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December 23, 2009

CSR Reporting by S&P 100 Companies Shows Improvement in 2009, But Disclosure by Companies in Emerging Markets Needs to Improve
    by Robert Kropp

Two recently commissioned reports by the Social Investment Forum chart the progress of corporate social responsibility reporting, both in the US and emerging markets. -- Two reports from the Social Investment Forum (SIF) provide important updates on the status of corporate social responsibility (CSR) reporting, both among the S&P 100 companies headquartered in the US, and among the 100 largest companies in ten emerging markets.

The first, entitled S&P 100 Sustainability Reporting Comparison, was commissioned by the Sustainable Investment Research Analyst Network (SIRAN), a network of investment research analysts and a SIF working group.

The SIRAN report, the fifth in an annual series of reports dating back to 2005, analyzed corporate sustainability reporting of S&P 100 companies according to the standard of the Global Reporting Initiative (GRI) reporting framework. The GRI developed the world’s most widely used sustainability reporting framework, the standards for which it updates through a multi-stakeholder process. Participants in the GRI process include representatives from business, civil society, labor, and professional institutions.

For investors whose long-term investment horizons require an understanding of the corporate risks and opportunities associated with environmental, social, and governance (ESG) factors, the results of SIRAN’s report are mostly encouraging. In 2008, 93 companies included sustainability information on their web sites, up from 58 companies in 2004.

Furthermore, 66 S&P 100 companies produced a formal sustainability report with performance data in 2008, compared to 49 reports produced only one year earlier. And 55 companies made reference to the GRI in their sustainability reports, more than double the 24 that did so in 2004.

That significant improvements in corporate sustainability reporting occurred in the midst of a global economic crisis is especially encouraging for those who have long insisted that such information is critical to effective investment decision-making.

As Peter DeSimone, SIF’s director of programs, said, “The fact that we saw an increase in companies issuing sustainability reports during one of the world’s worst economic downturns clearly demonstrates that ESG information is not a luxury but extremely relevant to companies and their investors. This trend supports the idea that investors look for solid ESG performance in valuing companies, and that more and more companies accept this development and are willing to supply information in this area.”

DeSimone told, “US companies, although they continue to lag behind their European counterparts, are becoming more familiar with the GRI, and are becoming more comfortable with putting this kind of information out there.”

“If you look at the number of shareholder proposals addressing sustainability reporting over the last five years, the number requesting GRI-type reports have increased,” DeSimone continued. “And the percentage of shareholders voting for these proposals has also been on the increase.”

SIRAN assessed the CSR reporting of S&P 100 companies according to six criteria. Companies are assessed according to whether they have separate CSR sections on their web sites, produce annual CSR/Sustainability Reports, and provide goals and benchmarks in their reports.

A company’s commitment to transparency and reporting is further assessed by whether it references the GRI in its report, and includes a GRI content index in its report.

Finally, companies are scored by SIRAN by whether they attain the GRI levels of "In Accordance" or "A." On this final score, the performance by S&P 100 companies were disappointing, as only six of the 55 companies that made reference to the GRI in their sustainability reports received an “A” rating from the GRI.

In order to attain such a rating from the GRI, companies must provide data for all performance indicators, describe the management approach for each indicator, and includes such organizational information as identification risk and a statement from the CEO.

The six companies that received an “A” rating from the GRI for their 2008 reports were American Electric Power, Dow Chemical, Ford, General Electric, IBM, and Weyerhaeuser.

DeSimone said, “I can’t stress the importance of companies reporting by a standard. Investor groups are requesting that companies do this, and are advocating strongly to the SEC and on Capital Hill that such reporting become a mandatory part of a regulatory framework.”

The second SIF report, produced by the Emerging Markets Disclosure (EMD) Project of its International Working Group, paints a less optimistic portrait of CSR reporting by the largest companies in ten major emerging markets. The report, entitled Corporate Sustainability Disclosure in Emerging Markets, is the third in a series of baseline studies produced by the Project.

The report found that while 96% of companies did report on at least one ESG factor primarily on such governance issues as governance structures, board committees, and employee wages and benefits according to employment type and gender, environmental information was reported by only 30.6%.

Furthermore, only 20 companies made reference to the GRI in their reports, and 14 declared their reporting to be in accordance with the GRI’s guidelines. Even among the 28 signatories to the United Nations Global Compact, a policy initiative for businesses that declare themselves to committed to universally accepted principles in the areas of human rights, labor, the environment, and anti-corruption, only 18 “Produced a Communication on Progress (COP) and/or a GRI report in compliance with the Compact’s reporting requirements,” according to DeSimone.

The report’s analysis of the ten emerging markets found that South African companies exhibited the best overall transparency practices. According to Mike Lombardo of Calvert Investments and co-chair of the EMDP, “A factor driving sustainability reporting in South Africa is that the country’s Johannesburg Stock Exchange (JSE) operates a socially responsible investment (SRI) index, requires the top 40 companies by market capitalization to issue sustainability reports.”

Other top-performing countries included Malaysia and South Korea, followed by Brazil and Indonesia. Like South Africa, Brazil’s Sao Paulo Stock Exchange has an ESG index, and surveys the country’s largest companies on sustainability policies and practices.

The lowest disclosure rates were recorded by companies in India, Indonesia, Israel, and Mexico.

Despite the disappointing results of its survey, the authors of the report did point out, “Companies in emerging markets only lagged counterparts in developed nations by a small margin and even outperformed them in a few instances.” As an example, the report points to the performance of companies in the US S&P 500, only 13% of which issued sustainability reports using the GRI’s latest G3 Guidelines.

Lauren Compere, Shareholder Advocate of Boston Common Asset Management and co-chair of the EMDP, stated, “This report clearly points to a need for companies in emerging markets to improve their ESG reporting practices, and investors must become a key driver in encouraging companies to bolster transparency.”

One of the recommendations of the report, in fact, is that investors sign onto the In vestor Statement on Sustainability Reporting in Emerging Markets, whose 28 current signatories represent nearly $1 trillion in assets.

Other recommendations include encouraging companies to use the GRI’s latest reporting guidelines, the promotion by investors of regulations, listing requirements, and exchange-sponsored SRI indexes, and regular assessments of corporate disclosure practices.

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