opportunities and obstacles for corporate socialopportunities and obstacles for corporate social...

OPPORTUNITIES AND OBSTACLES

FOR CORPORATE SOCIAL

RESPONSIBILITY REPORTING IN

DEVELOPING COUNTRIES

Dara O’RourkeUniversity of California, Berkeley

for the Corporate Social Responsibility Practice of the World Bank Group

March 2004

This report is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governmentsthey represent. The World Bank does not guarantee the accuracy of the data included in this work.

Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Background to the Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.2 Structure of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.3 The Emerging Field of CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.4 Potential Futures for CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. Drivers of CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.1 Theories of Information Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.2 Government Uses of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.3 Consumer Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.4 Investor Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.5 Corporate Interests in Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.6 Other Stakeholder Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3. Trends in CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3.1. Government Mandated Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.1.1 Financial Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.1.2 Environmental Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.1.3 Social Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3.2 “Voluntary” Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143.2.1 Leading Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143.2.2 Geographic and Sectoral Variation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.2.3 Characteristics of Firms Most Likely to Report . . . . . . . . . . . . . . . . . . . 153.2.4 NGO and Multi-Stakeholder Reporting Initiatives. . . . . . . . . . . . . . . . . 163.2.5 International Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table of Contents

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4. Impacts of CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.1 Investor Responses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.2 Consumer Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4.3 Other Stakeholder Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5. Key Metrics of Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . 25

6. Challenges of Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.1 Metrics and Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.2 Incentives to Disclose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.3 Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.4 Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

6.5 Analyzing Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

6.6 Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7. Strategies for Improving Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.1 Standardized Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.2 Incentives for Continuous Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

8. Government Roles in CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

8.1 Mandating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

8.2 Facilitating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

8.3 Partnering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

8.4 Endorsing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

8.5 Demonstrating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

9. A Draft Pilot Program for CSR Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

9.1 Step-by-Step Actions for a Pilot Program on CSR Reporting . . . . . . . . . . . . . . . 35

9.2 Possible “Core Indicators” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

9.3 Possible Sector-Specific Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

9.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

10. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Table of Contentsii

AA1000 AccountAbility 1000 Assurance StandardBSR Business for Social ResponsibilityCalPERS California Public Employees’ Retirement SystemCSR Corporate Social ResponsibilityEPA Environmental Protection AgencyEITI Extractive Industries Transparency InitiativeETI Ethical Trading InitiativeEU European UnionFLA Fair Labor AssociationFWF Fair Wear FoundationGFT250 Top 250 Firms in the Global Fortune 500GRI Global Reporting InitiativeMNC Multinational CorporationNGO Non-Governmental OrganizationNPRI National Pollutant Release InventoryNRE Nouvelles Regulations EconomiquesOECD Organisation for Economic Cooperation and DevelopmentPDA Personal Digital AssistantPR Public RelationsPRTR Pollutant Release and Transfer RegistersPWYP Publish What You PaySAI Social Accountability InternationalSBS Social Balance SheetsSEC Securities and Exchange CommissionSME Small and Medium-sized EnterpriseSRI Socially Responsible InvestmentTRI Toxic Release InventoryWBCSD World Business Council for Sustainable DevelopmentWRAP Worldwide Responsible Apparel ProductionWRC Worker Rights Consortium

Acronyms and Abbreviations

iii

v

Governments seeking to advance sustainabledevelopment are increasingly turning to poli-

cies and strategies that encourage, support, man-date, or directly demonstrate more socially andenvironmentally sound business practices. A cen-tral component of these policies involves promot-ing increased transparency of economic activities.This disclosure is designed to support market-based incentives (such as product differentiation),public awareness and pressures, and governmentenforcement. Transparency mechanisms can beadvanced on at least two different levels: disclo-sure of government inspection and factory auditreports, or disclosure of Corporate Social Respon-sibility (CSR) practices, including both the posi-tive and negative impacts of business operationson labor standards, the environment, economicdevelopment, human rights, and governanceissues. This report focuses on CSR reporting.

Encouraging Corporate Social Responsibilityreporting, or more specifically public disclosure ofthe social and environmental impacts of firmpractices is becoming an increasingly importantgovernmental and non-governmental policystrategy. CSR reporting is seen as a linchpin ofefforts to evaluate the impacts of corporateactivities, to identify best practices, and to promotecontinuous improvements in firm performance.CSR reporting has been taken up by governmentsto support efforts to regulate the adverse impactsof economic activities, to promote more sociallyresponsible business practices, and to supportdevelopment goals.

BACKGROUND TO THIS REPORTBecause of the potential societal benefits associ-ated with CSR reporting, the World Bank is nowevaluating whether encouraging CSR reportingmight be of interest and benefit to developingcountry governments. If sufficient data were avail-able, it is possible that developing countries couldleverage the CSR achievements of local firms toattract investment and export opportunities, andalso use CSR reporting of multinational corpora-tions to support local economic developmentefforts. The extent to which a market exists for thisinformation, and how investors and manufacturersrespond to this information requires further study.Similarly, attempts to aggregate firm level data onCSR performance for use at a national or interna-tional level are still quite new.

However, in order to begin to evaluate these issues,the World Bank commissioned this study of trans-parency and CSR reporting. This paper analyzes:

• Current CSR reporting activities in developedand developing countries;

• Characteristics of companies most likely toreport;

• Existing and potential uses of data generated byCSR reporting;

• Criteria for evaluating CSR reporting systems;

• Impacts of CSR reporting on stakeholder deci-sion-making in developing countries;

• Impacts of CSR reporting for developmentobjectives;

• Challenges and obstacles to effective CSRreporting;

• Conditions necessary to support the imple-mentation of CSR reporting; and,

Executive Summary

• Potential public sector roles to strengthen andsupport implementation of CSR reporting indeveloping countries.

The focus of this study is on CSR reporting in sup-ply chain industries with high social or environ-mental impacts. The study considers cases from awide range of industries and issue areas: environ-ment, health, labor rights, governance, and socialimpacts. The paper evaluates current reporting ini-tiatives, challenges and problems with these ini-tiatives, and strategies for improving reportingsystems. The report also discusses how CSR activ-ities and reporting might better address localdevelopment priorities.

The paper concludes with a preliminary propos-al—designed largely to begin a discussion—for apilot program to advance CSR reporting in devel-oping countries. The pilot program is pro-posed in part to develop a reporting system thatexplicitly focuses on developing country issues andconcerns and that produces information that is“material” to local stakeholders such as workers,community members, and local firms. The pilotmay also seek to test the hypothesis that CSRreporting can substantively support developmentgoals. The proposed pilot program focuses on theapparel and mining sectors as examples of chal-lenging industries which are experiencing increas-ing demands for corporate disclosure, and seeks toadvance new roles for developing country govern-ments in promoting local socially responsi-ble development.

Above all, this report seeks to begin a dialogueregarding CSR reporting and to advance efforts topromote transparency and social accountability inthe global economy.

CURRENT TRENDS IN CSR REPORTINGCorporate reporting—whether mandated or vol-untary—on environmental, social, labor, andhuman rights issues is a relatively new phe-nomenon. While a small number of firms haveirregularly published information on their non-financial performance, more systematic and stan-dardized systems of social and environmentalreporting only emerged in the late-1980s andearly-1990s.

Since the 1980s, governments, firms, and NGOs

around the world have developed a wide range ofreporting systems with goals as diverse as reduc-ing pollution, mitigating health and safety risks,spotlighting (and thus rooting out) corruption,improving public service delivery, and protectingcivil rights. With each new initiative in publicreporting, public demands for fuller informationand a deeper “right-to-know” appear to solidify.

These initiatives have been driven by a range ofpressures and demands from: consumers, NGOs,unions, investors, governments, community mem-bers, and firms themselves.

GOVERNMENT MANDATED REPORTINGThere are a large number of governments cur-rently experimenting with or implementing newreporting requirements for corporations. Theseprograms often simply require reporting of factualinformation in a standardized format on a regularbasis. Information is then presented in a manner toallow the public (and government officials) tocompare the performance of firms and make deci-sions based on that information. Financial andenvironmental reporting are the most advanced ofthese systems, with some governments requiringor facilitating the public release of factory-levelaudit information. However, social, human rights,and governance reporting are all emerging veryrapidly around the world.

A number of countries are now strengthening andexpanding financial reporting requirements toinclude more stringent disclosures on environ-mental, labor, and human rights “liabilities” and“risks” that might have a material impact on cur-rent or future profits (and thus stock prices) ofpublicly traded firms. Governments are alsostrengthening environmental disclosure laws, nowgenerally referred to as Pollutant Release andTransfer Registers (PRTRs). While much newer,there are also now a range of government facili-tated social reporting initiatives.

VOLUNTARY REPORTING Surveys of global firms regarding their publicreporting have found that 45 percent of the world’slargest firms now produce some form of non-financial report, compared to 35 percent of thesefirms in 1999. As one study found, in 1993, only

Opportunities and Obstacles in CSR Reporting in Developing Countriesvi

Executive Summary vii

13 percent of the top 100 firms in the countriesstudied produced a health, safety, or environmen-tal report. By 1996, that number had risen to 17percent, in 1999, 24 percent of firms producedreports, and by 2002, 28 percent of top 100 firmsproduced reports.

Firms are also increasingly employing independentauditors to verify or assure the data presented intheir reports. Third party verification increasedgradually during this period from approximately 15percent of reporters in 1996 to 27 percent in 2002.

There are however, clear geographical and sectoralvariations in reporting. A survey conducted byKPMG found that 72 percent of Japanese firmspublished environmental or social reports, 49 per-cent of UK firms, and only 36 percent of USfirms. The electronics and auto industries had veryhigh reporting rates (90 percent of the firms in onesurvey) compared to financial services (only 27percent reporting).

Not surprisingly, large, branded manufacturingfirms are currently the most likely to voluntarilyreport on CSR issues. These firms are most “repu-tation sensitive” and thus most at risk of criticalinformation or “bad news” about poor practices.

NGOs are also advancing a range of multi-stake-holder initiatives regarding CSR reporting, andraising questions about the issues firms shouldreport on, and how they should report.

IMPACTS OF CSR REPORTINGA critical question of course is whether currentreporting initiatives are having any impact. Do theymake a difference in consumer preferences andpurchases? Do they influence investors away frompoor performers and towards good performers? Dothey influence firm decision-making at any pointalong a supply chain? Is the information used bygovernment agencies to more effectively regulatefirms or to provide technical assistance? Is infor-mation used to support local development decision-making? Essentially, does reporting have anyimpact on consumers, firms, governments, or otherkey stakeholders in advanced industrialized coun-tries, and more importantly, does reporting supportdevelopment goals in developing countries? And ifreporting does make a difference, when and underwhat conditions is it most effective?

Recent research indicates that investors and con-sumers do respond to information on corporatesocial responsibility. Investors don’t like to be sur-prised with bad news, or with news that is diver-gent from existing information on a company.Consumers appear to use bad news to avoid orpunish companies, and less often use good news toselect products and firms to reward. However, bothgroups would benefit from more systematic andcomparable sources of information.

METRICS OF CSRWith hundreds of corporations now producingreports, a wide range of laws being implementedaround the world, and dozens of non-governmen-tal initiatives on transparency and reportingemerging, there is staggering variation in what isreported, in what forms, and for which audiences.Current CSR reporting initiatives disclose infor-mation on:

• Environmental Performance;

• Labor Rights;

• Health and Safety Practices;

• Human Rights;

• Community Economic Development and SocialImpacts;

• Corporate Governance;

• Corporate Payments to Governments;

• Stakeholder Engagement;

• Supply Chain Management; and,

• Corporate Planning and Policies.

KEY CHALLENGESThere are a number of major challenges to makingCSR reporting effective. Questions remain in dif-ferent sectors and countries on what to report, inwhat form, to what level of detail, to what audi-ences, and for what uses. There are also weak-nesses and problems with current systems of CSRreporting, and important barriers to expandingpublic disclosure systems around the world. Theseinclude problems of:

• Metrics and Materiality;

• Timeliness and Usefulness of Information;

• Incentives to Disclose;

• Supply Chain Monitoring;

• Costs to Information Producers and Users;

• Analyzing and Translating Information for EndUsers.

MOVING FORWARDThere is no single reporting system or model ofcorporate transparency that fits all social or envi-ronmental problems. However, there are somebasic principles which can support efforts atadvancing and improving CSR reporting. First,reporting initiatives should seek to increase thequality of information disclosed. Second, theyshould work to increase the uses of the informa-tion and the benefits to users of the information.Third, they should create mechanisms for learningand continuously improving disclosure systems.

These goals can be supported through explicitefforts to target information to specific stakehold-ers and decision-making processes. Informationshould be reported in formats useful to specificusers. And efforts should be made to verify thatinformation is used by stakeholders to inform theirdecisions.

GOVERNMENT ROLES IN CSR REPORTINGTo date, CSR reporting has largely been drivenfrom the north, often by large multinational firms,private investors, or non-governmental organiza-tions. Nonetheless, there are important roles forgovernments, and particularly developing countrygovernments, to play in further advancing report-ing systems.

The World Bank has previously grouped govern-ment roles in supporting corporate social respon-sibility into five categories of action: mandating,facilitating, partnering, endorsing, and demon-

strating. Each of these strategies of action can support improvements in CSR reporting. Govern-ments, and their citizens, however, must decidehow they can most effectively support an environ-ment for socially responsible business, and specif-ically advance CSR reporting.

A PROPOSED PILOT PROJECTThere is clear potential for government action,particularly in developing countries, to advanceand strengthen CSR reporting. However, in think-ing about designing an appropriate and effectivedisclosure system in a developing country, it isalso critical to recognize that there are no perfectsystems, no easily replicable programs, and noone-size-fits-all standards for reporting.

By starting with a small set of core indicators, ver-ifying that they are material to stakeholders, eval-uating uses of the information, and solicitingfeedback on the quality of the data, it would bepossible to gradually expand and deepen CSRindicators to include sector specific issues. Byhaving reporting be driven by local concerns andcapacities, it would also be possible to graduallyconnect to and compare against global reportingschemes.

Government agencies and NGOs could play a keyrole in verifying CSR reporting information, andgradually working to improve the credibility andaccountability of reporting.

Finally, a government agency could work to aggre-gate data, and to produce a national CSR report.This information would support future compar-isons of country-level performance on CSRissues. The program could also help local firmsestablish and demonstrate their social and envi-ronmental performance, and facilitate socially andenvironmentally responsible firms connecting intohigh value supply chains.

Opportunities and Obstacles in CSR Reporting in Developing Countriesviii

There is a growing global trend towards bothgovernment mandated and voluntary corpo-

rate disclosure of information on the environmen-tal, labor, human rights, and social impacts ofbusiness practices. The goal of this reporting,grouped here under the rubric of Corporate SocialResponsibility (CSR) reporting, is to generate newand better information on the performance offirms, to support more informed decision-makingby key stakeholders, and ultimately to create newincentives for firms to reduce adverse impacts oftheir activities. Public access to this information ishypothesized to support market incentives, reputa-tional pressures, and new forms of regulation moti-vating firms to improve practices.

Governments seeking to advance more sustainabledevelopment are increasingly turning to policiesand strategies that encourage, support, mandate, ordemonstrate more socially and environmentallysound business practices. A central component ofthese policies involves promoting increased trans-parency of firm activities. Transparency mecha-nisms can be advanced on at least two differentlevels: disclosure of government inspection andfactory audit information, or disclosure of broaderCorporate Social Responsibility (CSR) practices,including both the positive and negative impacts ofbusiness operations on labor standards, the envi-ronment, economic development, human rights,and governance issues.

Public disclosure programs represent a relativelynew strategy of corporate governance and havebeen employed only recently in developing nations.This paper reviews both government-mandated,and voluntary disclosure programs in developedand developing nations, describing a number ofleading programs, and assessing what is reported, in

what forms, and to what audiences. The paper alsoreviews challenges and weaknesses of existingreporting programs, and barriers to expanding andstrengthening the scope and breadth of disclosureefforts. The paper then lays out a range of roles andfunctions governments can play in strengtheningCSR reporting. The paper concludes with a prelim-inary proposal—designed largely to begin a discus-sion—for a pilot program to advance CSR reportingin developing countries.

1.1 BACKGROUND TO THE STUDYIn April 2002, the World Bank Group’s CorporateSocial Responsibility Practice initiated a programof technical assistance to developing country gov-ernments on the policies and instruments they canusefully deploy to strengthen Corporate SocialResponsibility (CSR). Examples of roles the pub-lic sector has played to strengthen CSR are few,particularly in developing countries. However, togain a better understanding of existing practices,the World Bank commissioned a baseline study ofpublic sector roles in strengthening CSR. From thisstudy emerged a framework for analyzing five pri-mary categories of public sector roles: mandating,facilitating, endorsing, partnering, and demonstrat-ing. From June 2002 to November 2003, the WorldBank provided technical assistance to countrieswhose national governments sought to explorethese potential roles in supporting CSR, includingVietnam, the Philippines, Angola, and El Salvador.

One key aspect of this work involves reporting thesocial and environmental performance of corpora-tions. CSR reporting is seen as a linchpin of effortsto evaluate the impacts of corporate practices, toidentify best practices, to promote continuous

1. Introduction

1

improvements in firm performance, and to enablelocal stakeholders to make more informed deci-sions about development options.

CSR reporting involves corporate disclosure ofboth the positive and negative impacts of businessoperations on labor standards, the environment,economic development, and human rights. CSRreporting has come a long way since the 1980swhen reporting focused almost entirely on occupa-tional health and safety and environmental issues.In addition to a general increase in the overall num-ber of companies producing CSR reports, the pastfive years have seen rapid growth and expansion ofCSR reporting to include a broad focus on social,economic, and governance issues.

Because of the potential societal benefits associ-ated with CSR reporting, the World Bank is nowevaluating whether encouraging CSR reportingmight be of interest and benefit to developingcountry governments. If sufficient data were avail-able, it is possible that developing countries couldleverage the CSR achievements of local firms andattract investment and export opportunities. Theextent to which a market exists for this informa-tion, and how investors and manufacturers respondto this information requires further study. Simi-larly, how firm level data on CSR performancemight be aggregated for use at a national level isstill unclear.

In order to begin to evaluate these issues, the WorldBank commissioned this study of transparency andCSR reporting to evaluate:

• Current CSR reporting activities in developedand developing countries and other relevantdomestic disclosure initiatives underway;

• Characteristics of companies most likely toreport;

• Potential market demand for data generated byCSR reporting among firms, investors, con-sumers, and local stakeholders;

• Whether CSR reporting could be an effectivemechanism for strengthening CSR in develop-ing countries;

• Whether CSR reporting can support develop-ment goals;

• Criteria for evaluating CSR reporting systems ina given country;

• Challenges and obstacles to effective CSRreporting among diverse stakeholders (e.g., con-

cerns about transparency, reliability, protection-ism, etc.);

• Conditions necessary to support the implemen-tation of CSR reporting among domestic com-panies in a developing country context;

• Potential public sector roles to strengthen andsupport implementation of CSR reporting indeveloping countries.

The focus of this study is on CSR reporting in sup-ply chain industries with high social or environ-mental impacts. The study considers cases from awide range of industries and issue areas: environ-ment, health, labor rights, governance, and socialimpacts. In the proposed pilot program we discussthe apparel and mining sectors as examples of chal-lenging industries which are experiencing increas-ing demands for corporate disclosure.

Above all, this report seeks to begin a dialogueregarding CSR reporting and specifically on howbest to make reporting work. The paper begins thisdiscussion by presenting a framework for examin-ing the issues, assumptions, and feasibility of CSRreporting in developing countries.

1.2 STRUCTURE OF THE REPORTThis report follows a straightforward stucture. Webegin with background on the emerging field ofCSR reporting, and growing public concerns aboutcorporate practices that have led to increaseddemands for corporate disclosure of information.We then discuss different stakeholder groups“driving” specific forms of CSR reporting, and theresulting programs, laws, and voluntary initiativesemerging around the world to meet these demandsfor fuller public information on firm practices andimpacts.

The paper then examines recent research evaluat-ing the impacts of corporate reporting of environ-mental and social practices. In particular we lookat stock market and investor responses to corporatedisclosures, and broader community and consumerresponses to public information on corporate per-formance.

The paper then discusses existing metrics for eval-uating Corporate Social Responsibility, challengesto current CSR measurement and reporting, andstrategies for improving measurement and report-ing.

Opportunities and Obstacles in CSR Reporting in Developing Countries2

Introduction 3

We then turn to a discussion of government rolesin CSR reporting—from mandating, to facilitating,to partnering, to endorsing, to demonstrating—andhow developing country governments mightadvance these strategies in their own contexts.

Finally, the paper presents a proposal for a pilotprogram for CSR reporting in a developing coun-try. This includes a step-by-step plan for establish-ing requirements for reporting, including what toreport—possible “Core Indicators”—and strate-gies for collating, publishing, and using this infor-mation to allow key stakeholders to benchmarkfirms, identify leaders and laggards, and use theinformation to motivate improved practices.

1.3 THE EMERGING FIELD OF CSR REPORTING

With the globalization of information flows, andthe ability of organizations to transmit informationliterally at the speed of the Internet, companies andcountries are increasingly being tracked not onlyfor their economic performance, but also for theirsocial, environmental, labor, and human rightspolicies and impacts. Socially responsible firms arenow listed in sustainability indexes, screenedinvestment funds, and ethical consumer web sites.And socially irresponsible firms are being labeledas “sweatshop” producers, environmental pol-luters, corrupt actors, or worse in the media and onNGO web sites.

Entire countries are now even sometimes labeledas socially irresponsible locations of production:Burma is widely regarded as a pariah country forits internal political repression and human rightsabuses; China is critiqued as a site of “sweatshop”production; Pakistan is viewed by some as a havenfor exploiters of child labor; Angola for corruptmining and oil extraction practices.

And it is not only advocacy groups which are nowcritically evaluating the performance of compa-nies and countries. In 2002 for instance, the Cali-fornia Public Employees’ Retirement System(CalPERS), which manages more than $151 bil-lion in assets, revised its procedures for evaluatingdeveloping countries for equity investments. Newguidelines analyzed both traditional “market fac-tors” and new “country factors,” such as trans-parency, labor practices, and political stability.Based on these social and political factors,

CalPERS recently ended its investments in severalcountries in Southeast Asia.1

Corporations themselves are also increasinglymaking investment and location decisions based onevaluations of social and environmental risks andcountry conditions. A recent survey of multina-tional firms reported that many firms now havelists of countries that are off-limits to sourcing,with over half of the firms surveyed employingcountry selection criteria that include social indi-cators.2 18 of 19 firms surveyed had policiesagainst sourcing from Burma, which may not besurprising. However, thirty other countries alsoshowed up on company “no sourcing” lists.

A recent World Bank survey of 107 multinationalcorporations in the extractive, agribusiness andmanufacturing sectors found that over 45 percentof firms surveyed chose countries for investment oroperation based at least in part on CSR issues, and36 percent of respondents had actually withdrawnfrom a country because of CSR concerns. Over 80percent of companies reported analyzing the CSRperformance of potential partner firms in develop-ing countries, and over 50 percent had chosen cer-tain partners over others because of CSR concerns.Fully 88 percent of firms reported that CSR issuesare “more influential” or “much more influential”now than five years ago.3

Companies are responding to pressures to provethey are responsible actors by not only avoiding“bad” countries, but also by positively affirmingtheir commitments to socially responsible prac-tices, implementing a broad range of CSR activi-ties, developing codes of conduct and monitoringsystems, and publishing information to demon-strate this commitment.

British Petroleum (BP), for example, recently reaf-firmed its policies against corrupt business prac-tices in developing countries, but went further byactually backing up this policy with a pledge topublish exactly what it was paying developingcountry governments for oil concessions. JohnBrowne, the CEO of BP, asserted that he was inter-ested in advancing “radical openness” for his com-pany’s operations. Nike recently disclosed theaverage monthly wages of workers in its supplychain factories around the world, and made publicthe names and locations of garment factories pro-ducing goods for US universities—data that was all

previously considered confidential business infor-mation.

A number of developing country governmentshave also taken steps towards greater transparencyby providing public information on their revenues,budgets, and expenditures. Participatory budgetinginitiatives in Brazil and India, diamond revenuedisclosure in Botswana, and oil revenue disclosureprograms advanced through the new ExtractionIndustries Transparency Initiative are all examplesof new trends towards disclosure of informationseldom before made public.

These surprising cases of public reporting mightseem to go against current trends in the globaleconomy. The general public’s view of multina-tional corporations (MNCs) in this post-Enronworld is increasingly skeptical and cynical aboutunaccountable, non-transparent, and often decep-tive firms. However, many firms are now respond-ing to exactly these concerns, and to a growingnumber of stakeholders demanding that globalbusinesses be socially responsible, publiclyaccountable, and transparent. Companies areincreasingly being asked to publicly report ontheir environmental, social, and ethical risks, howthey are working to manage and reduce theserisks, and how these risks might affect their short-and long-term value. In areas as diverse as foodsafety, drinking water quality, medical practices,toxic releases from industrial facilities, Sport Util-ity Vehicle rollover risks, and health hazards facedby workers, disclosure is growing as a strategy toinform the public about risks they might face, andto incentivize firms to reduce these risks.4

It should be noted that disclosure has beenadvanced as a strategy not just to identify risks or“bad actors,” but also to support a positive agendafor socially responsible business, ethical consump-tion, sustainable community development, andmore democratic political processes. Countries areincreasingly viewing disclosure of corporate prac-tices as a strategy of both regulation and incentiviz-ing improved environmental, social, and humanrights performance.

1.4 POTENTIAL FUTURES FOR CSRREPORTING

It is not hard to imagine a future level of disclosureand public access to corporate data that would trulyempower a new kind of economy, new forms ofpublic accountability, and new levels of corporatesocial responsibility.

Imagine walking into your local mall, pointingyour cell phone or personal digital assistant (PDA)at the tag on a pair of shoes or jeans, pulling up dataon the environmental, labor, and human rightsimpacts of the product, and then making a purchasing decision. Or using your PDA or theInternet to compare two similar toys for their con-nections to child labor, two computers for theirenvironmental recyclability, or two brands of cof-fee for their impacts on farm workers’ health, andthen choosing the one that satisfies your personalethical commitments. Or more simply, identifyingcountries that inspire confidence that a product ismade in humane and sustainable conditions.

This vision of fuller public access to informationon the ethical impacts and performance of differentproducts and firms is not science fiction. It is tech-nically feasible today.5 Electronic and radio fre-quency tags, advanced supply chain managementand tracking systems, and increased monitoring ofglobal supply chains for environmental, labor, andhuman rights issues has brought us to the edge of arevolution in disclosure of the “stories” of prod-ucts’ lives and a fuller accounting of the real costsof production in the global economy.

However, there remain critical barriers to this fullerpublic reporting of product impacts and costs.Despite important advances over the last severalyears in voluntary reporting systems, public accessto systematic information on business practicesremains limited. Very little information is availableon non-financial performance that is standardized,comprehensive, or comparable across factories,brands, or countries.

Standardized reporting is critical to the future ofcorporate social responsibility, as it will allow


Introduction 5

stakeholders to document CSR practices, compareand differentiate firms, support market responses,and institutionalize mechanisms for continuousimprovement. And ultimately, more systematicCSR reporting may also be central to developingcountry strategies for advancing sustainable eco-nomic development. For increasingly, firms and

countries will be judged not only by the price oftheir products, but also on their social and envi-ronmental performance. For more and more con-sumers, sales will be based at least in part on CSRconcerns. Documenting performance to meetthese concerns will be critical to accessing thesemarkets.

The primary drivers for CSR reporting havecome from a range of social actors and inter-

ests: public demands for a “right-to-know” aboutthe impacts of corporate activities, consumer con-cerns about environmental and social impacts ofspecific products, government attempts to use dis-closure as a strategy of regulation, and financialinstitution demands for fuller disclosure of non-financial risks. Reporting is in some cases man-dated by government agencies (such as for toxicrelease inventories), required of firms who partici-pate voluntarily in trade associations (such as theWorld Business Council for Sustainable Develop-ment (WBCSD)) or multi-stakeholder initiatives(such as the Fair Labor Association (FLA)),requested by financial institutions (such as sociallyresponsible investment funds), or simply a responseto consumer, worker, or community requests forinformation. Disclosure has become a strategy forboth creating and responding to market incentivesfor improved performance, and a means for miti-gating risks of market sanction.

2.1 THEORIES OF INFORMATION DISCLOSURECSR reporting supports basic market dynamics.One of the central assumptions of market eco-nomics is that full information is required for the

efficient functioning of markets. Information dis-closure strategies attempt to deal with the “marketfailures” of information asymmetry and externali-ties. Faulty or incomplete information, it is hypoth-esized, may lead stakeholders to make economic orsocial decisions which are actually not in their bestinterest (and thus fail to maximize their utility).6

The basic premise of information disclosure pro-grams is thus to provide interested parties withmore and better information upon which to basetheir decisions. As the WBCSD asserts, “If busi-ness believes in a free market where people havechoices, companies must accept responsibility forinforming consumers about the social and environ-mental effects of those choices.”7

In slightly more theoretical terms, there is also aCoasian efficiency argument for increased trans-parency.8 Disclosure of information on externali-ties will increase information available to impactedparties, which can support negotiations over thefair distribution of those impacts. The more infor-mation available, the greater chance of an efficientallocation of the costs and benefits of an economicactivity. Furthermore, public disclosure of exter-nalities is hypothesized to support the more rapididentification of solutions to externalities, either bystimulating preventive corporate actions (to avoid

2. Drivers of CSR Reporting

7

“Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the

best of disinfectants.”

—Louis Brandeis, 1932.

costly disclosures), or by motivating citizen actionsto pressure for solutions to environmental andsocial problems. Providing fuller information tokey stakeholders is also likely to lead to differentchoices by consumers, investors, employees, exter-nal stakeholders, and even competitors, thus poten-tially shifting market incentives and firm actions.9

A critical aspect of information asymmetry prob-lems is that individuals (and particularly poor peo-ple) are less likely to have the resources to gatherinformation on firm practices and impacts thanfirms themselves. There is thus a central role forgovernments to play in facilitating or mandatingdisclosure that provides equal information to allstakeholders.

2.2 GOVERNMENT USES OF INFORMATIONThere is also a regulatory aspect to information dis-closure systems. Governments around the worldhave turned recently to public reporting systems asa complement to traditional command-and-controlregulatory mechanisms. This has been motivated inpart by continuing critiques of current systems oflabor and environmental regulation.10 These cri-tiques have grown louder in the face of new chal-lenges of regulating global firms and mobilesupply chains. Traditional regulations and the gov-ernment-implemented monitoring and enforce-ment systems upon which they depend, arearguably being outpaced by changes in the globaleconomy.

Governments are thus looking for new strategies tomore effectively regulate the environmental, labor,and social impacts of industry. Governmentsappear to be particularly interested in disclosuresystems that may also be more cost-effective, flex-ible, and decentralized, and that build on marketmechanisms and public participation.

2.3 CONSUMER CONCERNSGrowing concerns among the public about theenvironmental and social impacts of the productsthey buy, the places they work, and the communi-ties they live in, have also led to new demands forcorporate disclosure. The on-going globalizationof information flows has allowed labor, environ-mental, and human rights groups to raise publicawareness about the negative impacts of produc-

tion and to target individual company practices.Globalization of branding, and the interconnec-tions between high-value supply chains and low-cost sites of production, have given rise to amushrooming field of labels, certifications, anddisclosure schemes.11

On-going media accounts of corporate scandals,pollution incidents, health problems, and stories ofsweatshops have created new reputational pressureson multinational corporations. Brands, which repre-sent a critical currency in the global economy, areunder attack from activists around the world. Advo-cacy groups have become increasingly sophisticatedand effective in their corporate research and infor-mation dissemination campaigns to create marketpressures on MNCs to change their practices.

However, it remains extremely difficult (if notimpossible) for consumers and investors to distin-guish the performance of similar firms based onexisting information. Consumers for instance, can-not systematically compare the performance ofNike versus adidas, BP versus Shell, or Interna-tional Paper versus Boise Cascade. Firms are thustaking steps to develop systems of reporting thatcan effectively communicate their commitments,policies, actions, and performance.

2.4 INVESTOR CONCERNSFirms must also increasingly demonstrate theirsocial and environmental performance to investors– both traditional mainstream investors, and grow-ing numbers of socially responsible investors. Thefinancial sector today demands much fuller infor-mation on risks and liabilities, including non-finan-cial risks. In fact, a number of countries nowrequire this disclosure to reduce risks and liabilitiesfor retirement and pension funds. Research hasshown important correlations between environ-mental performance and financial results.12 Non-financial risks are increasingly crucial to firmperformance. Investors thus demand better mea-sures of management practices and systems forhandling current and future liabilities.13 This fullerreporting of CSR issues provides information forinvestors to select superior environmental or socialperformers, and to avoid poor performers.

Financial markets have increased their interest inCSR reporting due to the growth in demand for


Drivers of CSR Reporting 9

socially responsible investments (SRI) by institu-tional and individual investors. Several prominentSRI indices have been established over the last fewyears, including the FTS4Good index in Londonand the Dow Jones Sustainability Index in NewYork. Questionnaires, interviews, and surveys con-ducted for these indexes, as well as for SRI ratingfirms, SRI research firms, and screened mutualfunds, have forced corporations to be more trans-parent about their social and environmental perfor-mance. Investor requests for CSR information havegained motivational force as the socially responsi-ble investment community has expanded to nowmanage some $3 trillion in assets in the US alone.These investors are increasingly working togetherto motivate standardized reporting. As just oneexample, in 2000, a group of financial investorscontrolling over $140 billion in assets sent a letterto the CEOs of the 500 largest firms in the US urg-ing them to report their performance on sustain-ability measures proposed by the Global ReportingInitiative.14

2.5 CORPORATE INTERESTS IN REPORTINGThere are actually a number of benefits of thesedemands on firms to report information that theyhad previously either not tracked, or at least notmade public. First, the process of developingreporting systems, measuring performance, andtracking changes over time can support the devel-opment of information systems that improve inter-nal management of risks, stakeholder concerns,and bottom-line issues. If done right, reporting canlead to significant internal learning within a firm.Companies can also learn about best practices intheir industries, new ways of operation, and bettersystems of management. Reporting can also sup-port self-regulation to prevent future liabilities andrisks.15 By measuring, managing, and reporting onproblems in their supply chains, firms can work tominimize actual risks to profitability, maintain orcreate market access, and manage problems as theyemerge.16

Fuller public disclosure of CSR practices can alsohelp to improve a company’s reputation and brandvalue. A positive public image, backed up by trans-parent operations, can help to recruit and retain topquality employees (who are increasingly con-cerned about social, environmental, and ethicalissues), get a company listed in socially or envi-ronmentally screened funds, and improve relationswith stakeholders such as host communities. Pub-lic transparency may be the single most effectiveway to win back trust and respond to the currentcredibility crisis for MNCs operating around theworld.

Public disclosure may also improve firm-NGOrelations, and the quality of public participation incorporate issues. With better information, the pub-lic can play a more effective role in addressingenvironmental and social problems, and betterunderstand the opportunities and constraints onbusinesses.

2.6 OTHER STAKEHOLDER INTERESTSThere are numerous other stakeholders who canbenefit from improved corporate reporting. Indeveloping countries, local community membersoften lack information on the potential environ-mental and health impacts of the industries operat-ing in their neighborhoods. Workers rarely haveaccess to information on the real risks they face inaccepting employment in industrial facilities. Andlocal governments almost never publicly calculatethe costs and benefits of specific economic activi-ties and their impacts on broader developmentgoals. Providing fuller (or in most cases any) infor-mation on the environmental, social, and economicimpacts of business activities would allow devel-oping country stakeholders to make more informeddecisions about individual and collective develop-ment alternatives. Clearly not all investments orjobs are equal. Developing country stakeholdersshould have information available on which tomake informed decisions about development alter-natives.

3. Trends in CSR Reporting

Corporate reporting—whether mandated or vol-untary—on environmental, social, labor, and

human rights issues is a relatively new phe-nomenon. While a small number of firms haveirregularly published information on their non-financial performance, more systematic and stan-dardized systems of social and environmentalreporting only really emerged in the late-1980s andearly-1990s.

Public reporting initiatives received increasedattention after the catastrophes in Bhopal, India,and Valdez, Alaska in the 1980s. The Bhopalchemical disaster, and a similar accident at a UnionCarbide facility in West Virginia, led the USCongress to pass the Emergency Planning andCommunity Right-to-Know Act of 1986 whichmandated corporate disclosure of emissions oftoxic chemicals through the Toxic Release Inven-tory (TRI). The Exxon Valdez oil spill prompted agroup of socially responsible investment firms,public pension funds, and environmentalists toestablish the Valdez Principles, later renamed theCERES Principles, which called for voluntaryreporting of key environmental information.

Since the passage of the TRI and the developmentof the CERES principles, governments, firms, andNGOs around the world have developed a widerange of reporting systems with goals as diverse asreducing pollution, mitigating health and safetyrisks, spotlighting corruption, improving public

service delivery, and protecting civil rights.17 Witheach new initiative in public reporting, publicdemands for fuller information and a deeper “right-to-know” appear to solidify.

3.1. GOVERNMENT MANDATED REPORTINGThere are a large number of governments currentlyexperimenting with or implementing new reportingrequirements for corporations. These programsoften simply require reporting of factual informa-tion in a standardized format on a regular basis.Information is then presented in a manner to allowthe public (and government officials) to comparethe performance of firms and make decisions basedon that information. Financial and environmentalreporting are the most advanced of these systems.However, social, human rights, and governancereporting are all emerging rapidly around the world.

3.1.1 Financial Disclosure Requirements

The earliest CSR-related reporting requirementsoriginated in financial disclosure laws designed toprovide information to investors, such as U.S.Securities and Exchange Commission (SEC) filingrequirements. Under the U.S. Securities Act of1934 (regulation S-K, Items 101, 103, and 303)publicly traded firms are required to disclose“material information”—whether financial or non-financial—such as environmental liabilities, costs

11

“Pressures for transparency will undoubtedly intensify moving forward.”

—Business for Social Responsibility, 2002

of complying with environmental and other laws,costs of not complying with these laws, pendinglegal proceedings on environmental or other issues,and any known trends or uncertainties that mightaffect the company profits such as environmentalrisks, changes in laws, revocation of permits, etc.18

Despite these statutory requirements, there is cur-rently a low level of compliance among publiclytraded firms in the US with non-financial disclo-sure requirements. A 1998 EPA study on disclo-sure of environmental legal proceedings in 10-Kstatements found a non-reporting rate of over 74percent, and only 16 percent of the firms engagedin civil or administrative legal proceedings prop-erly disclosed those proceedings.19

A number of countries are now strengthening andexpanding financial reporting requirements toinclude more stringent disclosures on environmen-tal, labor, and human rights “liabilities” and “risks”that might have a material impact on current orfuture profits (and thus stock prices) of publiclytraded firms. The French government for instance,promulgated the Nouvelles Regulations Economi-ques (NRE) in 2001 which requires mandatory dis-closure of social and environmental issues inannual financial reports for all firms listed on the“premier marche” stock exchange. The NRE estab-lished indicators against which firms must reporton labor, health and safety, environmental, social,human rights, and community engagement issues.2002 was the first year publicly traded companieswere required to report on these indicators, leadingto a notable rise in “voluntary” CSR reporting inFrance.

Another example is the 2001 revision of Britishpension fund regulations, which require pensionfunds to disclose the extent to which CSR issuesare considered in their investment decisions. Thisrequirement seems to have motivated an increasein requests for CSR information from financialanalysts and a subsequent increase in CSR report-ing among UK firms. The proposed “CORE Bill”on corporate responsibility in the UK would buildon these efforts to require mandatory social andenvironmental reporting for UK listed firms.20 Acurrent review of Company Law in the UK is alsoexamining these issues, and assessing the types ofinformation that should be considered “material”for social and environmental disclosure.

In 2002, the Johannesburg Stock Exchange (JSE)became the first exchange to require all listed com-panies to comply with a code of conduct that stip-ulates disclosure of non-financial information inthe form of “Integrated Sustainability Reporting.”This involves mandatory “disclosure of non-finan-cial information” that is “governed by the princi-ples of reliability, relevance, clarity, comparability,timeliness and verifiability with reference to theGlobal Reporting Initiative Sustainability Report-ing Guidelines...” This decision by the JSE marksthe first time a major stock exchange has recog-nized sustainability reporting according to the GRIGuidelines.

3.1.2 Environmental Disclosure

Other early reporting initiatives originated in envi-ronmental disclosure laws, now generally referredto as Pollutant Release and Transfer Registers(PRTRs). PRTRs such as the US Toxic ReleaseInventory (TRI) created in 1986, the CanadianNational Pollutant Release Inventory (NPRI) cre-ated in 1993, and the Mexican Registro de Emi-siones y Transferencia de Contaminantes (RETC)created in 1996, require public reporting of detailedinformation on the types, locations, and amounts ofspecific chemicals released or transferred by indus-trial facilities into the environment.21

Both the US TRI and the Canadian NPRI systemsrequire public disclosure of on-site and off-sitepollutant releases and transfers from firms operat-ing within their borders. The Mexican RETC cur-rently involves only voluntary reporting, althoughthe government is taking steps towards mandatedreporting.22 At their base, programs such as theTRI are simply pollution accounting systemswhich require manufacturing firms of a certainsize to report their annual emissions of toxicchemicals to the Environmental ProtectionAgency (EPA).23 Emissions are self-reported andthen compiled by the EPA and stored in a databasethat is publicly available through the Internet.24

The EPA does little to check the accuracy of emis-sions reports, inspecting only approximately threepercent of firms in a given year. Reported data donot claim to represent actual measures of emis-sions, but are based on industry estimates ofreleases and transfers.25


Trends in CSR Reporting 13

Despite seemingly lax regulation and enforcement,parties on all sides of the toxics debate—fromchemical manufacturers to regulators to environ-mentalists—have acknowledged the success of theTRI. Dow Chemical environmental manager Mil-lard Etling asserts that the TRI’s “mandatory dis-closure has done more than all other legislation puttogether in getting companies to voluntarily reduceemissions.”26 Former Vice-President Al Gore pro-claimed that “Putting information about local pol-lution into the hands of the public is the single mosteffective, common-sense tool available for pro-tecting human health and the environment.” CarolBrowner, former head of the EPA, argued that theTRI “is quite simply one of the most effectivemeans we have in this country for protecting thehealth of our people, the health of our environ-ment.” Environmentalists go further, calling theTRI “one of the most successful environmentallaws in US history,”27 noted for having done “moreto reduce toxic emissions than all of our regulationstaken together.”28

Intermediary groups have been critical to the func-tioning and effectiveness of programs like the TRI.NGOs that analyze PRTR data play a pivotal role inmagnifying pressures from public reporting. The“Scorecard” project sponsored by EnvironmentalDefense,29 the Right-to-Know Network30, and thePollution Watch Scorecard in Canada31, all makePRTR data more comparable and understandable,and provide simple tools for the public to comparefirms within an area, generate lists of the worst pol-luters in a region, and even generate automated faxesto factory managers inquiring about emissions.

The success of PRTRs in North America has led totheir spread around the world. In 2001, the UnitedNations Economic Commission for Europe pro-mulgated a “Convention on Access to Information,Public Participation in Decision Making, andAccess to Justice in Environmental Matters,”known as the Aarhus Convention. An internationalprotocol on PRTRs was adopted by parties to theAarhus Convention in May 2003 which seeks “toenhance public access to information through theestablishment of coherent, nationwide pollutantrelease and transfer registers (PRTRs).” The proto-col recommends that national PRTR’s be manda-tory, with annual reporting of multimedia (air,water, land) emissions, from specific facilities, andfor specific pollutant releases and transfers.

A number of developing countries have also exper-imented with environmental disclosure systems.Recognizing the many barriers and limitations toenforcing their own environmental laws, theIndonesian Environmental Agency (BAPEDEL)decided in 1995 to create a simple pollution dis-closure system called PROPER. The idea ofPROPER was to “create incentives for compliancethrough honor and shame”32 by publicly rating theenvironmental performance of factories. PROPERassigned a color-coded rating—black, red, blue,green, and gold (in order from worst to best)—tofactories based on their compliance with environ-mental standards. Ratings were based on monthlyemissions reports filed by firms and corroboratedthrough spot checks by the environmental agency.

This simple, fairly inexpensive program resulted insignificant reductions in pollution. All of the“black” rated firms improved to red or bluebetween 1995 and 1997, 46 percent of the red firmsimproved to blue, and 11 percent of the blueimproved to green.33 Factory managers reportedthat bad PROPER ratings increased pressure fromcommunities, NGOs and the media, a major moti-vation for improving environmental performance.Information from PROPER ratings also helpedmanagers make better decisions about pollutionreduction as the ratings served as an environmen-tal audit of the factory. The PROPER rating systemalso helped to strengthen BAPEDEL, as the agencyhad to improve the technical capacity and publicaccountability of its monitoring.

Similar programs supporting public reporting ofenvironmental information have been, or are cur-rently being developed in the Philippines, China,Mexico, India, Colombia, Bangladesh, Australia,Mexico, Canada, Denmark, Czech Republic, Thai-land, the Netherlands, Norway, and Sweden. TheEuropean Union has recently promulgated a related “Integrated Pollution Prevention and Con-trol Directive” which requires firms to report pollu-tant emission data to the European Commission.

3.1.3 Social Reporting

The Belgian government recently adopted theworld’s first social reporting and labeling law. Inorder the win the right to display this social label,firms must certify that factories in their productionnetworks meet ILO core labor standards, and then

allow government accredited auditors to inspectthese factories.

While much newer, there have also been a range ofgovernment social reporting initiatives emerging indeveloping countries. For example, new systems of“participatory budgeting” in Brazil and India havesought to provide information to average citizenson where and how government funds areexpended. In Rajasthan, India, campaigns by alocal NGO to combat local corruption and toinclude citizens in auditing government officialshave led to experiments in providing citizens withdetailed information on government contracts andexpenditures.34 Representatives of the WorkersParty in Porto Alegre, Brazil have developed sim-ilar institutional reforms to make budgeting pro-cesses more transparent and participatory.35

Botswana also stands out for its efforts to be moretransparent about economic activities, governmentrevenues, and expenditures. In a region renownedfor corruption and conflict, Botswana has beenlisted by Transparency International as the mosttransparent and least corrupt country in Africa. Toavoid being branded as a producer of “conflict dia-monds,” Botswana has established systems for reg-ulating the diamond trade through increased publicreporting of both revenues from diamond produc-tion and state expenditures of these revenues.Botswana currently boasts spending almost 27 per-cent of its budget on education expenses (among thehighest per capita education spending in the world).

3.2 “VOLUNTARY” REPORTING“Some may argue that reporting makes the com-pany more transparent, and therefore exposed tomore criticism…we believe that today it is the lackof transparency that is more risky, particularly inthe wake of recent corporate scandals.”—WBCSD,2002

There has been a rapid growth in “voluntary” cor-porate codes of conduct and reporting initiativesover the last 10 years. Almost half of the world’slargest firms now regularly report on CSR issues.

3.2.1 Leading Firms

KPMG has surveyed global firms—both the top250 companies in the Global Fortune 500 (referredto as the GFT250) and the top 100 companies ineach of 19 countries—regarding their publicreporting every three years since 1993. This surveyrecently found that 45 percent of the GFT250 nowproduce some form of non-financial report, com-pared to 35 percent of these firms in 1999. AsKPMG notes, social and environmental reporting“is becoming mainstream business.”36 In 1993,only 13 percent of the top 100 firms in the countriesstudied produced a health, safety, or environmen-tal report. That number had risen to 17 percent by1996, 24 percent by 1999, and 28 percent of top100 firms produced reports by 2002.

Firms are also increasingly employing independentauditors to verify or assure the data presented intheir reports. Third party verification increasedgradually during this period from approximately15 percent of reporters in 1996, to 18 percent in1999, to 27 percent in 2002. The UK and Japan ledall countries in the rates at which their firmsemployed third party verification of CSR reports.

The 2003 Benchmark Survey produced by theEuropean “csr network”37 found similar trends incorporate reporting. 48 percent of the top 100 firmsin the world produced public reports on social orenvironmental issues in 2002. The csr networkevaluated this reporting according to 32 categoriesand found that:

• 25 percent of companies surveyed producedintegrated social and environmental reports;

• 23 percent of companies produced only envi-ronmental reports;


Table 1—Global Firms Voluntarily Reporting1993 1996 1999 2002

Non-Financial Reporting by the Global Fortune Top 250 35% 45%Non-Financial Reporting by the Top 100 Companies in 19 Countries 13% 17% 24% 28%Independent Verification of Reports 15% 18% 27%

Source: KPMG International Survey 2002


• 26 percent of reporting companies publishedtheir position with respect to human rights;

• 48 percent of reporting companies disclosedhealth and safety information;

• 40 percent of reporting companies includedindependent assurance of their findings (up from18 percent in 2000);

• 32 percent of firms now have stakeholderengagement processes;

• 75 percent of reporting companies now reporttheir greenhouse gas emissions; and,

• 37 percent of reporting companies made refer-ence to the Global Reporting Initiative (GRI).

3.2.2 Geographic and Sectoral Variation

In both the KPMG and csr network surveys, therewere clear geographical and sectoral variations inreporting. KPMG noted that 72 percent of Japanesefirms published environmental or social reports, 49percent of UK firms, and only 36 percent of USfirms. The csr network found 70 percent ofJapanese firms, 69 percent of European firms, andonly 18 percent of US firms reporting.

The high rate of reporting among Japanese firms islikely due to government guidelines on environ-mental reporting. Growth in reporting in France(from 4 percent in 1999 to 21 percent in 2002) andthe United Kingdom (from 32 percent in 1999 to 49percent in 2002) is likely due to new regulations(being developed or already implemented) requir-ing reporting by publicly listed firms. This rapidgrowth in reporting clearly shows the potential ofgovernments to motivate (or mandate) reporting.Reporting is increasing in most countries, with thenotable exception of the United States, where cor-porate reporting has oscillated from a rate of 44percent in 1996, to only 30 percent in 1999, backup to 36 percent in 2002. The csr network notedthat 62 percent of non-reporting companies in theirsurvey were based in the US.

These surveys also found variations in reportingby industrial sector. The electronics and autoindustries had very high reporting rates (90 per-cent of the firms in the csr network survey) com-pared to financial services (only 27 percentreporting). Interestingly, the KPMG survey alsofound very high reporting rates in the mining sec-tor. 100 percent of GFT250 mining firms pro-

duced CSR reports in 2002, while 33 percent oftop 100 mining firms produced reports. As is con-sistent with other research, larger multinationalfirms report more frequently than smaller domes-tic firms.38

There is also variation in participation in reportingschemes across countries. Some developing coun-tries are taking a lead in supporting voluntary CSRreporting. Brazil for instance, has developed anational system of “Social Balance Sheets,” thatalthough still voluntary, are now quite commonamong large publicly traded firms.39 The SocialBalance Sheets (SBS) report direct and indirectsocial and environmental impacts of a company’soperations, including employee benefits and laborconditions, ethical codes, product life-cycleimpacts, philanthropic investments, etc. More than500 companies now produce SBS’s annually inBrazil, and leading Brazilian NGOs give an awardto the company with the best SBS each year.

3.2.3 Characteristics of Firms Most Likely toReport

Based on recent evaluations of firm reportingpractices such as the KPMG and csr network sur-veys, and consumer polling data on firms underpressure to report, it is not surprising that large,branded manufacturing firms are currently themost likely to voluntarily report on CSR issues.These firms are most “reputation sensitive” andthus most at risk of information or bad news aboutpoor practices. Furthermore, according to pollsconducted by Marymount University, consumersbelieve that manufacturers, and not retailers, areresponsible for the social and environmentalimpacts of products.40

That said, it is interesting to note from the KPMGsurveys that national firms in developing countriesare also increasingly reporting. Here again though,we see higher reporting rates within industries thathave been targeted by advocacy groups aroundcontroversial issues such as human rights and envi-ronmental impacts of mining.

These trends would seem to indicate that in thefuture even small firms that connect into the sup-ply chains of high-profile brands and retailers willbe under pressure to report their CSR practices.

3.2.4 NGO and Multi-Stakeholder ReportingInitiatives

Despite the overall growth in rates of disclosure,some NGOs remain critical of both the breadth anddepth of corporate reporting. In a survey of mem-ber companies, Business for Social Responsibilityfound that while firms are under increasing pres-sure to publish social and environmental informa-tion, only a few share information on conditions insupplier factories, and none of their respondentsprovided comprehensive data on the effectivenessof their CSR programs or included external stake-holders in the development of their reporting pro-grams.41 NGOs have thus sought to expand theuniverse of firms reporting, the issues they reporton, and how they report, through a range of multi-stakeholder initiatives.

The Global Reporting InitiativeA new NGO, the Global Reporting Initiative(GRI), has emerged as one attempt to respond tothese reporting debates and problems of standard-ization. Founded in 1997 in the US, and now basedin Amsterdam, the GRI seeks to advance globallyapplicable guidelines for voluntary self-reportingof economic, environmental and social perfor-mance of firms. The GRI is working to establish aglobal standard for corporate reporting, creating asystem analogous to financial reporting proce-dures for environmental and social issues. GRI hasboth general “core guidelines” for sustainabilityreporting that are meant to be applicable to allfirms, and is now developing “sector supple-ments” that provide guidelines for specific indus-tries. These guidelines aim to support and guide aglobally accepted CSR reporting framework. As Allen White, the former Executive Directorexplains, the goal of the GRI is “to make sustain-ability reporting as routine as financial report-ing.”42 While still quite young, over 300companies from 26 countries have referenced theGRI guidelines in their reporting.

A number of firms however, have complained thatthe GRI standards for reporting are “setting the barunrealistically high…[with] a unique blend of mea-sures that were onerous to collect whilst being unin-formative.”43 Some firms complain of too manyindicators (50 core indicators) that are too difficultto measure and report. While some NGOs and tradegroups have complained conversely that the GRI is

in essence too weak as it focuses primarily on pol-icy indicators (i.e., whether a company has a policyon a topic or not), rather than actual measures of per-formance.44 Nonetheless, the GRI continues to leadefforts to develop a global standard for reporting.

Verification and AssuranceAn increasingly important adjunct to reportinginvolves efforts to “verify” or “assure” the infor-mation presented in CSR reports. A new “assur-ance” industry has emerged over the last severalyears to audit corporate reports and attest to theircontent. The British NGO AccountAbility hasdeveloped an assurance standard call AA100045

which seeks to improve the quality, consistency,and comparability of reporting information byadvancing a standard for assessing, attesting to,and improving the credibility of CSR report-ing. This standard is based around the basic prin-ciples of: materiality, completeness, and respon-siveness.

Labor Practices ReportingOther multi-stakeholder initiatives are also emerg-ing to advance CSR evaluation and reporting.Growing public awareness and activist pressuresaround “sweatshop” issues have led to a recent pro-fusion of programs in the US and Europe to estab-lish standardized codes of conduct, systems ofmonitoring, and public reporting. Six major initia-tives of this type have emerged: the Fair LaborAssociation (FLA), Social Accountability Interna-tional (SAI), the Worldwide Responsible ApparelProduction (WRAP) certification program, theWorkers Rights Consortium (WRC), the EthicalTrading Initiative (ETI), and the Fair Wear Foun-dation (FWF). Each of these programs has a codeof conduct informed largely by ILO core standards,and a system in place for monitoring compliancewith their codes. A small army of monitors includ-ing accounting firms, professional service firms,and small non-profit organizations are emerging toprovide third party monitoring and verification ser-vices. These non-governmental regulatory systemscollect, analyze, and make public different types ofinformation. Some are completely confidential,providing information only to corporate managers.Others are fully transparent, with all investigationreports made public.

The WRAP certification program, for instance,currently provides virtually no information to the



public, even on factories audited or certified. SAIcurrently lists certified factories on its web site andis in discussions about making public informationon the resolution of complaints at SA8000 certifiedfactories. The ETI employs a kind of “club trans-parency” for its audits. Members of the ETI—including NGOs and union representatives—canreview audit reports and aggregate data. However,this information is not available to the general pub-lic. The WRC has committed to full public disclo-sure of monitoring results. Currently, all inspectionreports are made public through its web site andmedia releases. These reports provide detailedanalyses of individual factories, and insights intoproblems common in apparel suppliers. The WRChas also developed a database of factory locationsfor member universities.46 The FLA recentlyunveiled a new transparency initiative that pro-vides “tracking charts” of individual factories(without names or locations), detailing noncompli-ance findings by FLA-accredited monitors andtracking progress of participating brands in reme-diating these problems.47

Clearly, these initiatives are at the very earlystages of development, are trying to recruit newparticipants, and are thus often reluctant to befully transparent about their processes or auditresults. Companies remain concerned about dis-closing information on factory locations or con-ditions that might be used by their competitors orcritics. Disclosure is thus still quite limited inthese programs.

One critical piece of information that has beenmade public by several of these initiatives is thenames and locations of factories sourcing formultinational brands and retailers. The studentanti-sweatshop movement in the US has made thisa central demand of their campaigns, and has beensuccessful in winning fuller disclosure of factorylocations from university licensees. It is now pos-sible to identify factories producing for leadingcolleges. Several brands have also voluntarily dis-closed this information, although the vast majoritystill do not.

Firm ReportingA small number of firms are also beginning tomake public summaries of their external auditreports. Nike has published summaries of externalaudits (under a program dubbed Transparency

101), aggregate data on factories producing uni-versity-logo goods, and factory locations.48 Nikealso published a “corporate responsibility report”in 2002 in line with GRI reporting guidelines. Adi-das recently published a report disclosing thecountry locations of supplier factories, the numberthat have been audited, and the number of con-tracts terminated due to failures to comply with thecompany’s code. Adidas has also developed a“supplier scoring system” and releases summarydata on scores for factories in Asia, the Americas,and Europe. Otto Versand similarly collects auditresults (based on the SAI system) of its suppliersand analyzes compliance patterns across coun-tries. These firms and others are gathering veryrich data on factory practices and labor and envi-ronmental compliance around the world. How-ever, to date, very little of this information hasbeen made public.

3.2.5 International Initiatives

At the international level, the OECD guidelines formultinational enterprises were significantly revisedin 200149 and now require much greater trans-parency. The Guidelines remain the only compre-hensive, multilaterally endorsed code of conduct forMNCs, and establish a range of non-binding stan-dards and principles for corporate practice includ-ing recommendations for advancing corporatesocial accountability through disclosing environ-mental and social performance information.50

The United Nations is also advancing voluntarycodes and reporting procedures through the GlobalCompact initiative, created by the UN GeneralSecretary in 2000. The Global Compact is in thewords of the UN “not a regulatory instrument orcode of conduct, but a value-based platformdesigned to promote institutional learning. It uti-lizes the power of transparency and dialogue toidentify and disseminate good practices based onuniversal principles.”51 Towards this end, theGlobal Compact asks companies to commit torespecting nine principles, including respect forhuman rights, labor rights (basically the ILO corestandards), and the environment, and to reportannually on their progress on advancing these prin-ciples. The Global Compact and GRI now worktogether, with GRI reports qualifying for GlobalCompact annual reporting.

Another interesting initiative seeking to advancetransparency and reporting is the Publish WhatYou Pay (PWYP) campaign.52 PWYP is a coalitionof over 130 NGOs from 35 countries advocatingfor multinational corporations to publicly report onpayments (such as royalties, signature bonuses,and tax payments) to developing country govern-ments for oil, gas, and mineral concessions. Thegoal of this campaign is to mandate reporting thatsupports citizen efforts to hold developing countrygovernments accountable for the uses of revenuesfrom natural resource extraction. The coalition hasargued that reporting should be mandatory for allfirms as companies that unilaterally report finan-cial payments to governments may have theirlicenses revoked and awarded to less transparent orless scrupulous companies.

PWYP seeks to create better information for bothinvestors in developed countries and for citizensof developing countries to know how much rev-enue is being generated from the exploitation oftheir national resources. PWYP seeks explicitly toput pressure on reputationally sensitive oil, gas,and mining firms to prove that they are not brib-ing corrupt officials or diverting funds that shouldbe used for local development purposes. ThePWYP coalition is also now advancing demandsfor governments to “publish what they earn” fromresource extraction. The coalition recently draftedan amendment to a proposed EU “TransparencyObligations Directive” that would require the dis-closure of payments by companies listed in theEU to any government, public body, or publicofficial.


Table 2—Labor Monitoring and Reporting InitiativesSocial

Fair Labor Accountability Worldwide Worker RightsAssociation International Responsible Apparel Consortium Ethical Trading Fair Wear (FLA) (SA8000) Production (WRAP) (WRC) Initiative (ETI) Foundationwww.fairlabor.org www.sa8000.org www.wrapapparel.org www.workersrights.org www.ethicaltrade.org www.fairwear.nl

Scope Apparel and Factories Apparel industry. University Licensed Wide range Apparelfootwear producing Goods. of industries: industrycompanies. a wide range agriculture, wine, (initially onlyLicensees of of products. apparel, firms sourc-affiliated electronics, etc. ing to Dutchuniversities. retailers).

Reporting All internal and Audit reports go Audit reports are Firms do not directly Firms report the Companiesexternal monitor- to the companies provided to factories report to the WRC. results of auditing submit audit ing reports be and to SAI. and the WRAP board. The WRC sends and pilot studies to reports and provided to the FLA Other parties investigation teams the ETI board and correctivestaff. The FLA eval- can only receive to areas of member organiza- action plans touate audits, jointly them after hav- controversy and tions. the FWF develop remediation ing signed a conducts its own office. plans, and then pub- confidentiality evaluations.lish summary reports agreement with of audit remediation the company results. and the audit

company. Public Annual reports on Public disclosure No public reporting. Full public reporting Disclosure of Disclosure ofDisclosure each company based of factories No mention of sites of investigation aggregate results brands partici-

on internal and extern- granted certifi- that receive, fail, or findings. to the public. pating in FWF, al monitoring. Partici- cation. lose certification. Detailed reporting the countries pating companies are only available to of operation, publicly listed on web- members of the ETI. and the numbersite. No disclosure of of suppliers in locations of certified each country. factories. Business data

and worker interviews are kept confidential.

Source: Organizational web sites.


The UK government has responded in part to thedemands of the PWYP coalition by developing apilot program called the Extractive IndustriesTransparency Initiative (EITI). The EITI will in-volve 5 to 8 voluntary country-level pilot systemsof transparency and reporting on payments to gov-

ernments and revenues from extraction of naturalresources. Anglo American, British Petroleum,Newmont, Rio Tinto, Shell, and Statoil are all par-ticipating in the project, as are the governments ofAzerbaijan, East Timor, Ghana, Indonesia, Nigeria,Sierra Leone, and Trinidad & Tabago.

21

Acritical question of course is whether currentreporting initiatives are having any impact.

Do they make a difference in consumer prefer-ences and purchases? Do they influence investorsto avoid poor performers (and higher risks), and toinvest in good performers? Do they influence firmdecision-making at any point along a supplychain? Is the information used by governmentagencies to more effectively regulate or providetechnical assistance? Does the information benefitlocal development goals? Essentially, does report-ing have any impact on consumers, firms, govern-ments, workers, or other key stakeholders? And ifreporting does make a difference, when and underwhat conditions is it most effective?

As a number of researchers have discovered, it isextremely difficult to evaluate the effectiveness ofCSR reporting initiatives on their own. First, theseinitiatives are still quite young, so there is limiteddata to evaluate their impacts over time. Second,transparency initiatives are often tied up in largerpackages of reforms. Socially responsible, “high-road” management practices may include CSRreporting, but it is often difficult to isolate andevaluate these impacts.

There are of course clear examples of ineffectiveCSR reporting. Many corporations still producereports that are flawed, unreliable, unsystematic,unverifiable, immaterial to key stakeholders, andlargely designed as public relations. This reportingcan actually have negative value—serving to con-fuse or deceive stakeholders, and costing firmstime and money that could be spent actuallyimproving practices. This has led at least oneresearcher to conclude that, “little evidence to dateexists of social and sustainability reporting pro-

viding an effective tool in making a real differenceto corporate decisions, practices and outcomes.”53

While accepting that there is ineffective (and evendeceptive) reporting. There also appears to besome reporting that is quite serious and that canhave positive impacts. A number of anecdotalaccounts claim that reporting can help companiesbetter measure, manage, and communicate theirperformance.54 Researchers thus continue to lookfor data to systematically evaluate the impacts ofreporting, and to make the “business case” forreporting. Early research that has been conductedpoints to interesting, albeit tentative findings onthe impacts of reporting on investors, consumers,and local stakeholders such as workers and com-munity members.

4.1 INVESTOR RESPONSESThe public face of corporate performance is oftena simple measure: a company’s stock price. Thissingle number often contains public (or really WallStreet) expectations about current profitability,management practices, worker productivity, mar-ket prospects, and future risks and liabilities. It isthus important to look at how investors—and stockprices—respond to the release of information oncorporate environmental and social practices.

Through an “event study” of corporate environ-mental disclosures (in the form of annual ToxicRelease Inventory releases), media coverage, andstock market responses, research has found that“firms reporting TRI pollution figures experiencednegative, statistically significant abnormal returnsupon the first release of the information.”55

Researchers have found that the market does not

4. Impacts of CSR Reporting

just punish polluting firms, but rather punishesfirms with the greatest discrepancies betweenexisting information and reported results. As theEPA has explained, “firms were not solely pun-ished or rewarded based on levels of emissions, buton level of disclosure and magnitude.”56 In-vestors it seems don’t like to be surprised with badnews, or with news that is divergent from existinginformation on a company.

Researchers have found similar dynamics in stockmarket responses to public disclosures of laborpractices. One event study of public reports of“sweatshop” practices found that public reports ofpoor practices “cause firms’ stock prices to fall,sometimes substantially.”57 Interestingly, this studyalso found that stock prices reacted positively toactions and reports of positive actions on laborpractices. Negative sweatshop news resulted in sub-stantial losses in stock prices. Positive reportsresulted in statistically significant positive returns.Other researchers have shown that capital marketsin developing countries similarly react rapidly togood and bad environmental information.58

A recent survey conducted for the World Bank alsohas shown that multinational enterprises do trackthe performance of their partners in developingcountries, and the climate and conditions of coun-tries. An increasing number of these multinationalfirms are choosing to not invest in or partner with“bad” companies, and to avoid countries altogetherthat don’t enforce CSR-related regulations.59

There are of course limitations to investorresponses to information on labor and environ-mental practices. The lack of systematic, standard-ized information on firm practices (except formandatory pollutant release information in somecountries) make investor responses often some-what random and based on sporadic news reports.Simplified, standardized metrics of performanceand reporting would support investor decision-making. This information would also help con-sumers make more informed decisions about thecompanies they want to support or avoid.

4.2 CONSUMER RESPONSESOver three quarters of consumers polled in the USassert that they would avoid purchasing products ifthey knew they were made under poor working

conditions. Eighty six percent of these respondentsclaim they would pay an extra dollar on a $20 gar-ment if it was guaranteed to be made in a legiti-mate, sweat-free factory.60 Surveys conducted byother researchers report even higher “willingnessto pay” for “sweat-free” garments among con-sumers, with 76 percent of respondents in one sur-vey asserting they would pay 25 percent more fora $20 garment if it were certified to not be made ina sweatshop, and respondents in another surveyclaiming they would pay 28 percent more on a $10item, and 15 percent more on a $100 item.61

Researchers assert that these findings indicate that“consumers are prepared to alter their shoppingbehavior in order to help deter the practice ofsweatshop labor.”62

However, despite these very high numbers whoclaim they would avoid bad products and pay morefor good products, the actual data on “ethical con-sumption” shows that only a small percentage ofconsumers actually implement these concerns inthe marketplace. A recent study in the UK showedthat ethical consumption currently represents onlyabout two percent of market transactions, with“ethical boycotts”—avoiding bad firms—a leadingaspect of ethical consumption.63 Other research hasshown that approximately five percent of the pub-lic strictly follows ethical concerns in their pur-chasing.64

One might ask whether the failure of consumers toactually buy socially responsible products is due toan unwillingness to pay more when they pull outtheir wallets. That is, though no one wants to admitin a survey that they would buy products made in asweatshop, in the privacy of their own purchasesthey buy the best deal.

Or perhaps, as some have argued, consumers lackcredible information on the environmental andsocial impacts of the products they buy, whichinhibits their ability to purchase their desired levelof social responsibility. Do consumers simplyneed credible labels and standard performance cri-teria to support their “willingness to pay more”and their desire to “buy different”? Would addi-tional, and better information lead to more con-sumers avoiding bad products and purchasinggood products? Or would this information justconfuse consumers further with claims andcounter-claims?


Impacts of CSR Reporting 23

Unfortunately there is limited empirical researchon these questions. Evidence from approximately20 years of “green consumer” campaigns indicatesthat people do think and care about ethical, social,environmental, and health concerns. Again,roughly three quarters of people polled in OECDcountries call themselves environmentalists andreport that they would purchase a green productover an environmentally problematic product.However, again only 10-12 percent of consumersactually go out of their way to purchase environ-mentally sound products.65 Debates continue onexplaining this divide between stated preferencesand actions.

On many of the central issues of corporate respon-sibility, it also appears that “bad news” is moreinfluential than good news. That is, consumers usethe disclosure of bad news to help them screen outand avoid socially irresponsible companies. So it isquite common now for consumers to report thatthey regularly boycott a company. In the UK, over50 percent of respondents in a recent poll claimedthey had punished a firm by boycotting it in the lastyear.66 Positive information about a company’spractices appears to have a less clear influence onpurchasing patterns.67

Consumers thus remain something of a contradic-tion. They report significant concern for CSRissues. But only a small percentage proactivelyseek out good firms or products. They do howeverpunish firms for bad practices. This threat of badnews, and the growing likelihood for bad news tosurface from far-flung, global supply chains maybe leading some firms to be proactive, to evaluatetheir supply chains, and to communicate perfor-mance clearly, rather than waiting for informationto emerge on its own.

4.3 OTHER STAKEHOLDER RESPONSESOther stakeholders, such as workers—bothemployees of MNCs and of local firms—and com-munity members impacted by corporate activities,also respond to CSR reporting and other publicinformation on corporate activities and impacts.

In one recent international survey of MNCs, topCEOs reported that employee retention was themost important impact of a positive corporate rep-utation, and that transparency was a key factor indetermining this reputation. 71 percent of CEOscited recruiting and retaining employees as the topbusiness benefit of CSR activities and communi-cations.68

Local community members are also often veryinterested in information that helps them evaluatethe environmental and social impacts of firms. TheIndonesian “PROPER” program (discussed abovein section 3.1.2) and similar programs around theworld have shown high demand among communitymembers for even the most basic information oncorporate practices and impacts. Disclosure of thisinformation can support community awareness ofthe benefits and costs of economic developmentactivities, and can facilitate community mobiliza-tions and demands for solutions to environmentaland social problems caused by firm activities. The“Publish What You Pay” campaign has also high-lighted strong demand among community membersfor information on what MNCs are paying theirgovernments for oil, mining, and other concessions.

With all of these different stakeholders and differ-ent uses of CSR information, questions remainregarding what information firms should be report-ing? In what forms? For which stakeholders? Andwhether this information could be made systematicand comparable across firms and countries?

With hundreds of corporations now produc-ing reports, a wide range of laws being

implemented around the world, and dozens of non-governmental initiatives on transparency andreporting emerging, there is staggering variation inwhat is reported, in what forms, and for whichaudiences. The Lawyers Committee for HumanRights reports over 2000 different indicators oflabor standards used in corporate codes and moni-toring systems.69 This range and variation in report-ing can cause information overload and actuallyincrease difficulties for comparing factories,brands, or countries.

As Zadek argues, it is critical to determine whatmatters most to stakeholders, and to report these“material” facts in formats that are understandable,useful, and comparable.70 CSR reporting is in factin some danger now of reporting too much data thatis not meaningful to critical stakeholders. Themany audiences for CSR information are over-whelmed with information, and simultaneouslyover-stretched for time and resources to evaluatethis information. It is thus critical that informationis reported in the simplest, most direct, easy tounderstand and comparable formats.

The first question for CSR reporting is simplywhat to measure and report? Stakeholders areincreasingly concerned about not only current firmperformance, but also processes for managingrisks and remediating problems identified in a sup-ply chain. A number of reporting schemes areimmersed in heated debates about exactly whatinformation should be considered “material.” TheUS courts have held (in regards to financial dis-closure) that a fact is material “if there is a sub-stantial likelihood that a reasonable sharehold-er would consider it important in deciding how to vote”71 or in making other critical decisions.AccountAbility similarly defines material infor-mation as information that allows a firm’s “stake-holders to be able to make informed judgments,decisions, and actions.”72

These definitions unfortunately don’t help much innarrowing the scope of information that might beincluded in CSR reports. Information considered“material” by different government agencies,firms, and NGOs has included a wide range of indi-cators of financial, environmental, social, andhuman rights performance and policies. Theseinclude, but are not limited to data on:

5. Key Metrics of Corporate Social Responsibility

25

“For tomorrow’s corporate sustainability reporting to be effective, and so to survive, requires, in short, that

it communicates information that is ‘material’ to stakeholders in their efforts to make coherent decisions

and take planned and timely actions relevant to their interests.”

—Simon Zadek, 2003

Environmental Performance:

• Compliance with environmental laws (rates ofnon-compliance, fines, legal proceedings, etc.);

• Emissions of toxic chemicals to air, water, andland;

• Emissions of greenhouse gases;• Material flows—energy, raw materials, water,

land, etc. ;• Product life-cycle assessment;• Environmental management systems (e.g., ISO

14000);• Disclosure of environmental risks to local com-

munity members.

Respect for Labor Rights:

• Policies on freedom of association, collectivebargaining, non-discrimination, child labor, andforced labor;

• Facilitation of freedom of association and ratesof unionization;

• Formal agreements with independent tradeunions;

• Wages (comparable to industry average, prevail-ing wage, or “living wage”);

• Employee benefits provided;• Working hours.

Health and Safety Practices:

• Rates of occupational injuries, diseases, andfatalities;

• Lost time from injuries;• Hazard communication programs;• Training on health and safety;• Joint employee-management health and safety

committees.

Respect for Human Rights:

• Countries of operation with problematic humanrights records;

• Role of government or military in factory opera-tions;

• Political and economic rights guaranteed toemployees.

Community Economic Development and SocialImpacts:

• Percent of profits reinvested in community fromwhich profits earned;

• Percent of profits paid into a local communitydevelopment trust;

• Impacts on local development patterns of invest-ments/suppliers.

Corporate Governance:

• Internal accountability procedures;• Composition of the Board;• Management compensation;• Disclosure of potential conflicts of interest.

Corporate Payments to Governments:

• Payments for contracts or concessions;• Corporate taxes and royalty payments;• Donations to candidates for political office or

political parties.

Stakeholder Engagement:

• Policies and procedures for engagement;• Frequency and forms of engagement;• Information that is accessible and understandable

to stakeholders.

Supply Chain Management:

• Locations of factories/farms/mines in supplychain;

• Number of workers in supply chain;• Code implementation and monitoring program;• Systems for measuring and monitoring perfor-

mance;• Compliance staff numbers and budgets;• Process for verification of reported data.

Forward-looking Information:

• Scenario planning to avoid specific problems;• Plans for dealing with future risks.


6. Challenges of Reporting

There are a number of major challenges to mak-ing CSR reporting effective. Questions re-

main in different sectors and countries on what toreport, in what form, to what level of detail, to whataudiences, and for what uses. There are real chal-lenges—even for those committed to reporting—to design information systems that are accessible,easy to understand, useful, and rigorous.

There are also weaknesses and problems with cur-rent systems of CSR reporting, and important bar-riers to expanding public disclosure systemsaround the world. On the one hand is the problemalluded to above, that corporations are disclosingboth too much data and not enough material infor-mation that is useful to stakeholders. If CSRreports are not perceived as useful, few firms willbother to invest the time and resources to producethem, and even fewer stakeholders will read them.

6.1 METRICS AND MATERIALITYPrimitive metrics for many CSR issues, and con-tinuing disagreements on key measures of perfor-mance, have led to reports using widely varyingindicators, some of which are vague, unclear, irrel-evant to major impacts, misleading, or worse.There is also the related problem of CSR reportingbeing captured by marketing and PR departmentsof companies.73 Some CSR reporting has becomefocused largely on “reputation assurance” and pub-lic relations rather than material reporting that canhelp improve management practices or stakeholder

decisions. Cases of firms gaming reporting or mis-representing practices and conditions, all too com-mon now in financial reporting as well, create thedanger of eroding public faith in all CSR reporting.

6.2 INCENTIVES TO DISCLOSEAt the same time, there are clear barriers to firmsopenly reporting problems, mistakes, pollution,etc., in their operations. Firms are inclined to focusmore on the “good news” of corporate philan-thropy and voluntary initiatives, than bad news intheir supply chains. And the “business case” formore material CSR reporting remains elusive, ascosts are concentrated on a few disclosers, and ben-efits to investors, workers, community members,etc., are diffuse and often limited.74 Nonetheless,there are increasing pressures on “brand” firms todisclose key information to their stakeholders tobuild trust and/or protect their reputations.

6.3 SUPPLY CHAINSThe nature of certain business models, particularlyglobal supply chain relations, create further barri-ers to firms reporting key information on condi-tions down their production networks (such aswages, working conditions, hours of work, injuries,etc.) The complex and shifting structure of globalsupply chains makes it extremely difficult for out-side organizations (and sometimes even buyers) totrack the locations of production for global prod-ucts, let alone conditions in these facilities.

27

6.4 COSTSFirms face costs of both gathering and disseminat-ing information, and potential costs from publicresponses to their reporting. Some early reportershave faced increased criticism from frank disclo-sure of their challenges.75 Costs also appear toincrease as reporting gets more detailed and com-prehensive. These costs create significant incen-tives for firms either to avoid reporting altogether,or to produce CSR reports that are simply PR.

There are also costs to users of CSR information.The groups that often benefit most from disclosuresystems, such as neighbors of polluting factories,workers in mines, or consumers of hazardous prod-ucts, rarely have the time or resources to gatherinformation or to verify that information is accu-rate and credible. This results in only a small num-ber of stakeholders actually looking at publiclyreported information or demanding improvedreporting.

6.5 ANALYZING REPORTINGStakeholder groups also sometimes need assistanceto analyze data presented in CSR reports. Techni-cal (and financial) information sometimes needs tobe translated—such as from pounds of chemical X

released, or wages of workers in country Y—intomeaningful information, such as the risk posed bythe releases of the chemical or the implications forlivelihoods of workers. Translating complex infor-mation into simple-to-understand indicatorsrequires resources, time, and technical capacities.

Third-party intermediary organizations are thuscritical for collecting, comparing, analyzing, inter-preting, reformatting, explaining, and disseminat-ing raw information from environmental, healthand safety, and social reports. These groups needresources and staff to do this analysis and dissem-ination.

6.6 CONSUMERSFinally, many stakeholders are frustrated by thecontinuing inability of citizens to simply comparethe social and environmental performance of spe-cific firms. A lack of consistency and comparabil-ity in reporting schemes, and a profusion of generalinformation that is not material, has limited theability of average citizens and consumers to useinformation to inform their day-to-day decisions.The goal of many groups to create mechanisms forevaluating and labeling products and processesremains a distant reality.


29

There is no single reporting system or model ofcorporate transparency that fits all social or

environmental problems. However, there are somebasic principles which can support efforts toadvance and improve CSR reporting. First, report-ing initiatives should seek to increase the quality ofinformation disclosed. Second, they should workto increase the uses of the information and the ben-efits to users. Third, they should create mecha-nisms for learning and continuously improvingdisclosure systems.

These goals can be supported through explicitefforts to target information to specific stakehold-ers and decision-making processes. Informationshould be reported in formats useful to specificusers. And efforts should be made to verify thatinformation is used by stakeholders to inform theirdecisions.

7.1 STANDARDIZED METRICSContinued work is needed on standardized metricsand indicators for reporting. However, metrics ingeneral should be:

• Agreed upon by key stakeholders (representingwhat matters to them);

• Factual, accurate, and verifiable;• Reported at regular intervals in relatively simple

language or data;• Comparable across locations, firms, and prod-

ucts; • Flexible/dynamic, so that metrics can change

over time;• Usable by key stakeholders;• Easily accessible.

7. Strategies for Improving Reporting

“Careful analysis of the character of the information problem as well as user and discloser costs and

benefits is needed to determine whether transparency is a promising regulatory approach. Substantial

benefits to users, the presence of third party organizations to press for system improvement, and

economic or political dynamics that lead some disclosers to promote improved transparency are all

factors that influence sustainability” of reporting.

—Archon Fung, Mary Graham, and David Weil, Harvard University.


7.2 INCENTIVES FOR CONTINUOUSIMPROVEMENT

Efforts are also needed to support continuousimprovements in reporting. As mentioned, inter-mediary groups are critical to analyzing anddeploying information, and perhaps more impor-tantly, to creating demands for improved reporting.Stakeholder groups with built-in incentives forusing, analyzing, and monitoring the quality of theinformation are central to the long-term sustain-ability of reporting schemes.76 In financial disclo-sure, investors play this role of demanding highquality, verifiable information upon which to basetheir investments. In environmental disclosure(such as the TRI), environmental groups use thedata, translate it for wider consumption, and keep

pressure on the government and firms to improvereporting. No equivalent group currently exists forCSR reporting in developing countries, or indeedsocial reporting.

Disclosure systems can also be designed to createincentives and benefits for leading disclosers. Gov-ernments can foster certain kinds of disclosurethrough a range of traditional economic incentives,and through regulatory flexibility mechanisms.Finally, in any system of disclosure it is critical toestablish mechanisms to track changes in reportingpractices over time, the impacts of this reporting,and whether learning is occurring from reporting.All of these strategies can be supported or directlyadvanced through government actions.

To date, CSR reporting has largely been drivenfrom the north, often by large multinational

firms, private investors, or non-governmental orga-nizations. Nonetheless, there are important rolesfor governments, and particularly developingcountry governments, to play in further advancingreporting systems.

The World Bank has previously grouped govern-ment roles in supporting corporate social responsi-bility into five categories of action: mandating,facilitating, partnering, endorsing, and demonstrat-ing.77 Each of these strategies of action can supportthe kinds of improvements discussed above. Gov-ernments, and their citizens, however, must decidehow they can most effectively support an environ-ment for socially responsible business, and specif-ically advance CSR reporting.

The following section lays out essentially a menuof actions governments might take to advance CSRreporting.

8.1 MANDATING Governments can legally mandate reportingrequirements through company law, stock listingregulations, pension fund regulations, or direct dis-

closure laws. These laws can set precise standardsfor corporate reporting, including lists of metrics,formats for reporting, and frequency of reporting.Governments can also set other laws—such as taxlaws, labor standards, environmental regulations,etc.—that establish measurement and reportingrequirements.

Governments can then monitor this reporting, bothby evaluating reporting data and comparing it tophysical inspections of facility performance. Gov-ernment agencies can work to ensure the quality ofreported data by requiring external, third-party ver-ification procedures, quality assurance standards,and regulations for auditors of CSR reports. Gov-ernment agencies can then oversee these verifica-tion and assurance procedures and hold auditorsaccountable.

Governments can also mandate sanctions for non-disclosure or false disclosures of CSR data to cre-ate incentives for full and accurate reporting.

8.2 FACILITATING Governments can also work to facilitate CSRreporting through the development of voluntaryguidelines for reporting. A government agency

8. Government Roles in CSR Reporting

31

“The market does not provide sufficient incentives for companies to report on their social and environmental

impacts on a voluntary basis.”

—Deborah Doane, New Economics Foundation.


might work with trade associations, firms, ormulti-stakeholder organizations to design volun-tary programs. The government could then play afacilitating role in assisting in the collection, colla-tion and dissemination of CSR information.

Government agencies could then work to supportusers of CSR information both inside and outsidefirms. One strategy for facilitating firm learningwould involve disseminating information fromreporting through a program of technical assis-tance to firms to learn about “best practices” intheir industry. Government technical assistancemight also support improved participation of smalland medium-sized enterprises (SMEs) in reportingsystems. Governments can also support and moti-vate increased dialogue with the business commu-nity to ensure CSR reporting is in line withgovernment priorities and policies.

Governments might go even further to tie report-ing and performance to tax incentives, export pro-motion assistance, export quotas, buyer-suppliermatching, or direct production subsidies. Tradeand investment promotion could significantlymotivate and facilitate reporting.

Government efforts can also support citizens andNGOs who seek to use CSR information to moti-vate laggards to improve performance.

Perhaps the most important form of facilitationwould involve building a stable and transparentenvironment for socially responsible businesswithin a country. This would involve basic effortsto improve the openness and accountability of gov-ernance structures and economic markets.

8.3 PARTNERINGGovernments can also play a positive role throughpartnering with specific groups to support report-ing. By engaging multi-stakeholder initiatives orindividual firms, government agencies can act aspartners in the development of reporting initia-tives. Government agencies can also establish andsupport simple networks of reporting firms in orderto facilitate learning on environmental or socialproblems and strategic responses.

Government agencies might also “partner” by pro-viding government collected data (or links to government databases) to non-governmental dis-

closure systems. Government data on enforcementactions, compliance rates, numbers of inspections,etc., could be very useful to civil society assess-ments of firm performance.

Governments can also partner in convening stake-holders, helping to open dialogues and decision-making processes to stakeholders, and to facilitatelearning.

8.4 ENDORSING Governments can focus more on endorsing disclo-sure through positive efforts to increase awarenessof CSR issues by commending, supporting, andhonoring firms that are transparent. Governmentagencies can support award programs, disseminateinformation on “leading” firms, and otherwise lendcredibility and legitimacy to company efforts.Governments can create a wide range of incentivesand rewards for firms that act responsibly and takea leadership position on reporting.

Governments can also help to better inform thepublic, and particularly consumers, about the per-formance of firms. Government statements andreports can help transparent firms distinguish them-selves in the marketplace. Government agenciescan also work with financial and sustainability rat-ing agencies to highlight superior performance offirms within a country.

Over the long-term, governments might also useendorsing strategies to market a region or countrythat supports a positive climate for socially respon-sible firms, that hosts firms that produce sustain-able, fair trade, or socially responsible goods, andthat publicly reports on conditions and practices intheir country.

8.5 DEMONSTRATINGFinally, governments can directly demonstrate theprinciples of increased transparency by publiclydisclosing material information on their own activ-ities. Governments are in many countries either thelargest, or one of the largest: employers; con-sumers of goods and services; owners of land, min-eral rights, buildings, vehicles, etc.; and users ofenergy and other resources. Over the last severalyears, a number of governments have thus beguninitiatives to provide information to the public on

Government Roles in CSR Reporting 33

the impacts of this consumption, employment, andresource management.

Some governments are now taking a leading role in“walking the talk” to show private sector entities—from whom they are demanding increased trans-parency—that government agencies can be held tosimilar standards. These initiatives range from sim-ple disclosure of raw data on the environmental,social, and economic impacts of governmentagency operations, to structured reporting of per-formance information, to reporting on the effec-

tiveness of government policies and programs, toprogress reports (with trend data over time) on gov-ernment efforts to achieve sustainability goals.

In recognition of these varied initiatives, the GlobalReporting Initiative (GRI) has begun a project tolearn from and help standardize public agency sus-tainability reporting.78 A number of governmentsare now sponsoring this work and experimentingwith GRI reports for their operations, in order todemonstrate the benefits of reporting for other gov-ernment agencies, private sector actors, and thepublic.

There is clear potential for government action,particularly in developing countries, to

advance and strengthen CSR reporting. However,in thinking about designing an appropriate andeffective disclosure system in a developing coun-try, it is also critical to recognize that there are noperfect systems, no easily replicable programs, andno one-size-fits-all standards for reporting.

Countries must begin by experimenting with pilotprograms in reporting that build on existing capac-ities and concerns, and that are tailored to localindustries and development goals. A CSR report-ing system is also more likely to succeed if it canbuild on areas of mutual interest between stake-holders in the developing and developed world.Successful initiatives in environmental disclosure(PRTRs, PROPER, etc.), anti-sweatshop monitor-ing and disclosure (the FLA, WRC, etc.), and anti-corruption disclosure (the Extractive IndustriesTransparency Initiative, Publish What You Pay,etc.) all seek to connect developed and developingcountry firms, NGOs, workers, communities, andgovernment agencies interested in addressing a dif-ficult problem.

These initiatives advance fairly simple programsfor systematic release of standardized information,and then publicly compare the performance of fac-tories, firms, or governments. Programs seek toforce out information about business practices intothe public sphere, foster public debate aboutacceptable labor, environmental, and social stan-dards, enlist a wide range of actors in evaluatingbusiness practices, build the capacity of stakehold-ers to participate in dialogues about solutions, and

use multiple mechanisms to incentivize firms toimprove their performance. All of these initiativeshowever, hinge on the dynamic of producing richinformation that allows key stakeholders to com-pare the performance of economic actors, and inmore refined systems to benchmark good perform-ers, identify and target the worst performers, andmotivate improvements among all actors.

As noted above, governments can play widelyvarying roles in these initiatives, from mandatingdisclosure, to overseeing verification and assur-ance, collating information, disseminating data,convening stakeholders, facilitating dialogues,supporting intermediary groups to use the data,commending leaders, learning from disclosure, andleading by example.

But how might a government actually take steps toadvance CSR reporting, or to experiment withreporting as a strategy of governance and economicdevelopment? Below, is a preliminary proposal foradvancing CSR reporting in a developing country,with specific mention of two industrial sectors:apparel and mining. This proposal is meant as astarting point for thinking about actual stepsneeded to pilot test CSR reporting in a developingcountry.

9.1 STEP-BY-STEP ACTIONS FOR A PILOTPROGRAM ON CSR REPORTING

Countries interested in CSR reporting might:

• Interview local stakeholders and investors aboutthe information they need to make critical deci-sions;

9. A Draft Pilot Program for CSR Reporting

35


• Establish a central coordinating office to setguidelines for reporting, then collect, collate,quality check, and compare information on facil-ity performance;

• Require firms to publicly disclose locations offactories/mines;

• Require firms to annually report performancecriteria (described below) in a standardized for-mat;

• Establish a central database accessible over theInternet which would contain performanceinformation on factories/mines, and simplemeans for comparing firms along selected crite-ria, such as wages, health & safety, labor prac-tices, environmental performance, etc.;

• Create mechanisms for public comparison offirm performance (that could for example, leadto the publication of lists of leading and laggardfirms in each sector);

• Publish lists of “best practices” and the firmsthat employ them;

• Publish a CSR Sourcing book of leading localfirms and distribute this to multinational corpo-rations, investors, and trade associations forassistance in matching MNCs with local suppli-ers that meet their CSR standards;

• Use publicity to motivate firms to improve per-formance to match the best practices identifiedin their industry. Spotlight, publicly commend,and support leading firms;

• Support capacity building of non-governmentalgroups to verify reporting;

• Establish a process for ground-truthing fac-tory/mine performance information by workersthemselves;

• Aggregate firm level performance data to showoverall compliance rates, regional variations,improvements over time, and best practices insocial and environmental performance withinthe country. Include this information in invest-ment marketing to foreign firms.

An effective pilot project should be designed as anopen system that invites key stakeholders to takepart in discussions about measures of performanceand systems of reporting. For the sake of providinga starting point for this discussion, firms might dis-close a number of standard “core indicators” offacility performance, and indicators specific to sec-toral issues and concerns.

9.2 POSSIBLE “CORE INDICATORS”1. Name and location of factory/mine and number

of employees;2. Incidence of violations of local laws, penalties,

legal proceedings, etc. in the last year;3. Wages and benefits paid to workers (averages,

minimum, highest), and incidence of violationsof minimum wage laws;

4. Working hours and overtime worked. Inci-dence of violations of maximum working hourlaws and overtime pay laws;

5. Policies for identification and elimination ofharassment and discrimination. Data on diver-sity in management and work areas;

6. Policies for identification and elimination ofchild, forced, and compulsory labor (includingsystem for determining accurate age of work-ers);

7. Indicators of respect for workers rights to free-dom of association (such as percent of workersin a union, union-management relations, workstoppages, lock-outs, strikes, etc.);

8. Health and safety performance (rates of acci-dents, injuries, occupational diseases, anddeaths);

9. Environmental impacts: estimates of air andwater emissions of toxic chemicals, environ-mental penalties, settlements, fines, and viola-tions;

10. Policies for monitoring compliance with locallaws and codes of conduct.

9.3 POSSIBLE SECTOR-SPECIFIC INDICATORS• In the apparel sector—including garments and

footwear—stakeholders are particularly con-cerned about: wages (does the company pay a“living wage”); hours of work; forced overtime;freedom of association and the right to formunions; sexual harassment; and health and safety(exposures to glues, solvents, accidents, repeti-tive stress injuries, etc.). The government couldconvene a stakeholder group to determineexactly which measures would be most appro-priate for this sector.

• In the mining industry, stakeholders are particu-larly concerned about: payments to local gov-ernments for concessions; health and safety(how many miners die per year); wages; free-

A Draft Pilot Program for CSR Reporting 37

dom of association; local community develop-ment impacts (does the community benefit fromthe extraction of local natural resources); andlocal environmental impacts. The governmentcould convene a stakeholder group to determineexactly which measures would be most appro-priate for this sector.

In the pilot program it would make sense to beginwith simple indicators, hopefully including infor-mation that is already being collected in supplychain compliance programs or that is alreadyrequired by government regulations, and then togradually focus and improve this information overtime.

9.4 CONCLUSIONS

By starting with a small set of core indicators, ver-ifying that they are material to stakeholders, eval-uating uses of the information, and soliciting

feedback on the quality of the data, it would be pos-sible to gradually expand and deepen CSR indica-tors to include sector specific issues. By having thereporting driven by local concerns and capacities,it would also be possible to gradually connect toand compare with global reporting schemes such asthe GRI.

Government agencies and NGOs might play a rolein verifying CSR reporting information, and grad-ually working to improve the credibility andaccountability of reporting.

Finally, a government agency could work to aggre-gate data, and to produce a national CSR report.This information would support future compar-isons of country-level performance on CSR issues.The program could also help local firms establishand demonstrate their social and environmentalperformance, and facilitate socially and environ-mentally responsible firms connecting into highvalue supply chains.

Afsah, Shakeb, Allen Blackman, and Damayanti Ratunanda (2000), “How Do Public Disclosure Pollution Con-trol Programs Work? Evidence from Indonesia,” Resources for the Future, Discussion Paper No. 00-44.

Afsah, Shakeb and Damayanti Ratunanda (1999), “Environmental Performance Measurement and Reporting inDeveloping Countries: The Case of Indonesia’s Program for Pollution Control Evaluation and Rating (PROPER),”in M. Bennett and P.J. Sheffield (eds.) Sustainable Measures: Evaluation and Reporting of Environmental andSocial Performance, London: Greenleaf Publishing, pp:185-201.

Baiocchi, Gianpaolo (2003), “Participation, Activism, and Politics: The Porto Alegre Experiment,” in A. Fung andE.O. Wright (eds.) Deepening Democracy, New York: Verso.

Baker, Mallen (2002), “The Global Reporting Initiative—Raising the Bar Too High?” Ethical Corporation, Oct.16th, 2002.

Baue, William (2002), “CalPERS Divests from Four Emerging Countries,” SocialFunds.com, available at:http://www.socialfunds.com/news/article.cgi?sfArticleId=790

Browner, Carol (1996), Federal Document Clearing House Political Transcripts, June 26.

Business for Social Responsibility (BSR) (2002), “Social Compliance Benchmarking: Results of Survey One,”San Francisco, Sept. 17, 2002.

Commission for Environmental Cooperation of North America (CECNA) (2003), Taking Stock 2000: NorthAmerican Pollutant Releases and Transfers, Montreal: CECNA.

Conroy, Michael (2001), “Can Advocacy-Led Certification Systems Transform Global Corporate Practices? Evi-dence and Some Theory,” Political Economy Research Institute, University of Massachusetts, Amherst, WorkingPaper Series No. 21.

CSR Network (2003), “Material World: The 2003 Benchmark Survey of Global Reporting,” Bath, England: csrnetwork.

Doane, Deborah (2002), “Market Failures: The case for mandatory social and environmental reporting,” London:New Economics Foundation.

Extractive Industries Transparency Initiative (2003), “Statement of Principles and Agreed Actions,” London Con-ference, June 17, 2003.

Franco, Nicholas (2001), “Corporate Environmental Disclosure: Opportunities to Harness Market Forces toImprove Corporate Environmental Performance,” paper presented at the American Bar Association conference onEnvironmental Law, March 8-11, 2001, Keystone, CO.

Fung, Archon, Mary Graham, and David Weil (2002), “The Political Economy of Transparency: What Makes Dis-closure Policies Sustainable?” OPS-02-03, Institute for Government Innovation, Harvard University.

10. References

39

Fung, Archon, Dara O’Rourke, and Charles Sabel (2001), Can We Put an End To Sweatshops?, Boston: BeaconPress.

Fung, Archon and Dara O’Rourke (2000), “Reinventing Environmental Regulation from the Grassroots Up:Explaining and Expanding the Success of the Toxics Release Inventory,” Environmental Management, vol. 25,no. 2, pp.:115-127.

Global Reporting Initiative (2004), “Public Agency Sustainability Reporting—A GRI Resource Document inSupport of the Public Agency Sector Supplement Project,” Amsterdam, January, available at: http://www.glob-alreporting.org/guidelines/resource/public.asp

Graham, Mary (2001), “Information as Risk Regulation: Lessons from Experience,” RPP-2001-04, Center forBusiness and Government, Harvard University, Cambridge, MA.

Hearne, Shelley (1996), “Tracking Toxics: Chemical Use and the ‘Right-to-Know,’” Environment 38: 4-33.

Hill & Knowlton (2003), “2003 Corporate Reputation Watch Survey,” available at: www.corporatereputation-watch.com

International Institute for Environment and Development (IIED) (2002), “Baseline Study of Public Sector Rolesin Strengthening Corporate Social Responsibility,” paper prepared for the Corporate Social Responsibility Pro-gram, Washington, D.C.: World Bank.

Jenkins, Rob and Anne Marie Goetz (1999), “Accounts and accountability: theoretical implications of the right-to-information movement in India,” Third World Quarterly, vol. 20, no. 3. pp.: 603-622.

Khagram, Sanjeev, Christin Mary Hokenstad, and Maria Cecilia Coutinho de Arruda, (forthcoming) “For a ClearPicture: Focus on the Brazilian Social Balance Sheet,” Harvard Business Review - Latin America.

KPMG (2002), “International Survey of Corporate Social Responsibility Reporting,” Amsterdam: KPMG.

Lawrence, A.T. and Morell, D. (1995) “Leading-Edge Environmental Management: Motivation, Opportunity,Resources, and Processes,” Research in Corporate Social Performance and Policy, Supplement 1: 99-126.

Nadvi, Khalid, and Frank Wältring (2003), “Making Sense of Global Standards,” in Hubert Schmitz (ed.), forth-coming, Local Enterprises in the Global Economy: Issues of Governance and Upgrading, Edward Elgar, Chel-tenham.

Oldenziel, Joris, (2000), “The 2000 Review of the OECD Guidelines for Multinational Enterprises: A New Codeof Conduct?” SOMO, Amsterdam.

Publish What You Pay (2003), “Frequently Asked Questions about the ‘Publish What You Pay’ Campaign,”available at: http://www.publishwhatyoupay.org/faq.shtml

Rock, Michael (2001), “Public Disclosure of the Sweatshop Practices of American Multinational Garment/ShoeMakers/Retailers: Impacts on Their Stock Prices,” Technical Paper No. 252, Washington, D.C.: Economic Pol-icy Institute.

Roe, David (2000), “Starting Blocks for Environmental Information Policy,” draft paper available at:www.edf.org/wip/starting_blocks.html

Seabrook, C. (1991), “Your Toxic Neighbors: Disclosures Spark Improvements; Pollution Law Brings A ClearerPicture; But Industry Response Still Not Enough, EPA Says,” Atlanta Journal and Constitution (August 22):Sec. G, p. 1.

Trade Union Advisory Committee (2001), “The OECD Guidelines on Multinational Enterprises: A User’sGuide,” Paris.

Wade, Will (2003), “A Good Corporate Citizen? This Scanner Can Tell,” New York Times, August 28, 2003.


White, Allen (2003), “The 2002 GRI Guidelines: Clearing Up the Misunderstandings,” Ethical Corporation,May 21, 2003.

Wolf, S. M. (1996), “Fear and Loathing about the Public Right to Know: The Surprising Success of the Emer-gency Planning and Community Right-to-Know Act.” Journal of Land Use & Environmental Law 11: 217-324.

World Bank (2003), “Race to the Top: Attracting and Enabling Global Sustainable Business,” report preparedfor the Corporate Social Responsibility Practice of the World Bank by Political and Economic Link Consultingand Ethical Corporation Magazine, Washington: World Bank, October 2003.

World Business Council for Sustainable Development (WBCSD) (2002), “Sustainable Development Reporting:Striking the Balance,” available at www.wbcsd.org

World Resources Institute (WRI) (2000), “Pure Profit: the Financial Implications of Environmental Perfor-mance,” Washington, D.C.: World Resources Institute.

Zadek, Simon (2003), “Materiality in Reporting,” Ethical Corporation, August 7, 2003.

References 41

1. Baue, William (2002), “CalPERS Divests from Four Emerging Countries,” SocialFunds.com, availableat: http://www.socialfunds.com/news/article.cgi?sfArticleId=790

2. Business for Social Responsibility (BSR) (2002), “Social Compliance Benchmarking: Results of SurveyOne,” San Francisco, Sept. 17, 2002.

3. World Bank (2003), “Race to the Top: Attracting and Enabling Global Sustainable Business,” report pre-pared for the Corporate Social Responsibility Practice of the World Bank by Political and Economic LinkConsulting and Ethical Corporation Magazine, Washington: World Bank, October 2003.

4. Graham, Mary (2001), “Information as Risk Regulation: Lessons from Experience,” RPP-2001-04, Center for Business and Government, Harvard University, Cambridge, MA.

5. Wade, Will (2003), “A Good Corporate Citizen? This Scanner Can Tell,” New York Times, August 28,2003.

6. Franco, Nicholas (2001), “Corporate Environmental Disclosure: Opportunities to Harness Market Forcesto Improve Corporate Environmental Performance,” paper presented at the American Bar Associationconference on Environmental Law, March 8-11, 2001, Keystone, CO, p.4.

7. World Business Council for Sustainable Development (WBCSD) (2002), “Sustainable DevelopmentReporting: Striking the Balance,” p. 14, available at www.wbcsd.org

8. Roe, David (2000), “Starting Blocks for Environmental Information Policy,” draft paper available at:www.edf.org/wip/starting_blocks.html

9. Graham, Mary (2001), “Information as Risk Regulation: Lessons from Experience,” RPP-2001-04, Center for Business and Government, Harvard University, Cambridge, MA.

10. Nadvi, Khalid, and Frank Wältring (2003), “Making Sense of Global Standards” in Hubert Schmitz (ed.),forthcoming, Local Enterprises in the Global Economy: Issues of Governance and Upgrading, EdwardElgar, Cheltenham.

11. See for instance, Fung, Archon, Dara O’Rourke, and Charles Sabel (2001), Can We Put an End To Sweatshops?, Boston: Beacon Press; and, Conroy, Michael (2001), “Can Advocacy-Led CertificationSystems Transform Global Corporate Practices? Evidence and Some Theory,” Political EconomyResearch Institute, University of Massachusetts, Amherst, Working Paper Series No. 21.

12. Franco, Nicholas (2001), “Corporate Environmental Disclosure: Opportunities to Harness Market Forcesto Improve Corporate Environmental Performance,” paper presented at the American Bar Associationconference on Environmental Law, March 8-11, 2001, Keystone, CO.

13. World Resources Institute (WRI) (2000), “Pure Profit: the Financial Implications of Environmental Performance,” Washington, D.C.: World Resources Institute.

14. Cited in Franco (2001).

Notes

43

15. Roe, David (2000), “Starting Blocks for Environmental Information Policy,” draft paper available at:www.edf.org/wip/starting_blocks.html

16. World Business Council for Sustainable Development (WBCSD) (2002), “Sustainable DevelopmentReporting: Striking the Balance,” available at www.wbcsd.org

17. Fung, Archon, Mary Graham, and David Weil (2002), “The Political Economy of Transparency: What Makes Disclosure Policies Sustainable?” OPS-02-03, Institute for Government Innovation, HarvardUniversity.

18. Ibid.

19. Franco, Nicholas (2001), “Corporate Environmental Disclosure: Opportunities to Harness Market Forcesto Improve Corporate Environmental Performance,” paper presented at the American Bar Associationconference on Environmental Law, March 8–11, 2001, Keystone, CO.

20. http://www.amnesty.org.uk/business/campaigns/core/bill.shtml

21. Commission for Environmental Cooperation of North America (CECNA) (2003), Taking Stock 2000:North American Pollutant Releases and Transfers, Montreal: CECNA.

22. Currently 172 facilities in Mexico voluntarily report data on releases and transfers of listed chemicals tothe government.

23. Currently approximately 23,000 firms operating in SIC codes 20–39, which employ 10 or more full-timeworkers, and which produce or use toxic chemicals above threshold levels report the release or transfer ofsome 651 chemicals to the TRI.

24. The most recent TRI data can be accessed on the World Wide Web at http://www.epa.gov/tri/. From thisweb site interested parties can download data on a specific factory, on emissions in a county, on nationaltrends in releases of a specific chemical, or can compare emissions between factories in the same sector.

25. Wolf, S. M. (1996), “Fear and Loathing about the Public Right to Know: The Surprising Success of theEmergency Planning and Community Right-to-Know Act.” Journal of Land Use & Environmental Law11: 217–324.

26. Seabrook, C. (1991), “Your Toxic Neighbors: Disclosures Spark Improvements; Pollution Law Brings AClearer Picture; But Industry Response Still Not Enough, EPA Says,” Atlanta Journal and Constitution(August 22): Sec. G, p. 1.

27. Hearne, Shelley (1996), “Tracking Toxics: Chemical Use and the ‘Right-to-Know,’” Environment 38: 4–33.

28. Lawrence, A.T. and Morell, D. (1995) “Leading-Edge Environmental Management: Motivation, Opportunity, Resources, and Processes,” Research in Corporate Social Performance and Policy, Supple-ment 1: 99–126.

29. www.scorecard.org

30. www.rtk.net

31. www.pollutionwatch.org

32. Afsah, Shakeb and Damayanti Ratunanda (1999), “Environmental Performance Measurement and Reporting in Developing Countries: The Case of Indonesia’s Program for Pollution Control Evaluationand Rating (PROPER),” in M. Bennett and P.J. Sheffield (eds.) Sustainable Measures: Evaluation andReporting of Environmental and Social Performance, London: Greenleaf Publishing, pp:185-201.

33. Afsah, Shakeb, Allen Blackman, and Damayanti Ratunanda (2000), “How Do Public Disclosure PollutionControl Programs Work? Evidence from Indonesia,” Resources for the Future, Discussion Paper No. 00–44.


Notes 45

34. Jenkins, Rob and Anne Marie Goetz (1999), “Accounts and accountability: theoretical implications of theright-to-information movement in India,” Third World Quarterly, vol. 20, no. 3. pp.: 603-622.

35. Baiocchi, Gianpaolo (2003), “Participation, Activism, and Politics: The Porto Alegre Experiment,” in A. Fung and E.O. Wright (eds.) Deepening Democracy, New York: Verso.

36. KPMG (2002), “International Survey of Corporate Social Responsibility Reporting,” Amsterdam: KPMG,p.5.

37. CSR Network (2003), “Material World: The 2003 Benchmark Survey of Global Reporting,” Bath, England: csr network.

38. KPMG (2002), “International Survey of Corporate Social Responsibility Reporting,” Amsterdam: KPMG,p. 13.

39. Khagram, Sanjeev, Christin Mary Hokenstad, and Maria Cecilia Coutinho de Arruda, (forthcoming) “Fora Clear Picture: Focus on the Brazilian Social Balance Sheet,” Harvard Business Review – Latin America.

40. http://www.marymount.edu/news/garmentstudy/findings.html

41. Business for Social Responsibility (BSR) (2002), “Social Compliance Benchmarking: Results of SurveyOne,” San Francisco, Sept. 17, 2002.

42. White, Allen (2003), “The 2002 GRI Guidelines: Clearing Up the Misunderstandings,” Ethical Corporation, May 21, 2003.

43. Baker, Mallen (2002), “The Global Reporting Initiative – Raising the Bar Too High?” Ethical Corporation, Oct. 16th, 2002.

44. World Business Council for Sustainable Development (WBCSD) (2002), “Sustainable DevelopmentReporting: Striking the Balance,” p. 14, available at www.wbcsd.org

45. www.accountability.org.uk

46. http://www.workersrights.org/fdd.asp

47. http://www.fairlabor.org/all/transparency/index.html

48. http://www.nike.com/nikebiz/nikebiz.jhtml?page=25&cat=collegiate

49. See for commentary, Trade Union Advisory Committee (2001), “The OECD Guidelines on MultinationalEnterprises: A User’s Guide,” Paris. And Oldenziel, Joris, (2000), “The 2000 Review of the OECD Guide-lines for Multinational Enterprises: A New Code of Conduct?” SOMO, Amsterdam.

50. It should be noted however, that key stakeholders to the Guidelines have complained of a continuing lackof transparency on current cases, and a lack of clarity on National Contact Point (NCP) procedures andcase resolutions. Unions and NGOs have thus recommended the creation of a centralized on-line databaseor clearinghouse on the status of cases before NCPs. This “registry of cases” could provide real-time infor-mation on cases of concern to stakeholders around the world, including information on the status of theNCP process to investigate and resolve the complaint, and the final outcome. Stakeholders have alsoargued for greater transparency on the companies involved in specific instances, that is, “naming names”of companies.

51. www.unglobalcompact.org

52. www.publishwhatyoupay.org

53. Monaghan, Philip (2003), “Impacts of Reporting: Uncovering the ‘Voluntary vs. Mandatory’ Myth,”AccountAbility Quarterly, p. 4.

54. KPMG (2002), “International Survey of Corporate Social Responsibility Reporting,” Amsterdam: KPMG.

55. Hamilton, James (1995), “Pollution as News: Media and Stock Market Reactions to the Toxics ReleaseInventory Data,” Journal of Economics and Environmental Management, vol. 28: 98–113.

56. EPA (1997), “Stock Performance of Environmentally Responsible Companies,” Environmental DamageValuation and Cost Benefit News, vol. IV, no. 6.

57. Rock, Michael (2001), “Public Disclosure of the Sweatshop Practices of American Multinational Gar-ment/Shoe Makers/Retailers: Impacts on Their Stock Prices,” Technical Paper No. 252, Washington,D.C.: Economic Policy Institute.

58. Dasgupta, S., B. Laplante, and N. Mamingi (1998), “Capital Market Responses to Environmental News inDeveloping Countries,” World Bank, Washington, D.C., available at: www.worldbank.org/nipr/

59. World Bank (2003), “Race to the Top: Attracting and Enabling Global Sustainable Business,” report pre-pared for the Corporate Social Responsibility Practice of the World Bank by Political and Economic LinkConsulting and Ethical Corporation Magazine, Washington: World Bank, October 2003.


61. Elliott, Kim and Richard Freeman (2000), “White Hats or Don Quixotes? Human Rights Vigilantes in theGlobal Economy,” Cambridge, MA: NBER.


63. The Co-operative Bank (2003), The Ethical Consumer Report 2003, London.

64. Doane, Deborah (2002), “Market Failures: The case for mandatory social and environmental reporting,”London: New Economics Foundation.

65. Makower, Joel (2000), “Whatever Happened to Green Consumers?” Organic Consumer Association,July/August, available at: http://www.organicconsumers.org/Organic/greenism.cfm

66. The Co-operative Bank (2003), The Ethical Consumer Report 2003, London.

67. Elliott, Kim and Richard Freeman (2000), “White Hats or Don Quixotes? Human Rights Vigilantes in theGlobal Economy,” Cambridge, MA: NBER.

68. Hill & Knowlton (2003), “2003 Corporate Reputation Watch Survey,” available at: www.corporatereputa-tionwatch.com

69. http://workersrights.lchr.org/

70. Zadek, Simon (2003), “Materiality in Reporting,” Ethical Corporation, August 7, 2003.

71. Franco, Nicholas (2001), “Corporate Environmental Disclosure: Opportunities to Harness Market Forcesto Improve Corporate Environmental Performance,” paper presented at the American Bar Associationconference on Environmental Law, March 8-11, 2001, Keystone, CO.

72. www.accountability.org.uk

73. Doane, Deborah (2002), “Market Failures: The case for mandatory social and environmental reporting,”London: New Economics Foundation.

74. Fung, Archon, Mary Graham, and David Weil (2002), “The Political Economy of Transparency: WhatMakes Disclosure Policies Sustainable?” OPS-02-03, Institute for Government Innovation, Harvard Uni-versity.

75. As one example, Reebok was criticized in the media for reporting problems in their factories in Indonesia,despite the firm being forthcoming about these problems and investing funds to resolve them.


Notes 47

76. Fung, Archon, Mary Graham, and David Weil (2002), “The Political Economy of Transparency: What Makes Disclosure Policies Sustainable?” OPS-02-03, Institute for Government Innovation, Harvard University.

77. International Institute for Environment and Development (IIED) (2002), “Baseline Study of Public Sector Roles in Strengthening Corporate Social Responsibility,” paper prepared for the Corporate SocialResponsibility Program, Washington, D.C.: World Bank.

78. Global Reporting Initiative (2004), “Public Agency Sustainability Reporting – A GRI Resource Document in Support of the Public Agency Sector Supplement Project,” Amsterdam, January, available at: http://www.globalreporting.org/guidelines/resource/public.asp

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