Currently, companies are compiling data and information for their 2016 Corporate Social Responsibility (CSR) reports. Here are five tips to get the most value, and to manage risk associated with CSR reporting. These tips will also help embed CSR thinking into all levels in your organization.
Here are the five tips reviewed in this here:
1. Determine what is material for your organization
2. Don’t stop with materiality
3. Compare your reporting parameters with other companies’
4. If you can’t support it, don’t report it
5. Use this year’s gaps to plan for next year
1. Determine what is material for your organization.
Materiality is now an essential part of CSR reporting. Within just the last five years, this push came from Global Reporting Institute, Sustainability Accounting Standards Board—and even the Securities and Exchange Commission. Materiality has been used in financial reporting for decades; even so, there is still some disagreement (including between auditors and their clients) as to what is “material.”
There are several standard risk management frameworks that provide guidance on identifying highest risk areas. Two frameworks are ISO 31000, or COSO’s Enterprise Risk Management framework. Service providers may claim to have the unique way to determine materiality. However, there is no single, “correct” way to perform materiality analysis for CSR reporting parameters. Use an approach that incorporates standard risk assessment principles. As with any other emerging issue, this will be revised over time, so just make sure you document what you did, and your rationale for doing so.
2. Don’t stop with materiality.
Materiality is a concept that allows organizations to focus on what matters the most. The challenge with materiality as applied to CSR is: material to whom? Many CSR materiality discussions are driven by the needs of the investment community. One prominent framework proposes six to eight CSR parameters as being “material” for inclusion in financial filings. Does this mean that companies should not report on other parameters?
Other issues can still matter to key organizational stakeholders. Some CSR issues may include regulatory requirements, with information already a matter of public record via reports submitted to agencies. Some CSR parameters can enhance an organization’s reputation. Other parameters could be standard practice for some key stakeholders. For example, an organization with locations in some cities may be expected to have programs that encourage ridesharing or cycling to work. A company with any presence in drought-stricken Southwest would be expected to conserve water. If the organization does not include these parameters in CSR reports, it can send the wrong signal to prospective employees, neighbors, or other key stakeholders.
3. Compare your sustainability reporting parameters to other companies’.
Investors and other stakeholders are comparing your CSR reports to other companies’. Shouldn’t you? Organizations can learn much by reviewing CSR reports of financial peers to see what they report on, and how much detail they provide. Many CSR performance issues are now being embedded into requirements of the supply chain. It is also useful to compare your CSR report to those of key customers. You can select other companies to get traction with the executives who provide you with resources. If there is an executive at your company who is relatively new, compare your CSR report to the one of their prior company. The C-suite should want their new organization’s CSR report to be at least as good as the company they just left.
4. If you can’t support it, don’t report it.
Stakeholders use the social and environmental information in CSR reports to help them make many decisions, such as: whether buy or sell your stock; whether to add or retain you as a vendor; or whether to work for your organization. These decisions can have direct financial impact on your organization. Other consequences can include how easily you can obtain permits to expand operation, or effects on your brand’s reputation. Stakeholders can find out if you report data that is incorrect or unsupported. Media can provide coverage, and social media is quick to spread opinions about these errors. The rigor of data collection and management for CSR information doesn’t match that for financial reporting. After all, financial reporting has a head start of several decades! There are valid reasons for data inconsistencies and errors: different units of measure; different reporting periods; or simple lack of data. Reporting invalid data is worse than not reporting data at all.
5. Use this year’s gaps to plan for next year.
It is common to want to present only the good stuff in CSR reports. It’s also common to present only the good stuff to senior management. This can backfire on your CSR program. Most CSR reports are signed by an executive. Use this as an opportunity to get the resources you need for next year.
Nobody has all the CSR data and information they would like for their CSR reports. Many stakeholders respect companies that are candid about their performance, including areas where they have fallen short. Senior management respects candor, too. Don’t hide the gaps. Consider the risks they pose to your organization. Develop a plan to address them, and estimate the resources you’ll need. When you get the sign-off on this year’s CSR report, ask senior management for what you need for next year’s CR efforts—so you can return with a more robust CSR report next year.
—Douglas Hileman, CRMA, CPEA, President, Douglas Hileman Consulting LLC. www.douglashileman.com.