Over the past several years we have been hearing more and more about corporate responsibility. Corporate scandals and regulatory responses such as the Sarbanes-Oxley Act of 2002 are keeping phrases like corporate governance and corporate responsibility in the headlines of financial, technical and industry journals. Influential market participants such as institutional investors, rating agencies and corporations are creating a convergence of these terms into what is generally labeled corporate social responsibility (CSR).
An increasing number of experts agree poor CSR performance can pose risks and cause costly interruptions to business operations. Traditional financial institutions are asking companies to measure and disclose information on sustainable development policies, their triple bottom line performance and corporate citizenship initiatives.
Corporations are taking notice of these shareholder demands and responding. A recent study by KPMG reveals that more than 50 percent of the world’s largest firms are voluntarily publishing CSR information. Corporate disclosure on these issues comes through either an addition to traditional financial reports or publication of printed and/or web-based annual reports.
The demand for CSR information is primarily being driven by institutional investors. Increasing numbers of them are requesting and – in some cases – demanding disclosure and transparency on a much wider range of seemingly non-financial issues. Investors pushing for this disclosure include some of the world’s largest institutional investors such as Universities Superannuation Scheme, Calpers and the California State Teachers’ Retirement System.
These investors believe attention to CSR issues can reduce operational costs, minimize unexpected losses and enable companies to foresee and more effectively manage long-term global trends. Using rigorous financial analysis and shareholder resolutions, these groups are wielding their collective influence to increase corporate disclosure on CSR performance.
They are also aligning their interests and developing coalitions, initiatives, strategic shareholder resolutions and legal strategies to address what they deem to be high-priority CSR issues. The market influence of these groups and the amount of investment leverage they wield is significant enough to influence the behavior of many companies.
Although companies spend millions of dollars managing their financial reputation through traditional channels, few realize they’re actively tracked and judged on CSR performance by a wide variety of influential shareholders. A number of third parties are collecting data on CSR disclosure and performance and providing it to interested buy-side fund managers – so it is in the best interest of companies to be in control of that data.
The bottom line is that regardless of the timeliness, accuracy or reliability of CSR information, it is reaching the public domain and being used by a variety of stakeholders to assess CSR performance. Investor relations professionals may not have encountered questions from investors on CSR yet but it is definitely one of the intangible assets used by some to measure long-term performance prospects, and IR needs to be aware of how it’s being viewed by these investors.
