UN Report Calls for Further Standardising CSR & ESG to Promote Public Interest

“In the wake of the BP oil disaster in the Gulf of Mexico, questions have been raised about the meaningfulness of voluntary corporate responsibility communications and the analysis of these by responsible investors,” claims the Secretary-General of the UN Conference on Trade and Development, Supachai Panitchpakdi. This has made it necessary for the UN to publish its first report on the state of voluntary responsibility policies from the world’s largest companies and investors, released on September 8th at the Sustainable Stock Exchanges meeting at the the World Investment Forum in Xiamen, China. “This report makes clear that both CSR communications and ESG analyses must now improve, to better indicate the contributions and impacts of business, rather than simply offer an engagement with the issues,” the Secretary General writes in the preface to the “Investment and Enterprise Responsibility Review”.

The review examines the policies and reports of the world’s 100 largest Transnational Corporations (TNCs) and 100 largest institutional investors, on matters of social and environmental management. It finds that Corporate Social Responsibility (CSR) and Responsible Investment (RI) activities are now so widespread that they could affect trade and investment flows, yet they differ greatly in their content and scope, so their impact on sustainable development is currently unclear. Lifeworth’s Director Jem Bendell, the co-editor of the report, explains that “the data shows that both corporate reporting and investor engagement on business responsibilities is now widespread around the world yet remains very variable in both form and quality.” An Associate Professor with the Asia Pacific Centre for Sustainable Enterprise at Griffith Business School, Dr Bendell believes “there is a now a need for more guidance in the public interest, involving further dialogue with and between governments. Private policies on sustainable development are becoming such a feature of international trade and investment we need to bring governments to the table and work out what standards and policies will work best for all and then how we can promote them.”

Given the growth and consolidation in environmental, social and governance (ESG) analyst firms in the past 12 months, combined with perplexingly high ratings of BP by many ESG analysts over previous years, the report is likely to add weight to calls from some quarters for CSR reports and ESG ratings to become more accurate assessments of the actual social and environmental performance of companies. As such, it will provide added impetus for efforts within the UN and civil society to raise the standard and relevance of reporting and ratings, for all stakeholders. Within the UN, the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) could play a stronger role in promoting standardisation. In civil society, the nascent Global Initiative for Sustainability Rankings (GISR) can complement existing frameworks from the Global Reporting Initiative. There is already growing support from within the CSR and RI professions for more transparency and clarity in communications and ratings. Mark Tulay, former head of ESG Solutions at RiskMetrics told Responsible Investor magazine ‘We believe it is time for an independent, non-commercial initiative… to chart a longer term strategy for building a world-class, normative ratings framework to guide capital, procurement and business-NGO partnerships toward companies that are true sustainability leaders.”

The UNCTAD report incorporates data prepared by EIRIS (United Kingdom), Griffith Business School (Australia) and Ernst & Young (Netherlands). In the downloadable summary of the review, UNCTAD’s Economic Affairs Officer, Dr Miller highlights the following findings:
(a) Private policy on a large enough scale can have an impact similar to or greater than public policy. As a result, CSR has emerged as an important area of soft law self-regulation (or “soft-regulation”). CSR can present policymakers with new options and tools for addressing key development challenges.
(b) Most large TNCs now recognize the importance of CSR yet the standard of communication varies widely. There is a role for policymakers to enhance the quality of communications. Various policy options exist such as supporting the harmonization of CSR reporting, and mandating such standardized reporting through stock exchange listing requirements.
(c) Responsible investment practices (efforts by investors to incorporate ESG issues into investment decisions and to engage with investee companies to encourage ESG practices) have become common features of the world’s 100 largest pension funds. Regulators can work to strengthen the mechanisms through which institutional shareholders are able to influence the ESG practices of the companies in which they invest, while also encouraging investors to formally
articulate their stance on ESG issues in public reports.
(d) At least basic climate change-related information is now reported by most large TNCs. However significant inconsistencies and inadequacies among company reports undermine the comparability and usefulness of this information. Unless reporting is produced in a consistent and comparable manner, it is difficult for policymakers, investors and other stakeholders to use it to make informed decisions. Policymakers could promote an internationally harmonized approach to the way companies explain, calculate and define climate change-related emissions.
(e) A number of voluntary initiatives are taking a leading role in designing and facilitating CSR and responsible investment instruments, encouraging improved corporate communication on ESG issues and creating important benchmarks, based on universally agreed principles. Policymakers can become involved in these initiatives with the aims of promoting sustainable
development goals and identifying useful tools to complement government rules.

The report and its summary can be downloaded at www.unctad.org/csr

Lifeworth Consulting participated in this work as part of its Enterprise Trends programme. Lifeworth’s Jem Bendell can be contacted for interview about the report and the challenges it identifies, via +44(0)2071936102