Corporate Social Responsibility & Non-financial Reporting

INTEGRATING CORPORATE SECTOR IN MAINSTREAM DEVELOPMENT Allah Nawaz Samoo In the current era of consumerist society, the role of corporate giants has expanded beyond the frontier of ‘only-for-profit’. This huge sector now determines parameters of global governance structure, influences pattern of political decision-making, promotes economic alliances and features uniform life style round the world. Such leading role in world affairs demands a specific, explicit and standardized explanation of corporate social responsibility. Besides, there is need of a mechanism of social audit in order to make sure that the social responsibilities are being fulfilled. Presently, non-financial reporting is one of the tools that many companies exercise to undertake the process of social audit. Firms volunteer an overview of their commitment and progress towards environment and social responsibility in these reports and make it public to ensure the transparency and accountability. Non-financial report, says Lord Brown – Chief Executive of British Petroleum, is ‘to report on more than just our financial performances and tell a broader story as clearly as we can’. And that means not just boasting, but submitting to some form of reliable audit. The scope of such an audit covers the actual difference that company is making to the lives of people and surrounding environment. It is more than illusion of ‘feeling good’ by virtue of some individual success stories. Story telling is all very well, but unless it is relevant to a company’s performances it is best left to fiction writers. Providing a small water scheme to the community, for example; does not compensate the damage caused by unlimited and unaccounted emission of carbon dioxide. Offering wage labour to some of the community members does not neutralize the irreversible loss of natural resources. Constructing one room dispensary does not undo the effects of pollution caused by waste dumping. What is needed is to record and make public all such damages along with development initiatives that a company undertakes to balance them. Considering on these premises, a new ranking of non-financial reports carried out by United Nations Environment Programme and Standard and Poor, the top credit rating agency shows that the style and content of these reports vary greatly. Some firms spent much time and effort giving out information of uncertain value. Others undermine their publications credibility by saying one thing and doing another. There is little agreement among the followers of best practices as to what best practices should be. That makes it difficult to compare performance on environmental and social issues across industries or across time. This gives rise need of developing harmonization; developing uniform and standardized format of audit and reporting. The only tool standardizing non-financial reports is the Global Reporting Initiative. This is a checklist of dozens of questions to which almost all of the best reporting firms pay lip service. They choose what pleases them and often ignore the crucial queries. The only audit performed on these reports is ‘assurance

statement’. Many of these are written by consulting firms that has arisen in response to this new business opportunity. The challenge is as to how a genuine transformation in corporate sector can be initiated towards more integrated and human centered development. The world development report-2005 presents the most convincing strategy for this purpose; a better investment climate for everyone. This means a) corporate sector needs facilitation and not barriers b) investment climate should benefit society as a whole, not only firms c) firms and entrepreneurs needs opportunities and incentives to invest productively and d) gap between policies and practices needs to be reduced. To achieve these core goals state and society has to a) bring corporate sector out of isolation – mainstreaming and b) create an environment that foster the competitive process – creative destruction. So far, the successful tool for mainstreaming of corporate sector is Private-PublicPartnership. In such a setup, social audit and non-financial reporting evolves as a joint venture of facilitation and not an isolated act of inspection. At the same time, corporate sector comes out of its compartmentalization towards the ground realities inherent with down trodden society. The second tool – creative destruction means an environment in which firms have opportunities and incentives to test their ideas, strive for success, and prosper or fail. The survey of nearly 30,000 firms in 53 developing countries reveals that firms facing strong competitive pressure are at least 50 per cent more likely to innovate than those reporting no such pressure. This contributes to higher productivity and faster growth. Besides, competitive market also leads to conducive-environment for undertaking social audit in accordance with agreed environmental and social protocol. The state, civil society and corporate sector has to acknowledge and internalize three main realities in order to achieve the goal of integrated and human centered development; business is part of society and not outside of society, poverty is a space that can be converted into economic growth and environment, development and social empowerment progress concurrently. Taking these ground realities as the basic premise, corporate sector can be integrated into mainstream development. The process involves following facts to be adopted and translated into action with genuine commitment. -

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The corporate sector and entrepreneurs to be taken at the center of process and not as the outside supporters. The corporate sector, entrepreneurs and civil society organizations strive to reinforce the importance of looking at property rights, regulations, taxes, infrastructure, corruption and other areas of government policy and behaviour as part of an integrated whole, rather than an isolation. Forward-looking nature of investment activity. Investment is based on expectations about the future and not just on current conditions. This underlines the importance of governments fostering stability and credibility. And last but not least is taking as fundamental the need for policy makers to balance the goal of encouraging productive private investment with other social goals. Corporate sector provide many benefits for society, but the interest of firms

and society are not the same in all aspects. Good public policy is not about giving firms everything they might ask for, but rather about balancing a range of social interest. Reference: -

The World Bank, World Development Report-2005. Oxford University Press, 128 Madison Avenue, New York, NY10016.

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Bartelsman, Eric, John Haltiwanger, and Stefano Scarpetta - 2004. Microeconomic Evidence of Creative Destruction in Industrial and Developing Countrie. Background paper for the WDR 2005.

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The Economist, November 6-12, 2004, Non-financial Reporting: Wood for the Trees, The Economist Newspapers Limited, London.

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International HRD Congress: October 1-2, 2004, Attacking Poverty Through Public Private Partnership, Background Paper for the Conference.

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Author & Stern The Investment Climate Perspective.2002, Background Paper for WDR 2003.