valuing non-financial performance and sustainability reporting

Valuing Non-Financial Performance and Sustainability Reporting

Dr Mark Anthony Camilleri PhD (Edin.)

Aarhus University, Denmark - 19th September, 2013.

Overview of this Presentation

• Background of Regulatory Instruments

• Intergovernmental Benchmarks and Guidelines

• The National Governments’ Regulatory Level

• Non-Governmental Regulatory Tools

• The Way Forward

© Dr M.A. Camilleri PhD (Edin.)

Background of Regulatory Instruments


• In the mid 1990s, Robert Reich in his capacity as the American Secretary of Labour has asked the International Labour Organisation (ILO) to develop a social label that would certify to consumers which products comply with the ILO labour standards.

• The ILO has limited itself to establish minimum standards for working conditions and these have been agreed to by numerous governments.

• The Organisation for Economic Cooperation and Development (OECD) had issued guidelines for multi-national corporations (MNCs). They were also entirely voluntary in nature.


“It is against this background of weak instruments and failed initiatives at the

international level that NGOs have begun to target MNCs with increasing frequency and vigour in recent years”, (Newell, 2002:910).


• The growth of global CSR engagement can also be viewed in the context of the business developments within the international trade law:

– For instance, a number of bilateral and regional trade agreements were entered into force in North American and European countries. They contained such provisions about the inclusion of labour, human rights and environmental standards in trade agreements.

– However, the World Trade Organisation (WTO) did not necessitate the countries to conform to any product labelling standards.


Intergovernmental Benchmarks and Guidelines


International Labour Organisation

• ILO promotes dialogue between government, workers’ and employers’ organisations.

• It provides assistance and tools to better understand the labour dimension of CSR (ILO Helpdesk Url., 2013).


The Organisation for Economic Cooperation and Development

• The Organisation for Economic Cooperation and Development (OECD) promotes policies which improve the economic growth and social cohesion.

• OECD guides policy makers, regulators, and market participants in improving their legal, institutional, and regulatory frameworks.

• OECD’s principles have shown an acceptable level of adaptability in varying legal, economic, and cultural contexts as they have served as the basis in various reform initiatives by different governments and have been taken up by the private sector in different countries (Jesover and Kirkpatrick, 2005). © Dr M.A. Camilleri PhD (Edin.)

Basic Principles of Corporate Governance

(Source: Jamali et al. 2008 ; OECD, 1999)


European Union’s Recommendations (I)

• According to the EU Commission Expert Group (2012), non-financial reporting enables investors to contribute to a more efficient allocation of capital, and to better achieve longer-term investment goals.

• It can also help to make enterprises more accountable and contribute to higher levels of citizen trust in business.

• Several experts have supported the idea of a principles-

based approach, rather than a detailed, rules-based one.


European Union’s Recommendations (II)

• The experts stressed that improving materiality of reports is useful to address the comparability issues.

• They advocated that the companies' boards should have ownership on reporting, in order to make it relevant and effective.

• There are significant differences in mentalities across different member states, and within economic sectors (EU Commission, 2011).


The National Government Regulatory Level


Actors and Exchange Arenas (Source, Midttun, 2009)


The Relational Framework

• There are different expectations and perceptions within each stakeholder relationship, which have to be addressed to develop an appropriate CSR policy (Albareda et al., 2008).

• Essentially, this relational approach is based on the idea that recent changes and patterns affecting the economic and political structure may transform the roles and capacities of various social agents (Albareda et al., 2009).


“Our approach is to encourage and incentivise the adoption of CSR, through

best practice guidance, and where appropriate, intelligent (soft) regulation

and fiscal incentives”.

(UK’s Department of Business Innovation and Skills, 2012).


Non-Governmental (NGOs) Regulatory Tools


• The social and environmental accountability standards represent voluntary predefined norms and procedures for organisational behaviour and are often valid on a global level (Rasche, 2010; Smith, 2002:21).

• Such accountability standards reflect a shift towards a ‘quasi-regulation’ which are based on substantive and reflexive law approaches (Rasche et al., 2008).

– A ‘substantive’ (outcome-based) law approach is regulated by prescribing predefined outcomes;

– A ‘reflexive’ (process-based) law approach is regulated by prescribing procedures to determine outcomes in a discursive way (see Hess, 1999, 2001). *

Non-Financial Accountability Standards (I)


Non-Financial Accountability Standards (II)

• Performance-oriented standards are more generic in their approach:

– Such standards focus on specific areas such as human rights, labour standards, environmental protection and the like (see Jamali, 2008).

– Many NGOs are providing a certification for compliance with proposed rules and guidelines as they incorporate their own independent monitoring systems (see Berkhout et al., 2008; Koenig-Archibugi, 2004).

• Process-oriented standards are applied across particular industries.


A Non-Exhaustive List of Standards and Reporting

Instruments:


Accountability (AA1000)


British Assessment (OHSAS 18001)

•


Eco-management and Audit Scheme (EMAS)


Fair Labor Association (FLA)


Global Reporting Initiative (GRI)


International Standards Organisation ISO 26000 - Social Responsibility


International Standards Organisation (ISO14001) – Environmental

Management System


Social Accountability (SA8000)


The United Nations Global Compact


The Way Forward


Creating Shared Value through Regulation

• Governments can play a pro-active role by setting the regulatory social and environmental standards.

– The introduction of standards, phase-in periods and utilisation of innovative technologies can bring operational efficiencies and cost savings to the businesses.

– Such measures may improve the environment, and increase the organisations’ competitiveness, simultaneously (Porter and Kramer, 2011; Van der Woerd and Van Den Brink (2004).


Key Recommendations• Governments may assist businesses by fostering the right

type of environment for responsible behaviours; through various incentives (e.g. grants, tax relief, sustainable reporting guidelines, frequent audits et cetera).

• The proposed regulatory changes can involve the efficient and timely reporting of sustainable (responsible) practices.

• The reporting may be primarily aimed at the larger businesses.

• Of course, the governments will have to provide structured compliance procedures (and support where necessary).


Key Recommendations (II)

• The CSR practices and their measurement, their reporting and accreditation should be as clear, concise and understandable as possible for the businesses.

• The governments’ reporting standards and guidelines may be drawn from international reporting instruments (e.g. ISO, SA, AA, and GRI).

• Businesses should be given adequate and sufficient time (and resources) to comply with the governments' requirements.


References• Accountability (2011). AA1000: Stakeholder Engagement Standard (AA1000SES). Url: http://www.accountability.org/about-us/publications/aa1000-1.html accessed online on the 30th

March 2012.• Albareda, L, Lozano, J.M., Tencati, A., Midttun, A. and Perrini, F. (2008). The changing role of governments in corporate social responsibility: drivers and responses. Business Ethics: A

European Review, 17, pp. 347–363• Albareda, L., Arenas, D., Lozano, J., (2009). The role of NGOs in CSR: Mutual perceptions among stakeholders. Journal of Business Ethics, 88, pp. 175–197.• Berkhout, F., Hertin, J., Wagner, M. and Tyteca, D. (2008). Are EMS Environmentally Effective? The Link between Environmental Management Systems and Environmental

Performance in European Companies. Journal of Environmental Planning and Management, 51(2), pp. 259–283.• British Assessment (2011). OHSAS 18001 Certification. Url: http://www.british-assessment.co.uk/ohsas-18001-certification-services.htm accessed on the 3rd December 2011.• Department for Business, Innovation and Skills - UK (2012). Url:http://bis.ecgroup.net/Publications/BusinessLaw/CorporateGovernance/041112.aspx accessed on the 3rd February

2012.• EMAS (2009). EU Eco-Management and Audit Scheme. Url: http://ec.europa.eu/environment/emas/index_en.htm accessed on the 25th February 2012.European Commission (2011).

A renewed EU strategy 2011-14 for Corporate Social Responsibility. Url: http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=7010.• EU Commission Expert Group (2012). Sustainable and responsible business European Expert Group on corporate social responsibility (CSR) and SMEs. Url:

http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-responsibility/sme/european-expert-group/index_en.htm accessed on the 12th January 2012.• Fair Labor Association (2012). Url: http://www.fairlabor.org/about-us accessed on the 4th May 2012.• Global Reporting Initiative (GRI) (2009). Url: https://www.globalreporting.org/Information/about-gri/Pages/default.aspx accessed on the 3rd November 2009.• Hess, D. (1999). Social Reporting: A Reflexive Law Approach to Corporate Social Responsiveness. Journal of Corporation Law, 25 (1). pp41-84.• Hess, D. (2001). Regulating Corporate Social Performance: A New Look at Corporate Social Accounting, Auditing, and Reporting. Business Ethics Quarterly, 11 (2), pp. 307-330. • International Labour Organisation,(2012). Resource guide on CSR. http://www.ilo.org/public/english/support/lib/resource/subject/csr.htm accessed online on the 23rd April 2012.• International Standards Organization - ISO 26000 (2012). Guidance Standard on Social Responsibility. Url: http://www.iso.org/iso/social_responsibility accessed on the 4th February

2012.• International Standards Organization - ISO 14001 (2012). Environmental Management System. Url: http://www.british-assessment.co.uk/iso-14001-certification services.htm?

gclid=CI_osdPUoLACFYt-fAodaR8lYQ accessed on the 4th February 2012.• Jamali, D., Safieddine, A.M. and Rabbath, M. (2008). Corporate Governance and Corporate Social Responsibility Synergies and Interrelationships. Corporate Governance: An

International Review, 16, pp. 443–459.• Jesover, F. and Kirkpatrick, G. (2005). The Revised OECD Principles of Corporate Governance and their Relevance to Non-OECD Countries. Corporate Governance: An International

Review, 13, pp. 127–136.• Koenig-Archibugi, M. (2004). Transnational Corporations and Public Accountability. Government and Opposition, 39, pp. 234–259.• Midttun, A. (2009). Strategic CSR Innovation - Serving Societal and Individual Needs. Research Report 2/2009 Norwegian School of Management Department of Innovation and

Organizational Management Nordberg.Url:• http://web.bi.no/forskning/papers.nsf/b63c43a0385ff61dc1256e620043c6b0/2893041b91f4e4fcc12575690042d6d9/$FILE/2009-02-midttun.pdf accessed online on the 4th March 2012.• Newell, P. (2002). From Responsibility to Citizenship: Corporate Accountability for Development. IDS Bulletin, 33(2) Making Rights Real: Exploring Citizenship, Participation and

Accountability. Brighton. OECD (1999). • Organisation for Economic Cooperation and Development, Directorate for Financial and Enterprise Affairs, Url:

http://www.oecd.org/document/49/0,3343,en_2649_34813_31530865_1_1_1_1,00.html accessed on the 2nd Janaury 2012.• Porter, M.E. and Kramer, M.R. (2011). Creating shared value: How to reinvent capitalism - and unleash a wave of innovation and growth. Harvard Business Review,

(January/February), pp. 62-77.• Rasche, A., Baur, D., Van Huijstee, M., Ladek, S. and Naidu, J. (2008). Corporations as Political Actors – A Report on the First Swiss Master Class in Corporate Social Responsibility.

Journal of Business Ethics, 80 (2), pp. 151-173.• Rasche, A. (2010). Collaborative Governance 2.0. Corporate Governance, 10 (4), pp. 500–511.• Smith, D. (2002). Demonstrating Corporate Values – Which Standard for your Company? Institute of Business Ethics, London.• Social Accountability International (2011). Url: http://www.sa-intl.org/index.cfm? Accessed on 3rd June, 2010.• United Nations Global Compact (2012). Url: http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html accessed onthe 20th March 2012.• Van der Woerd, F. and Van Den Brink, T. (2004). Feasiblity of a responsive business scorecard – a pilot study. Journal of Business Ethics, 55(2), pp. 173-86.


http://www.ilo.org/public/english/support/lib/resource/subject/csr.htm

http://www.sa-intl.org/index.cfm

http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html

Thanks for your attention!

Visit

drmarkcamilleri.com

valuing non-financial performance and sustainability reporting

Business

guidelines dr

way forward dr

ilo labour standards

economic cooperation

international level

economic growth

regulatory frameworks

environmental standards