How to be good: the Enron and WorldCom affairs have led to a resurgence of investor interest in corporate social responsibility. Cathy Hayward finds out where the UK stands on the issue of mandatory versus voluntary reporting on CSR.
| Author | Hayward, Cathy |
| Position | Cover Feature CSR |
The global investment community is becoming increasingly aware, in the light of Enron and WorldCom, that under-disclosure can have a huge impact on profits and stock values. There is also a growing recognition that environmental factors create liabilities that also affect a company's value--usually adversely. Investors are starting to look at how firms report on ethical, environmental and social issues, as they recognise that corporate social responsibility (CSR) policies could affect their investments.
This summer more than 30 investment institutions, including Merrill Lynch and Henderson Global Investors, wrote to the world's 500 largest companies, among them ExxonMobil and Unilever, to demand that they reveal how they are tackling ethical and environmental issues such as global warming.
"There are potential business risks related to actions stemming from the perception of climate change that have implications for the value of shareholding in companies worldwide," says Paul Dickinson, who is leading the project. "The data to assess these issues is not always available, sometimes lacks comparability and is of poor quality."
The initiative follows a report published in April by the Boston-based Coalition for Environmentally Responsible Economies, which made a strong link between climate change, fiduciary responsibility and shareholder value. "Value at risk: climate change and the future of governance" documents the financial risks to industry resulting from global climate change.
"There is compelling evidence to show that companies' performance on environmental issues does indeed affect their financial performance," says James Martin, a former chief investment officer at TIAA-CREF, one of the largest pension funds in the US.
Carol Adams, professor of accounting at Monash University in Australia and a director at the Institute of Social and Ethical AccountAbility, agrees. She believes that the pressure on businesses to report on these issues is increasing. "There is no doubt that big firms aren't going to be able to get away with not reporting climate change and ethical issues any more. Stakeholders can have a big impact on companies if they don't like what that they are doing."
But it's not enough to leave companies to do this voluntarily, she argues--mandatory reporting on issues such as environmental targets and outcomes is vital. Reports must also be audited, because most of what little has been produced in this area is unreliable.
Adams is not alone. Increasing numbers of people are calling for a mandatory reporting regime of environmental and ethical issues in the UK, similar to those that already exist in Denmark, Norway, Sweden and the Netherlands. In June 2002, for example, Labour MP Linda Perham tabled a private member's bill calling for greater social and environmental accountability from big businesses.
The bill, which is backed by pressure groups including Friends of the...
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