Asian companies should view increasing international pressure to be transparent and sustainable as an opportunity for competitive advantage. That was the message from a group of international experts who convened in Singapore on Wednesday to provide guidance to Asian businesses on reporting the environmental and social impacts of their companies.
Sustainability reporting and disclosure is gaining traction globally as increasing numbers of investors, consumers and regulators demand information from companies on the environmental and social impacts of their operations. Leading companies are going beyond producing reports to fulfil requirements and using the reporting process as a tool to help them improve their performance and engage with their stakeholders.
Jenny Costelloe, Singapore director for social enterprise consultancy CSR Asia, said, “Sustainability reporting is rapidly gaining recognition as a critically important business function in no small part due to the global attention being paid to environmental protection and social responsibility. Investors who lead world opinion today expect listed companies not only to achieve good financial results, but also to be accountable and transparent as to how they do this.”
Chairman of CSR Asia Richard Welford said that while he sees an increasing number of reports, sustainability reporting is still not mainstream. He expects this to change as sustainability reporting becomes institutionalised. Currently, companies producing reports are in the minority. In a few years, we will be surprised at the companies who do not produce reports, he said.
The Global Reporting Initiative (GRI), the network organisation that created the world’s most widely accepted framework for sustainability reports, reported last month that over 4,500 sustainability reports, primarily from multi-national corporations (MNCs), have been submitted to databases worldwide. Although still only a fraction of the estimated 82,000 MNCs world-wide, the number of reports is growing at approximately 30 per cent annually.
While global efforts at transparency are on the rise, Singapore, and Asia in general, is moving at a slower pace.
The combined total of sustainability reports produced by Singaporean companies amounts to just 59 reports to date. This puts the highly-developed city-state in last place behind its Asean neighbours of Malaysia, Indonesia, Thailand and the Philippines.
In September last year the Asia Sustainability Rating, a regional index produced by CSR Asia and Responsible Research, found that reporting of environmental and social impacts across ten Asian countries (excluding Japan) was generally poor.
The index, which rated the quality of disclosure and sustainability of 542 companies from 12 sectors, rated Singapore fifth behind South Korea, India, Malaysia and Thailand.
Mr Welford, who is based in CSR Asia’s Hong Kong office, said he found that overall reporting in Asia is underdeveloped and that there is much more to be done. The existing disclosure, which is generally limited to compliance requirements from regulators and stock exchanges, is very conservative “due to nervousness” about the reporting process.
Nervous or not, companies face escalating pressures from both consumers and investors to disclose the risks and impacts of environmental and social issues.
Consumers and buyers have increasingly sophisticated tools to help them make sustainability decisions. Consumer green rating databases, such as the WWF Check Your Paper database that was launched in January, allow consumers and commercial buyers to source eco-friendly products. The rating scheme joins the ranks of a growing number of iPhone apps that point customers to green products.
Contrary to popular belief, green buying trends are not limited to developed countries in the west. In January, TÜV SÜD Asia Pacific, a provider of testing, inspection and certification services, released a report confirming that companies were significantly underestimating Asian consumer demand for sustainable products.
In addition to the proactive environmental choices of their clients, companies worry about the reactions of customers and shareholders to negative environmental and social impacts that are reported in the media. Allegations of social abuses, such as child labour violations, or environmental transgressions such as industrial pollution can damage a company’s reputation and its share price.
The palm oil industry, which supplies palm oil for food and cosmetics products, and to a lesser extent for biofuels, has seen its share of public criticism for issues on deforestation, biodiversity impacts and the conversion of edible crops to biofuel crops.
Last year, Indonesian palm oil plantation company PT SMART was suspended from the Roundtable on Sustainable Palm Oil (RSPO) when it was found to be in breach of the scheme’s principles. The incident led to the loss of contracts with Burger King, Nestle and Unilever.
Companies have to worry about more than their own operations. They are held responsible for the behaviour of their suppliers as well.
Apple has recently had to deal with significant public criticism stemming from the perceived irresponsible behaviour of its Chinese suppliers. Last year Apple supplier Foxconn was accused of maintaining poor conditions that may have resulted in a rash of worker suicides. Other Chinese factories supplying Apple products were found to be using dangerous banned solvents that endangered the health of workers.
Stock exchanges globally are taking steps to protect investors by advising transparency and risk analysis on issues ranging from governance to supply chain sustainability to carbon emissions.
In August of last year, the Singapore Stock Exchange (SGX) recommended that its listed companies produce sustainability reports to increase their competitiveness in the global market. Although SGX stopped short of making the reports mandatory, its announcement raised expectations for public companies.
Bursa Malaysia is implementing its own environmental, social and corporate governance (ESG) index to rate its listed companies, which the bourse plans to launch by 2012.
Last month the Global Reporting Initiative (GRI) called for mandatory reporting for all large and medium sized companies. The organisation recommended governments and other regulatory bodies adopt policies requiring companies to either publish reports or publicly explain their reasons for not reporting.
GRI is an international organisation that seeks to mainstream corporate social responsibility disclosure and reporting around the world. It is comprised of a network of participants from business, academia, labour groups, civil societies and professional institutions.
Simon Lord, director of sustainability for New Britain Palm Oil (NBPO), said that the process of producing sustainability reports is beneficial for businesses. “Above all else, it is a business tool,” he added.
New Britain Palm Oil produces palm oil on plantations in Papua New Guinea and the Solomon Islands, and processes the oil in refineries in the UK. In 2009 its palm oil revenues totalled $272 million. All of its palm oil is certified by RSPO.
Mr Lord said the reporting process enables businesses to identify and better manage environmental and social issues. Just as importantly, it helps communicate that sustainability performance to investors, clients and the general public. “Disclosure is the link between performance and engagement,” he said.
NBPO’s recent rapid growth was partially attributable to its transparency on environmental and social issues, according to Mr Lord. This transparency gave clients, shareholders and even financial lending institutions added confidence in the company’s brand.
Multi-national customers, who face their own pressures to be sustainable, are now choosing suppliers in part based on their ability to provide verification of sustainability. Mr Lord said customers such as chocolatier Ferrero and United Biscuits value the RSPO certification and the transparency provided by the sustainability reports.
Mr Lord advised companies beginning the sustainable reporting process to identify the issues that are important both the company and to its stakeholders, implement planning for those issues across the board and develop a communication strategy to share information and receive feedback. The process of sustainability reporting creates value for the company, he added, “disclosure is only the last step.”
Head of policy for Singapore’s Association of Chartered Certified Accountants (ACCA) Chiew Chun Wee acknowledged that sustainability reporting could be daunting for companies, particularly for small and medium sized enterprises (SMEs).
Mr Wee told Eco-Business that companies new to the process should start small and work their way up. He said guidelines were available for companies at varying stages of the reporting process to assist those just entering the reporting arena.
ACCA announced at the event a new dedicated website to guide companies and their accountants on sustainability disclosure. The website includes a self-assessment that companies can use to determine their needs and progress, as well as useful resources for sustainability managers.
The website will also include the latest Global Reporting Initiative Sustainable Reporting Guidelines, the world’s most widely accepted framework for sustainability reports. A new version of the guidelines, called G3.1, was announced at the event by GRI China Director Sean Gilbert. In addition to requirements concerning the established environmental and social welfare standards, the expanded guidelines define expected standards for reporting on issues such as human rights, community impact and gender.
CSR Asia is also providing help to companies undertaking sustainability reporting by providing training and workshops to sustainability managers and other professionals.
Mr Welford said the aim is to increase transparency and encourage companies to provide sufficient information so that “I can see into your organisation – so that I can see you’re trying to act responsibly at all times.”
He added that companies should accept and encourage scrutiny of their environmental and social impacts: if companies don’t provide information on how they’re managing the issues, the assumption will be that they’re probably not.
