CSR and Transparency – the strategic value of assessing non-financial performance

Author: Michel Bande, Senior Vice President Sustainable Development, Solvay, Vice Chair, CSR Europe’s Board of Directors

 Europe’s global economic and societal problems are placing even more pressure on our companies to react and find business opportunities to emerging societal problems. At the same time, increasing interest in the business opportunities associated with innovative CSR approaches and growing stakeholder expectations for corporate accountability is pushing the policy agenda on CSR transparency forward.  So what does this mean for companies in reality? And, how can businesses create more comprehensive systems and processes to manage their economic, social and environmental (ESG) performance?

The escalating pressure on companies to communicate and measure their non-financial performance

External pressures from influential stakeholders are moving the agenda on ESG disclosure and transparency forward. “The current focus on an organization’s financial statements is insufficient to answer the question: what is the value of the organization?  Financial reporting covers both financial performance and risk, and this will remain an important part of the reporting universe; it is, however, insufficient by itself to provide all the information that users now need for rational and high quality decision-making.” (International Integrated Reporting Committee, 2012) [1]

At national level, several European governments are increasingly encouraging companies to report on non-financial performance and are thus demanding a minimum level of disclosure. Some countries, such as France and Denmark have even already implemented “comply or explain” reporting standards.[2] At European level, the EC has made a commitment to present a legislative proposal on the transparency of the social and environmental information provided by companies in all sectors.[3] While in the United States, the Frank Dodd Act is placing major regulations on the financial industry.

But what is the business case and what’s really at stake for business?

Transparency is seen by many as a comprehensive performance driver on key material issues: for example, the commitment to publish carbon emissions, employee turnover, community impacts and more, leads a company to ask itself searching questions about its performance. As such, reporting is seen as a continuous process to articulate and reflect how a company creates, delivers and preserves value over the short, medium and long term. An integrated report is therefore synonymous with integrated thinking – it is not about good reporting but rather good business sense!

For this reason, on an internal level, companies are facing growing demand to monetise their investments in social and environmental performance.

The current situation

While this might seem simple, in reality, companies are lacking the measurement tools that focus on the interaction between business and social results. [4] It is in this context that Solvay is proud to be working with a group of CSR Europe’s members and stakeholders, under the umbrella of Enterprise 2020, to develop practical tools for measuring, managing and reporting on non-financial performance. Through this collaboration, we have benefited from learning about individual company experiences and have been able to develop an up-to-date CSR approach and tools to help overall strategy management.

The research conducted in the early stages of the project, highlights that for the majority of companies, much greater emphasis must be placed on the maturity and integration of CSR values across operations should they seek to become sustainably competitive and fulfill the aim of long-term value creation (see graph above [5]). This will require a transition of mindset across all operations within a company, from top to bottom and an increased willingness to build ties with stakeholders and other corporations.

Likewise, uncertainty remains within companies and investors concerning the non-financial factors that are the most likely to add long-term value. For example, today the following terms are used interchangeably when discussing transparency and reporting on non-financial information: SRI, ESG factors, non-financial /extra-financial information etc. Therefore, bridging the communications gap between companies and investors and finding a common language remains a crucial issue. As a next step, the collaborative project will put together a shortlist of ESG “superfactors” that they think are necessary for consideration when making investment decisions, this would allow for building collective investment vehicles which cover the requirements of the majority of investors.

Joining forces to accelerate pace and impact

Ultimately transparency on non-financial performance is a healthy process for companies; it can inspire and influence a wealth of external stakeholders, investors and policy makers and can stimulate more focused investments in mid and long-term business development. However, we are noticeably still a long way away from achieving our desired results and we cannot and will not succeed in isolation. For this reason, CSR Europe is currently exploring joining forces with EU authorities and other influential organisations, such as GRI, IIRC, EFFAS and others to really help companies to concentrate their efforts on where they can provide the most impact. We all have a role to play in helping companies to improve their management systems, processes and stakeholder communications – so if your organisation feels that they have a contribution to add, please get in touch and explore potential cooperation!

For more information on CSR Europe’s Collaborative Project on valuing non-financial performance, please contact Sibylle Baumgartner at sb@csreurope.org