Corporate social accountability and reporting are roaring up the business agenda. John Elkington and Franceska van Dijk from SustainAbility explore the trends and priorities in their latest report for the United Nations, offering six points of advice.
The 1990s have seen an explosion in the number of companies reporting on their environmental performance and targets. The process started in 1990, with pioneering companies like Norsk Hydro in Norway and Monsanto in the USA, but the trend has widened out rapidly to embrace most sectors.
Even though many of these reporting companies had signed sustainable development charters like that launched by the International Chamber of Commerce (ICC) in 1991, they saw the challenge as environmental performance and reporting. This approach was challenged in the midÄ1990s by the introduction of the concept of the ‘triple bottom line’ of sustainable development . This focuses companies and other organisations not only on their environmental performance but also on their economic and social impacts.
The corporate accountability challenge is now greatest in two areas. First, in social and ethical accounting and reporting. And, second, in the integration of the three different streams of information into management accounts and decisionÄmaking. In preparing The Social Reporting Report, the latest in our Engaging Stakeholders reports for the United Nations Environment Programme (UNEP), SustainAbility and its partners focus on the first of these challenges Ä social accounting and reporting.
From Trust Me to Show Me
In the past, business leaders and, to a degree, politicians could rely on a culture where there was a greater degree of trust in the ‘Establishment’. In its Profits & Principles report, Shell International notes that the world is moving from a ‘trust me’ culture (where companies can rely on society’s broad acceptance that they act in good faith), through a ‘tell me’ culture (where society wants to be told what is going on) to a ‘show me’ culture (in which companies have to demonstrate their serious intent to change for the better).
Different parts of the world still operate on different lines, clearly. Until the recent focus on ‘crony capitalism’ in countries such as Indonesia and Malaysia, for example, most of Asia was still very much in Trust Me mode. But the globalisation of the media, leading to the creation of what some dub a CNN World, means that all major international companies will increasingly be exposed to Tell Me and Show Me requirements.
For many companies this greater accountability means turning the concept of a Show Me world into a reality Ä and a starting point is to listen to stakeholders and respond to their views. The result will be a seismic shift. The implications for corporate governance, strategy, management, auditing and reporting are profound. And we see social accountability and reporting as central drivers in the process.
What is corporate social reporting?
There are a number of definitions of corporate social reporting, but one of the best known comes from ISEA. Their concept of social and ethical accounting, auditing and reporting (SEAAR) is increasingly influential. It is important, however, to distinguish between the process of corporate social accounting and the endÄproduct, the corporate social report.
As in other areas of corporate disclosure, diversity rules here, too. To date, there is no such thing as a ‘standard’ social report, because the nature of each report depends upon: the range of stakeholders for whom it is intended; what the reporting organisation is trying to achieve; and the variety of issues covered.
Some people debate whether aspects of social reporting, for example community relations, are properly part of a corporate environmental report (CER), or whether environmental reporting should be seen as part of wider corporate social reporting. It is our view that corporate social accounting and reporting represent one of three (social, environmental and economic) dimensions of triple bottom line accounting and reporting, and that these three bottom lines will become increasingly integrated as we move towards ‘sustainability reporting’ the focus of SustainAbility’s 1999 benchmark survey.
An emerging tool-kit
Today, environmental management and reporting is treated by a growing number of companies as a core business activity, and SEAAR is fast following suit. Why? In terms of business benefits, social accounting and reporting can be seen as an emerging set of management tools which can:
reinforce and communicate the company’s core values and visions;
identify ‘blind spots’ and areas of weakness, pinpointing high risk activities requiring sound management;
promote stability and protect organisations from unexpected shocks;
create windows on the world, helping companies explore and understand stakeholder concerns and interests;
help all organisations, including NGOs, understand how to manage intangibles , such as reputation and trust;
provide a credible means to communicate with stakeholders;
help companies to attract, understand, motivate and retain employees in an economy which is increasingly reliant on knowledge, not just products.
But with no agreement as to what a social report should look like, and no common language or agreed approach to social reporting, the need for convergence is pressing.
Areas of diversity
Anyone looking at social reports for the first time may have problems finding many similarities between them. There is common ground, but practitioners in SEAAR inevitably approach the subject from different angles. In The Social Reporting Report, we explore four ways in which such reports can differ. We should not overÄstress the areas of divergence, however. Indeed, Professor Peter Pruzan of the Copenhagen Business School, a pioneer in ethical accounting in Scandinavia, is distinctly upbeat. He notes that there is a strong convergence in terminology, methodology and practice.
If you look at who is doing SEAAR work, the companies and organisations are increasingly mainstream. Where once values-led organisations such as Traidcraft, VanCity and The Body Shop blazed the trail, we now see mainstream organisations like BP, BT, IKEA, Novo Nordisk, Rio Tinto and Shell joining in. And where pioneers like Ethos and NEF once worked in isolation, mainstream management accountancy groups are now beginning to pile in.
Hopefully, these trends will help spread the new thinking to a much larger universe of companies and other organisations as we move into the 21st century.
Conclusions and recommendations
We conclude that social accounting, auditing and reporting will be a central business agenda item in the early years of the 21st century. In terms of advice to wouldÄbe reporters, we offer six recommendations. Here they are in summary:
First, build the business case. Think early on about institutional barriers, cost and budgets. Pioneering SEAAR companies report costs ranging from C6100,000 (VanCity) through US6750,000 (The Body Shop) per cycle. In the case of companies the size of BP or Shell, however, the costs can be significantly greater when international verification processes are taken into account.
Second, spotlight the financial risks and opportunities. In preparing your business case, include the financial risks linked to key aspects of your organisation’s actual or perceived performance against the social bottom line. Among the risks that may surface are: alienated stakeholders; a damaged reputation; an impaired or lost licence to operate; and disillusioned financial analysts and shareholders. At the same time, ponder potential business opportunities in this area. These might include: better employee morale; greater community tolerance for any occasional mistakes; more loyal customers and new contracts and business relationships.
Third, understand the changing role of governments. There are some world regions where government is weak or virtually nonÄexistent. The SEAAR approach will be almost impossible in such places. In some countries, governments are struggling. One example is South Africa, but the country is producing some very interesting company reports, including the Corporate Citizenship Review by South African Breweries. In some such countries, business is having to fill something of an accountability vacuum.
Fourth, focus on benchmarkability and benchmark. Ensure that the indicators and metrics in your social reporting are appropriate and benchmarkable. And consider including benchmark survey information in your reports.
Fifth, don’t fall into the local/global divide. Globalisation will continue, despite current difficulties in countries like Indonesia, Malaysia, Thailand and Russia. But there will be political environments in which social reporting will not work. For example, in countries: where there are gross abuses of human rights or civil insecurity (e.g. Myanmar, Rwanda, Sri Lanka); where there is endemic corruption (e.g. Nigeria, Russia); or where transparency is seen as a negative virtue (e.g. Japan). Recognise the differences between emerging global standards and local values and expectations.
And, sixth, fasten your safety-belt. As the recession bites and competition intensifies, expect growing pressure to downgrade the importance of social and environmental priorities. But also expect these same trends to intensify social pressures on capitalism in general and on exposed corporations in particular. New sectors are now coming under pressure, among them gambling.
The number of social reports rolling into the office is growing steadily. We are also hearing a significant number of international companies pledging themselves to produce their first sustainability or triple bottom line reports in 1999. These, by definition, will report against a range of social and ethical indicators.
Even longer term, some early pioneers in this area expect to see major changes. In 10 years, we won’t have social reports – we’re going to move towards not simply web delivered reports but also to real-time reporting, says Simon Zadek, development director at NEF. Audiences will become users of information, rather than just receivers. Software will enable each user to access and assemble customised information from the original accounts. A lot still to do, clearly.
John Elkington is Chairman of SustainAbility, author of Cannibals With Forks, and a member of the Council of the Institute of Social and Ethical Accountability (ISEA) and of the Steering Group of the Global Reporting Initiative (GRI). Franceska van Dijk heads SustainAbility’s social reporting programme and is co-author of The Social Reporting Report.
The Social Reporting Report is priced at £35 and is available from 0171 937 9996.
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