The Transparency Imperative for Corporate Sustainability - A Southern Outlook

Dr. Aditi Haldar, Senior Environmental Scientist,    Email: aditi@sdalt.ernet.in

Over the last eighteen years, Development Alternatives (DA), has fostered new relationship in the people, technology and environment interactions needed to attain the goal of sustainable development. DA has achieved this through its research, design, development, consultancy, training and implementation activities. Several of the strategies, processes and products developed and field-tested by DA have been recognised and adopted quite extensively in India and overseas.

The Industry and Urban Environment Systems Group of Development Alternatives has evolved over many years with the mandate of promoting internalisation of environmental and social concerns among the corporate and other sectors of society. A major program of this group is Corporate Environmental and Social Responsibility, which triggered the preparation of environmental management planning and environmental and social policy and procedures for corporations in 1994. This group has since then led many projects in South Asia involving not only multi-sector corporations but also SMEs, business associations, regulatory agencies and civil society.

In July 2000, DA got associated with Global Reporting Initiative (GRI) as a co-organiser of the first South Asia Briefing. The Global Reporting Initiative (GRI) was established in late 1997 with the mission of developing globally applicable guidelines for reporting on the economic, environmental and social performances, initially for corporations and eventually for other organisations like financial institutes and civil societies. The GRI defines such reporting as "Sustainability Reporting". The GRI seeks to make Sustainability Reporting as routine and credible as financial reporting in terms of comparability and rigor. To achieve this vision the GRI specifically set its goal to:

l Elevate Sustainability Reporting practices worldwide to a level equivalent to financial reporting
l Design, disseminate , and promote standardised reporting practices in all parts of the world
l Ensure a permanent and effective institutional host to support reporting practices worldwide.

The GRI process for developing the guidelines has been broad and inclusive. Meetings have been held in various parts of the world, an open and transparent structure has been maintained, and interested parties representing the business, civil societies, research institutes financial institutes and the government have been involved. The GRI also balances principles of inclusiveness and representativeness with the objectivity and rigor demanded by users of information in both developed and developing nations.

To reach out to various parts of the world, a South Asia Briefing was held in New Delhi and Mumbai. The Briefing was organised to introduce GRI among the South Asian audience. This meet provided a platform to initiate discussions related to corporate disclosure, corporate accountability, corporate governance, and performance measurement in accordance with regional conditions and priorities. The meeting was co-organised by many leaders from South Asia and multi stakeholder participation was sought to provide the most productive level of discourse on these issues. The meeting, although held in India, witnessed the participation of leaders representing the various walks of society from different countries of the region. The meeting showed that there was a strong interest among all stakeholders and a need for Sustainability Reporting in this region.

The GRI Interim Secretariat reviewed the success of the Briefing and, as a follow-up determined the need to secure strategic assistance from selected advisors of South Asia. These advisors would provide additional resources necessary to continue the global expansion while, at the same time, keep the focus on GRI’s institutionalisation. During 2001, plans were implemented for institutionalising the GRI into a new, permanent, global body. The new institution was envisioned to be governed by a Board of Directors, and planned to involve multi-party technical and stakeholder advisory groups to ensure continuation of the GRI’s core values of inclusiveness and transparency.

In light of all these happenings - Development Alternatives carried a consultative research in South Asia to collect perspectives from different stakeholders on corporate citizenship, corporate transparency, reporting and GRI. This study brought out the different perspectives of stakeholders on corporate accountability and reporting. The following paragraphs provide a brief glimpse of the Southern outlook on these key issues which has become an emerging agenda for almost all. There is so much of activity around this agenda but many difficult questions and surprising truths have been posed. Some of them remain currently unanswered and challenging. Arriving at answers seems to be an imperative for all.

The backdrop of Globalisation

Economic liberalisation and deregulation have witnesses a massive increase in the flow of capital, goods and services across borders, opening new markets to foreign investment. The overall process of globalisation has affected all businesses and their strategies around the world. It is true that globalisation has given rise to a lot of links between economics, culture and individuals. It has also led to the mushrooming of large number of private companies, which are now taking away the responsibilities of the state to deliver different kinds of services. Globalisation has given rise to new demands on corporations to exercise their power responsibly because some corporations are more powerful than the governments. On the other hand, globalisation has also led to the following:

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Advances of technology in terms of communications make the Trans national corporations more exposed to the threat of being scrutinised by the gaps in implementation of different standards at home and off shores. But the extent of this scrutiny and therefore accountability remains a matter of hot debate.
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External expectations are increasing rapidly. Consumers especially in the North are demanding information about how the products are made; environmental and social responsibilities implemented by the supply chain down the line. Ethical investors want to know how their financial return has been achieved by taking care of the social and environmental impacts. International NGOs are connecting the negative overseas impact of companies with campaigns and boycotts.
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Internal expectations within companies, especially from the employees and shareholders have also legged companies to be more accountable to them. Although the external pressures work differently in different regions of the world and for different kinds of companies, the changing expectations of both the internal and external pressures have forced certain companies to go for imbibing corporate citizenship, and corporate accountability. There has been a dramatic growth in the number of companies (now well over 2,000) globally that have adopted the path of corporate accountability through reporting and releasing these reports in some combination of social, environmental and economic performances. The corporations have admitted the fact that setting up the system of reporting and thereby becoming transparent has offered many unanticipated benefits :

External Reasons - It has been believed by corporations, especially in the North that transparency and accountability are essential components of sustainability. However, this perception is in someway or the other linked to the companies international or national position and image building and thus the common phrase of "If your company wishes to position itself as a sustainable company, then you must report. If your company wishes to operate in a sustainable society, and foresees the world moving in this direction, then you must be prepared to report. The World is changing, and reporting is fast becoming an obligation, not a choice! ". Reputation benefits and credibility have been achieved with increasingly-aware consumers, local communities, NGOs, regulators and investors by providing information needs of this increasingly sophisticated set of stakeholders. Companies have even saved time and resources by being a one-size-fits-all tool that meets all their varied information needs. Reporting may become mandatory in the future. Voluntary initiatives are developing fast and a number of European governments are exploring the possibility of making reporting of some kind a legal requirement. This has set in a race for corporations to show case their leadership as a company to get involved now and eventually set, the standards on which future legislation will be based.

Internal Reasons - Stakeholder management has become the most important questions with corporations. Corporations are slowly realizing the fact that by being transparent to its stakeholders and engaging them in a web of well established relationships might decrease the risk of getting attacked. Accountability allows companies to measure their adherence to the standards set forth in their environmental principle, track progress against internal targets (what gets measured gets managed!) and set new goals. This adds rigor to internal data gathering and information systems and thereby allows a company to benchmark its performance against its competitions (provided they are also reporting). It helps to identify inefficiencies, weaknesses and opportunities for saving energy, water, materials, and MONEY! This can be also used as the driver of change – public commitments drive progress. The extra pressure of going public with data and targets help drive improvement. Internal reporting, therefore, can increase staff awareness and boost their morale. A good report can also help to attract new staff.

What is happening in the South?

A range of key organisations and individuals were contacted by DA and were consulted over a period of six months. The stakeholder organizations were segregated into two categories of — report makers and report users.

Report Makers
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Business representatives ranging from the multi-national to the large national level, particularly those business houses with export oriented activities. The national business houses include representatives from the small and medium scale enterprises also.

Report Users

l Financial Institutes.
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Research and Academic Institutes, ranging from big management institutes-who nurture and sensitise the future managers of corporations on environmental and social concerns- to environmental research organisations.
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Consulting organisations, which were usually large and were already associated with the facilitation or verification process of reports in this region.
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Civil Society Organisations, ranging from those dealing with policy level issues to the social and environmental grass roots issues. This stakeholder group had representatives also from organisations working with small export oriented industries.

a) Corporations

Trans-national corporations

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The corporate offices located in North America or Europe control most of the thinking and implementation on Corporate citizenship and accountability. Except a handful of the trans-national corporations, all the decisions are taken at the global corporate policy level, the professionals are usually ignorant of this activity in the local context. These managers have limited knowledge that be extends only upto their environmental monitoring and reporting (internally) based on the local standards. However, very few corporations have a proper set of South Asian professionals to take this forward.
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Logistical difficulties for large multinationals, is often a problem in getting consistent data from very diverse international operations and suppliers. If this is the case, the company might resist producing a report that they know will be perceived as poor. Therefore, disclosures remain an internal process only.
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Local stakeholder engagement in the reporting process is not at all common and lack of demand and audience is the major concern. Many multinational corporations operating in this region therefore, make accountability a closed door process.

National corporations

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The age-old culture of corporate citizenship in terms of social responsibility is imbibed into the tradition of many large business houses of this region. Majority of the established big corporations have invested into the social and economic development of remote areas, built townships, schools, hospitals and looked after their employees. But this culture was fast receding in this part of the world. The main reason for this was competition and global market pressures.
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Public disclosures is often perceived as a propaganda of its philanthropic work. Fear prevails in the fact that disclosures of donations, charity and social improvements might lead to more demands and unnecessary questions from other stakeholders.
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Companies with bad performance are reluctant to reveal information publicly, especially if they have so far avoided any negative publicity as a result of their performance. They hope that by staying silent they will avoid attracting public attention.
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The whole process of accountability is also perceived to be too expensive. Especially with a professionally designed, verified report. Many of the internal benefits only become apparent after the company has reported for some time – there is a lot of skepticism from non-reporters about the benefits. And many of the external drivers (e.g., increased outside pressure) are still inconsistently applied to different companies.
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There are many companies who resist producing something that will not be state-of-the art. Certain companies –especially those with a corporate culture of excellence, might resist reporting until they feel they can produce a report worthy of the organization’s reputation. Unfortunately, good reporting takes time and experience. It is difficult to produce a state-of-the-art report at the first go, so this can become a vicious cycle.
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Many companies are followers rather than leaders. Some companies want to be at the forefront while others like to sit back and let others test the waters first. This is prevalent because of no visible external benefits in terms of getting financial gains or credibility from the Northern clients.

b) Civil Society

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Civil Society expressed the lack of clarity in terms of the role they should play in the whole process of corporate accountability. This is because of the fact that a corporation is not seen as a part of the society and is often perceived to be an alien. Therefore, there is an immense gap between the so called ‘watch dogs’ of the society and the so called’ engine of economic development of the society. There is no existing mechanism to facilitate the role of Civil Society. The business house is often perceived as a powerful group who could just ignore the demands of Civil Society.
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Civil Society on the other hand is often perceived by the corporates to be the ‘noise maker’ and not a partner. Civil society institutions are often mistaken to be organisations with less technical knowledge and not capable of assisting the corporations to do something together for a better future.
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Need to prove their credibility by being more logical, scientific and professional in their approach. To enhance their capacities, training on various aspects of corporate responsibility and accountability are needed.

c) Financial Institutes

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There is a general lack of awareness and interest of investors to look at other issues like corporate citizenship and accountability. Looking at the practical aspects, the financial institutes feel that demanding accountability in terms of the environmental, social and economic performances from their client means a lot. This is because reporting involves a lot of professional time and money.
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Financial institutes also expressed the need to show case the link between financial benefits to accountability and public disclosures. They do agree theoretically that there is a long tern benefit to transparency but a lot has to be done to institutionalize the process in this region.

The Next Steps

Attempts to bring together trade, environment and development have often failed to address three critical factors:

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The need to ensure that social and environmental upgrading generates lasting value for developing countries.
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The need for transparency in the setting of any new trade and sustainable development measure.
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The need for equity and fairness – particularly to ensure that those countries or stakeholders historically excluded from trade opportunities really benefit.
To achieve all the above, the following has to be done at the earliest:
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Raise awareness and create demand for reporting in the South Asia Region. The awareness of local stakeholders has to be enhanced, through carefully targeted workshops and other initiatives at the national and regional level. Awareness could be enhanced through training workshops especially designed for the South Asian audience. Creation of demand could be facilitated through the show casing of benefits in the South Asian region.
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Ensuring credibility of the reporting process. The credibility of the whole initiative could be enhanced by performing the following:
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Business houses are tired of innumerable initiatives introduced in the market. Hence, the urgent need to design an ultimate process which could tie all loose ends of previous initiatives and set a credible, comparable and long lasting process.
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Accountability cannot be simply limited only at the corporate headquarters and mere data collection and preparation of reports. It should address local issues and build relationships with local audience/ stakeholders to move beyond the premises of a corporate. q

 

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