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Friday
Feb012013

Is Company Driven CSR Disclosure Effective?

There have long been calls for companies to disclose their policies and practices related to corporate social responsibility matters, including but not limited to environmental, social and related governance factors. (See e, g., Cynthia A. Williams, The Securities and Exchange Commission and Corporate Social Transparency, Harvard Law Review, Vol. 112, P. 1197, 1999.  Studies also show that many constituencies care deeply about these “sustainability” issues.

Companies are heeding these calls and more and more major companies are showing marked increases in both adopting sustainability practices and making disclosures as to those practices.   Interestingly, despite this increase in positive sustainability disclosure, a recent report from the Conference Board shows that perceptions of company performance with regard to sustainability are declining.  While there are many reasons that may be contributing to the fact that positive perceptions is slipping despite increasing disclosure of positive sustainability performance, what is clear is that disclosure is not having the precise impact that it was thought it would have. 

The divergence in the sustainability performance and perceptions shows that companies are not communicating effectively about their sustainability efforts, even though the volume of communication on those matters, through annual disclosure documents, corporate responsibility reports and advertising, among others, is on the rise. It is clear that the types of disclosure currently used by companies are not sufficient to communicate reality.  This finding raises many interesting questions in addition to the issue of why perceptions are not tracking performance.  First, on a practical level, how can companies get past this problem and convince consumers, investors and others that they are paying serious attention to sustainability issues and second, if traditional disclosure avenues are not proving to be effective communication channels, what it the value of using them?

While the second question is beyond the scope of this post, as to how companies can work to bring perception in line with reality, studies show that what companies themselves say about their sustainability practices carries little weight. Consumers are skeptical of company selected disclosure, stating[S]ome products and services are more environmentally responsible, others just have a 'greenwash' of PR and marketing to make them appear responsible... it's very difficult to tell the difference” and asserting that it is hard[r]eally knowing what the impact of a product is - the company wants to sell its credentials so is selective about focusing on the positives.”  Instead of emphasizing increased company generated disclosure, studies suggest that “third party endorsements, awards and positive media coverage have a greater impact than a company’s communications or advertising on whether consumers are convinced of its sense of environmental and ethical responsibility. Corporate pledges to increase environmental activities are not valued unless they are in the form of public commitments to meet relevant targets.”

This suggests that company driven sustainability disclosure, including disclosure mandated by SEC reporting requirements is not having the full impact it is intended to have.  Perhaps companies should instead pay more attention to independent evaluative tools such as those provided by the Global Initiative for Sustainability Ratings (GISR). GISR and other internationally recognized rating tools may prove more effective in overcoming skepticism about company-driven disclosure.

The bottom line is that more and more investors can see that community well-being is connected to corporate performance. Appreciation for corporate disclosure is increasing and it does matter to investors and others.  Calls to increase CSR disclosure are achieving the aim of making companies more mindful of their CSR practices.  It is not, however, enabling them to communicate their improving performance.  To solve that dilemma, companies must focus on their method of communication.  Company self-reporting is proving to be insufficient to keep perception on pace with performance.  Greater use of third party endorsement and independent monitors seems to be called for.

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