” that outlines the actions they have taken with respect to integrating the Compact’s ten principles and to make the communication publicly available to stakeholders through annual financial, sustainability or other prominent public reports in print or on the company’s website.

Legal and Regulatory Considerations

Cleveland et al. noted that when companies get started with sustainability reporting they have a number of basic questions: “What are we legally required to communicate?” “What are we permitted to communicate?” What can or should we say to stay competitive and protect business relationships, profitability and our social license to operation?” What standards should we use?”[2]  They pointed out that many companies start down the path of sustainability reporting primarily as a marketing strategy, hoping to address the questions from customers and demonstrate social responsibility and philanthropy as part of an effort to build reputation.  However, as the information is made available companies must be prepared to defend it by responding to demands for verification and “ratings” released by organizations that often do not seek input from the companies that they evaluate.  At the same time investors are likely to have questions regarding the matters covered in sustainability reports and companies can expect that they will soon be asked to expand their reporting beyond their own activities to include their supply chains.  Very quickly what may have begun as a project in the marketing department expands into a multi-disciplinary initiative that will require support from across the organization and development of a comprehensive communications program with all of the company’s stakeholders to ensure that the sustainability reporting is addressing their needs and expectations.

Williams noted that to the extent that governments have regulated corporate responsibility per se, such regulation has focused on disclosure and during the period 2000-2015 over 20 countries enacted legislation to require public companies to issue reports including environmental and/or social information.[3]  Many of these countries are in Europe and the EU has implemented a directive that requires nearly 7,000 large companies and “public interest organizations,” such as banks and insurance companies, to “prepare a nonfinancial statement containing information relating to at least environmental matters, social and employee-related matters including diversity, respect for human rights, anti-corruption and bribery matters.”[4]  In addition, several stock exchanges around the world require social and/or environmental disclosure as part of their listing requirements including exchanges in Australia, Brazil, Canada, India, Singapore, South Africa and the London Stock Exchange.[5]  Also, pension funds in countries such as Australia, Belgium, Canada, France, Germany, Italy, Japan, Sweden and the UK are required to disclose the extent to which the fund incorporates social and environmental information into their investment decisions.[6]  All things considered, surveys show that more and more jurisdictions are implementing mandatory ESG disclosure requirements and that “there is a clear trend towards an increasing number of environmental and social disclosure requirements around the world”.[7]

The US, which has comprehensive reporting requirements relating to a broad range of corporate governance matters, has been a notable laggard with respect to establishing a comprehensive general ESG disclosure framework.  However, while ESG- and CSR-related reporting is not yet specifically required for companies with shares listed on US exchanges, by 2013 more than half of the companies in the S&P 500 had voluntarily decided to report and disclose ESG and CSR information[8] and so-called sustainability reporting is well on its way to becoming an expected standard practice that must be added to oversight agenda of the entire board and the disclosure and reporting committee.  In addition, companies may be subject to disclosure requirements under the laws of various states in which they operate.  For example, under the California Transparency Supply Chains Act of 2010[9], which went into effect on January 1, 2012, every retail seller and manufacturer doing business in California and having annual worldwide gross receipts that exceed $100 million is required to disclose its efforts to eradicate slavery and human trafficking from its direct supply chain for tangible goods offered for sale. 

Scope and Format of CSR Reporting

The scope of the company’s reporting and verification efforts will depend on various factors including the size of the company, the stage of development and focus of its CSR commitments, legal requirements, the financial and human resources available for investment in those activities and the degree to which companies want and are able to integrate sustainability indicators into their traditional reporting of financial results.  When establishing plans for reporting and verification it is useful to obtain and review copies of reports that have been done and published by comparable companies.  Reports of larger companies are generally available on their corporate websites and extensive archives of past CSR-focused reports can be accessed through various online platforms such as CorporateRegister.com, a widely recognized global online directory of corporate responsibility reports.  It is also important to have a good working understanding of well-known reporting and verification initiatives such as the GRI Standards; the International Integrated Reporting Framework; the Sustainability Accounting Standards Board framework; the AccountAbility AA1000 series; the UN Global Compact; and the International Auditing and Assurance Standards Board ISAE 3000 standard.  Country-specific information is also available through professional organizations such as the Canadian Chartered Professional Accountants, which has published an extensive report on sustainability reporting in Canada.[10]

CSR Communications

In addition to formal reporting on corporate responsibility, companies should consider how their corporate responsibility activities can be integrated into their overall corporate communications strategies and activities and their marketing activities.  ISO 26000 emphasized the important roles that internal and external communications play in social responsibility including[11]:

• Raising awareness both within and outside the organization on its strategies and objectives, plans, performance and challenges for social responsibility
• Demonstrating respect for social responsibility principles
• Helping to engage and create dialogue with stakeholders
• Addressing legal and other requirements for the disclosure of information related to social responsibility
• Showing how the organization is meeting its commitments on social responsibility and responding to the interests of stakeholders and expectations of society in general
• Providing information about the impacts of the organization’s activities, products and services, including details of how the impacts change over time
• Helping to engage and motivate employees and others to support the organization’s activities in social responsibility
• Facilitating comparison with peer organizations, which can stimulate improvements in performance on social responsibility
• Enhancing an organization’s reputation for socially responsible action, openness, integrity and accountability, to strengthen stakeholder trust in the organization

Section 7.5.2 of ISO 26000 described the necessary and appropriate characteristics of information relating to social responsibility as including completeness, understandability, accuracy and verifiability, balance, timeliness and accessibility, and noted that organizations can select from a wide range of methods for communication including meetings, public events, forums, reports, newsletters, magazines, posters, advertising (including public statements to promote some aspect of social responsibility, letters, voicemail, live performance, video, websites, podcasts (website audio broadcast), blogs (website discussion forums), product inserts and labels, media activities (e.g., press releases, interviews, editorials and articles), submissions to government bodies or public inquiries, participation in social responsibility interest groups and articles in communications instruments aimed at peer organizations.[12] 

When developing a communications strategy and program relating to social responsibility, each of the organization’s key stakeholders should be considered and plans should be made to tailor communications with stakeholders to the social responsibility issues that are of greatest concern to them.  For example, communications with employees should raise general awareness about and support for CSR and related activities; communications with suppliers should explain the organization’s CSR-related procurement requirements; and communications with consumers relating products (e.g., product labelling and other product information) should address their expectations regarding how the company integrates safety and sustainability into the design and production of its products. 

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This article is an excerpt from the author’s forthcoming book on Sustainability Management, which will be published by Routledge in late 2020.  For further information, visit the following page on the author’s Sustainable Entrepreneurship Project website: https://alangutterman.com/topics/governance-management/

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About the Author

This article was written by Alan S. Gutterman, whose prolific output of practical guidance and tools for legal and financial professionals, managers, entrepreneurs and investors has made him one of the best-selling individual authors in the global legal publishing marketplace.  His cornerstone work, Business Transactions Solution, is an online-only product available and featured on Thomson Reuters’ Westlaw, the world’s largest legal content platform, which includes almost 200 book-length modules covering the entire lifecycle of a business.  Alan has also authored or edited over 90 books on sustainable entrepreneurship, leadership and management, business law and transactions, international law and business and technology management for a number of publishers including Thomson Reuters, Practical Law, Kluwer, Aspatore, Oxford, Quorum, ABA Press, Aspen, Sweet & Maxwell, Euromoney, Business Expert Press, Harvard Business Publishing, CCH and BNA.  Alan is currently a partner of GCA Law Partners LLP in Mountain View CA (www.gcalaw.com) and has extensive experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company.  He has been an adjunct faculty member at several colleges and universities, including Berkeley Law, Golden Gate University, Hastings College of Law, Santa Clara University and the University of San Francisco, teaching classes on corporate finance, venture capital, corporate governance, Japanese business law and law and economic development.  He has also launched and oversees projects relating to sustainable entrepreneurship and ageism.  He received his A.B., M.B.A., and J.D. from the University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph. D. from the University of Cambridge.  For more information about Alan and his activities, and the services he provides through GCA Law Partners LLP, please contact him directly at alangutterman@gmail.com, follow him on LinkedIn (https://www.linkedin.com/in/alangutterman/) and visit his website at alangutterman.com.

About the Project

The Sustainable Entrepreneurship Project (www.seproject.org) was launched by Alan Gutterman to teach and support individuals and companies, both startups and mature firms, seeking to create and build sustainable businesses based on purpose, innovation, shared value and respect for people and planet.  The Project is a California nonprofit public benefit corporation with tax exempt status under section 501(c)(3) of the Internal Revenue Code dedicated to furthering and promoting sustainable entrepreneurship through education and awareness and supporting entrepreneurs in their efforts to launch and scale innovative sustainable enterprises that will have a material positive environmental or social impact on society as a whole. 

Copyright Matters and Permitted Uses of Work

Copyright © 2020 by Alan S. Gutterman.  All the rights of a copyright owner in this Work are reserved and retained by Alan S. Gutterman; however, the copyright owner grants the public the non-exclusive right to copy, distribute, or display the Work under a Creative Commons Attribution-NonCommercial-ShareAlike (CC BY-NC-SA) 4.0 License, as more fully described at http://creativecommons.org/licenses/by-nc-sa/4.0/legalcode.

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[1] P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), 67. 

[2] N. Cleveland, D. Lynn and S. Pike, “Sustainability Reporting: The Lawyer’s Response”, Business Law Today (January 2015).

[3] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 15, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784 (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at http://hausercenter.org/iri/wpcontent/uploads/2011/08/CR-3-12-15.pdf).  These countries included Argentina, China, Denmark, the EU, Ecuador, Finland, France, Germany Greece, Hungary, India, Indonesia, Ireland (specific to state-supported financial institutions after the 2008 financial crisis), Italy, Japan, Malaysia, The Netherlands, Norway, South Africa, Spain, Sweden, Taiwan, and the UK.

[4] See ¶ 6 of Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, Official Journal of the European Union L330/1-330/9.

[5] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 16, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784 (citing Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at http://hausercenter.org/iri/wpcontent/uploads/2011/08/CR-3-12-15.pdf). 

[6] Id. at 16.

[7] Id. at 19 (citing KPMG, UNEP, Global Reporting Initiative and Unit for Corporate Governance in Africa, Carrots and Sticks: sustainability reporting policies worldwide 8 (2013), available at https://www.globalreporting.org/resourcelibrary/carrots-and-sticks.pdf.). 

[8] Libit and Freier reported a dramatic increase in CSR-related reporting among S&P 500 companies from 2010, when approximately 20% of the companies provided such reporting, to 2012 when 53% of the companies reported on their CSR activities.  B. Libit and T. Freier, The Corporate Social Responsibility Report and Effective Stakeholder Engagement (Chapman and Cutler LLP, 2013), available at https://corpgov.law.harvard.edu/2013/12/28/the-corporate-social-responsibility-report-and-effective-stakeholder-engagement/ (citing 2012 Corporate ESG/Sustainability/Responsibility Reporting: Does It Matter? Analysis of S&P 500 Companies’ ESG Reporting Trends & Capital Markets Response, and Possible Association with Desired Rankings & Ratings, Governance & Accountability Institute, Inc. (2012)). 

[9] California Civil Code § 1714.43.

[10] For further discussion of sustainability reporting initiatives and frameworks, see A. Gutterman, Sustainability and Corporate Governance (New York: Routledge, 2020).

[11] ISO 26000 Guidance on Social Responsibility (Geneva: International Organization for Standardization, 2010), 77.

[12] Id. at 77-78.