Rory Sullivan offers a guest post responding to a recent Ethical Corporation article on corporate responsibility reporting.
In a recent article for Ethical Corporation, Paul Hohnen and Eva Riera highlighted the difficulty faced by leading firms in reducing their greenhouse gas emissions, noting that, for many of these companies, improvements in efficiency are being swamped by increases in production.
They then argued that “In the absence of greater government encouragement and incentives, it is only a matter of time before sustainability reports become evidence of unsustainability rather than the beacons of change, innovation and hope they could be.”
Their argument seems to be based on the assumption – or the hope - that companies that produce high quality sustainability reports will, or should, be more sustainable (as measured in terms such as reduced greenhouse gas emissions and reduced resource consumption).
In very broad terms, sustainability reporting has both an internal and an external function. Internally, reporting should, provide an impetus for companies to improve their management systems, processes and controls (through requirements to monitor performance, gather data and information, ensure the robustness of that information, etc.).
Sustainability reporting may also provide company management with the opportunity to reflect more holistically on their performance and impacts and to identify areas where the business could be improved, whether through incremental improvements or more radical innovation.
Externally, reporting has two important roles. First, it helps create accountability through enabling external stakeholders to assess company performance and, in turn, exert pressure to improve performance.
Second, sustainability reports, at least in theory, are an important source of information for policymakers, enabling them to understand a company’s performance against its own objectives, to understand the obstacles and challenges faced by companies and to put a company’s impacts into a wider social and environmental context.
In practice, this theoretical potential has remained largely unrealised, in large part as a consequence of the almost unhealthy fixation of these reports on good news and corporate PR.
While Paul and Eva’s criticisms reflect their disappointment with the influence that sustainability reporting has, or does not appear to have, on corporate performance, these criticisms should actually be levelled at these companies’ strategies, objectives and implementation rather than their reporting per se.
The fact that sustainability reports, at least from the leading companies, are providing something close to a robust analysis of corporate performance should be a matter for celebration, not criticism. If we are to make well-informed policy decisions, we need credible information on performance, and we should be prepared to praise and recognise companies that are honest about their performance.
It would be comforting to think that companies that are regarded as leaders for their reporting will be those with the best performance. The reality, however, is that sustainability reporting facilitates the identification of efficiencies, risks, opportunities; it does not necessarily presage the radical changes in business models that are likely to be required if we are to make the transition to sustainable development or to a low carbon economy. From a public policy perspective, the central contributions of reporting should be to identify where the weaknesses in corporate responses lie and to identify how much further they need to go.
Dr Rory Sullivan is the author of Valuing Corporate Responsibility; How Do Investors Really Use Corporate Responsibility Information? (Greenleaf, 2011). He is a member of the Ethical Corporation Advisory Board.
Note: The article by Paul Hohnen and Eva Riera can be found here.