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We Need Mandatory Corporate Social Responsibility

We Need Mandatory Corporate Social Responsibility

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Published by Ron Robins
Understanding environmental, social and governance (ESG) issues are essential in informing us about long-term opportunities and risks for individual companies. Therefore, corporate social responsibility (CSR) reporting should be as mandatory as audited financial statements.
Understanding environmental, social and governance (ESG) issues are essential in informing us about long-term opportunities and risks for individual companies. Therefore, corporate social responsibility (CSR) reporting should be as mandatory as audited financial statements.

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Published by: Ron Robins on Nov 02, 2008
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October 17, 2008
We Need MandatoryCorporate Social Responsibility (CSR) Reporting
byRon Robins, MBA*From my globally popular ethical investing website,
I favour mandatory CSR reporting. Let’s face it, companies coming clean on theirenvironmental, social and governance (ESG) practices are now being seen importantby nearly everybody. ESG issues are essential in informing us about long-termopportunities and risks for individual companies. Therefore, CSR reporting should beas mandatory as audited financial statements.As revealed byWatson Wyattrecently, ESG analysis is one of the six big macrotrends among institutional investors. And in most developed countries, over 80% of investors are interested in this too.For small companies, this might be costly, so perhaps a reduced form would bebetter for them. But for large companies with big societal impacts, CSR reportsshould be standard practice.Also, stockholders reading a company’s CSR report need to be assured that whatthey are reading is factual and reliable. Today, we see a proliferation of differences inCSR reports in their methodology, construction and reporting styles. There are nouniversally accepted standards, such as Generally Accepted Accounting Principles(for financial statements). And for North American companies, few are externallyaudited or have what are called an ‘assurance statement.’ The latter means anexternal reviewer provides an independent audit of the report, and we hope, withsome useful commentary as well. Some companies have gone the route of creatingan external advisory panel of highly respected individuals who review and commenton the report. Many a Japanese company has just one respected individual placing acomment within the CSR report. That might be alright for some, but for mostinvestors, it would seem inadequate.As in accounting, to avoid conflicts of interest, the people who create the CSR reportshould not be the same ones who audit it.Not only should these reports be required, but they must be audited and opiniongiven by qualified ‘assurers.’ This suggests some form of standardization in thedesign of these reports and the qualification of whom may perform such audits andoffer opinions. Currently there is an enormous variety of CSR reportingmethodologies.But three key ones are emerging. They are: the ‘AA1000AS,’ created by the Instituteof Social and Ethical AccountAbility (usually called, simply AccountAbility) fromLondon, England; the ‘ISAE 3000’ which has been developed by the accountancyprofession; and the ‘Global Reporting Initiative (GRI) Guidelines,’ developedcollectively by numerous CSR professionals and stakeholders. The first two of theseare considered an assurance standard in the CSR reporting industry. However, theISAE 3000 is the only standard that has developed a global following so far.
 
So when you review a CSR report, check to see how it was created and who assuresits data and statements before taking it seriously. Also, check for statements of independence of the assurance provider to the company as well as any disclaimers!This obviously is important for those who rely on these reports in assessing sociallyresponsible investment rankings.The idea of separating non-financial reporting from financial reports may well changein the years ahead. From an investors’ standpoint, it is probably preferable to havethem integrated into one report rather than as a separate report that the investorhas to request.From the research which I have seen, it is clear that the greatest number of CSRreports that have some type of independent scrutiny are from European companies.In North America, given its particularly litigious climate, it seems that somecompanies, and especially those who might perform an assurance or auditingfunction, steer away from doing this work because of the danger of being sued. Thisis a pity, and ways around this problem need to be found.Companies should realize that it can be very beneficial for them to engage outsideconsultants in the CSR reporting process. Such consultants can help them inenhancing their data quality and provide information on how to continuously improvetheir CSR performance. Thus benefits to their bottom line can accrue. In turn,organizations which provide ratings on ethical and socially responsible investmentsmay give them higher rankings, resulting in higher prices for the company’s stocksand bonds.Unsurprisingly, countries in Europe and Asia particularly, are increasingly likely tomandate CSR reports for all companies. Norway seems set on this path, accordingtoResponsible Investor. And in the UK directors of public companies must nowdisclose environmental and social risks that are material to the company’soperations. Eventually I believe we will see countries everywhere mandating CSRreporting for public companies. These reports will be largely uniform in structure,contain generally agreed upon ‘reporting principles,’ be audited by professionallylicensed assurance providers, and contain a standard ‘assurance statement.’ Withoutthese safeguards investors are disadvantaged in understanding, comparing, andknowing how to act upon CSR reports.Special note. Much of the above information came from an extraordinary, first-of-a-kind, study:
 Assure View. The CSR Assurance Statement Report 
, recently releasedby, and available from,http://www.CorporateRegister.com/. I highly recommendanyone interested in CSR or ethical investing to read this report. Please note though,that opinions expressed in this editorial are my own.-----------------------------------------------------------------------*Ron Robins, MBA, is founder,
Investing for the Soul 
,(http://investingforthesoul.com/), a globally popular and respected ethical investingwebsite. He advocates, writes and teaches on the subject of ethical investing. Tocontact him, e-mail toRon Robinsor call 705-635-3034.
© Ron Robins, 2008
.
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