A corporate social awareness?

Once the domain of governments and non-governmental organisations, corporate social responsibility (CSR) is now widely used as a reporting tool.

According to the fifth survey on CSR reporting from consultants KPMG, which was published earlier this year, the number of companies reporting on their social and environmental activities has steadily increased since the early 1990s.

KPMG analysed the top 250 companies from Fortune's top 500 companies (G250) and the top 100 companies in 16 industrialised countries (N100). It found that in 2005, 52% of G250 companies and 33% of N100 companies were now issuing separate CSR reports compared with 45% and 23%, respectively, in 2002.

Globally, the UK and Japan have the highest rates of CSR reporting and the highest increase has been seen in Italy, Spain, Canada and France.

By sector, the financial services industry has increased its CSR reporting two-fold since 2002, while those industries with the highest environmental impact have always been the most active. At national level, more than 50% of companies reporting on CSR are from the utilities, mining, chemicals, oil and gas and paper and pulp sectors.

There has also been a shift in focus. Throughout the 1990s, companies detailed activities mitigating the environmental impact of their businesses. But since 1999, sustainability of operations has become the key issue and is now mainstream among the G250 companies and nearly half of national companies (48%).

85% of those companies reporting on CSR included the hot topic of climate change in their publications.

Social and economic matters, however, are covered more superficially. While two-thirds of companies cover their labour standards, working conditions and community involvement, KPMG describes the quality of reporting as "sketchy". Only a quarter discuss the economic impact of their business from a sustainability standpoint.

Certainly companies are increasingly attaching significant importance to CSR, but why are they doing it? Although it might be nice to discover that bigger companies were becoming more aware of their societal responsibilities, it appears that the main impetus for reporting on CSR is money.

As many as 74% of companies (see table) cited economics as the main reason for concentrating on CSR, while 53% said that the reason was ethical.

With competition increasing across the globe on all levels, CSR can be a way for businesses to gain an edge over their rivals.

Internally, companies rate increased employee motivation, the ability to attract and retain more highly skilled workers and better risk management as the main economic reasons for investing in CSR.

But they also said that there was increased external pressure as people became more aware of the impact of business on the environment and society. New 'socially responsible investment' (SRI) indexes, such as the FTSE4Good, have emerged in recent years, giving businesses an added interest in keeping themselves eligible for listing.

"It's true that there have been more companies issuing special environmental reports in the last few years," said utilities analyst H�ne S� at Fortis Bank in Paris. "There is an increasing demand from investors that their fund managers specifically invest in environmentally-aware companies and so firms respond to this demand."

At the same time, consumers and public authorities are beginning to assess the environmental or social impact of a company before placing orders with them and campaigns by non-governmental organisations (NGOs), trade unions and even business networks are also reasons for the increase in CSR.

Not everyone is convinced of the value of investing in CSR. In January, American economist Arthur Laffer published a study calling corporate responsibility "irresponsibility" by company owners who, he said, should be concentrating on creating wealth for shareholders. Other major faces in business such as publisher Steve Forbes and Nestl�hief Peter Brabeck-Letmathe have voiced similar concerns.

Some NGOs are equally mistrustful of CSR, but for a different reason. Christian Aid is calling for the UK government to give company directors a greater duty of care over their firms' social and environmental impact.

"We have nothing against CSR reports as such, but we have to see real results for it to matter," said Andrew Pendleton, senior policy adviser at Christian Aid.

"We would rather see companies held to account over their activities rather than these kind of voluntary initiatives. Sometimes they are effective and larger companies are doing quite a lot, but all too often they are not," he said.

Jules Peck, global policy adviser from WWF, also attacked "lily-livered" governments for failing to tackle CSR, not just through regulation but via financial incentives or trade tariffs to promote more environmentally aware companies.

"If companies took the huge amounts of money they invest in their CSR reports and put it into marketing, advertising and communicating with consumers and investors, we would see better results," he said. "Most CSR reporting is pure sophistry because most investors won't allow companies to do the things they really need to do, and consumers are ill-informed and so not demanding the right changes in product and service provision."

Drivers for corporate responsibility

% of responses to survey

• Economic considerations 74
• Ethical considerations 53
• Innovation and learning 53
• Employee motivation 47
• Risk management or risk reduction 47
• Access to capital or increased shareholder value 39
• Reputation or brand 27
• Market position (market share) improvement 21
• Strengthened supplier relationships 13
• Cost saving 9
• Improved relationships with governmental authorities 9
• Other 11

(2005 KPMG International)

Article forms part of a supplement on 'Ethical Commerce'.