Corporate Social Responsibility (CSR) is a self-regulating business model in which companies tend to be socially and environmentally accountable to themselves, stakeholders, and the public. The objective is to impact ESG and keep the brand ethical and sustainable positively.
Sustainable development has led corporates to integrate Corporate Social Responsibility (CSR) within their operations and reports to ensure compliance with environmental, social, and governance (ESG) dimensions in the country’s economic growth. CSR is taking attraction among regulators, academics, and the market. CSR information is vital for investors to invest in an informed and comprehensive way. According to recent studies, investors are continuously looking for reliable information about the CSR performance of companies through public or private channels, and this information assists them in making decisions. For instance, electric cars are gaining momentum in the stock market, and Tesla Company is the pioneer and in the top five highly traded stocks in the market.
CSR is part of corporates’ strategic management wing, where social and environmental issues are incorporated into their operations. CSR is a tool to balance its business’s social, ecological, and economic dimensions for its customer, shareholder, and stakeholders. CSR deals with the environment, eco-friendly resources, gender equality, improved labor working environment, integrating stakeholders, etc. CSR gives corporates branding, high sales, lower operation cost, enhanced risk management, and more profit. In a broad meaning, CSR is disclosing the sustainability information of a corporate to the public and investors. At the same time, this sharing can be voluntary or mandatory according to the country’s law enforcement and regulation.
Several organizations have designed voluntary reporting standards for better ESG reporting of corporates. For instance, the Global Reporting Initiative (GRI) assists companies in developing reporting standards and sharing their operations’ impact transparently on the economy, people, and environment. With a clear objective, the International Financial Reporting Standards (IFRS) develop standards in the financial market for better transparency, accountability, and efficiency. Since 2017, through its Non-Financial Reporting Directive (NFRD), the European Union has required big corporates with 500+ staff members to report non-financial information on how their operations influence ESG and how sustainability problems affect them. There are two other enablers in this reporting and standardizing playgrounds: IIRC (International Integrated Reporting Council) and CDSB (Climate Disclosure Standards Board).
The EU policymakers have been pushing forward regulations for corporate CSR. The EU concentrates on non-financial information sharing through corporate management reports within a constructive regulation. The CSR Directive Implementation Act (CDIA) was established to foster non-financial information by the European Parliament and Council, which also has been transformed into law into German national law. CDIA only covers large corporates with over 500 staff and does not cover SMEs. Although SMEs alone make up 60% of the German labor force, they have only been recommended to ensure transparency as expected from customers, consumers, staff, investors, stakeholders, and partners. Large firms are required to improve their supply chain in a more sustainable way along with mentioned recommendations for SMEs.
Sustainability reporting can be weak with low quality because countries lack education and awareness about environmental and social responsibility and less law enforcement and regulations. For instance, Malaysia sees sustainability reporting more as CSR, and firms are required to publish their CSR reports annually by integrating environmental, workplace, marketplace, and community aspects in the report. In 2011, there was a study on 300 corporates in Malaysia on the performance of mandatory sustainability reporting. It was found that 3% of corporates failed to do ESG disclosure. Besides, human-related sustainability variables such as workplace and community engagement were most of all reported information. The finance, infrastructure, and agriculture sectors had performed well, while the tourism industry had the lowest performance.
According to the KPMG survey, 13% of leading 100 corporates in 10 countries shared their voluntary reports about sustainability in 1993, focusing on health and safety. In 2005, this number increased rapidly to 33% in 16 countries with an altered focus on environmental and social impacts.
Sustainability reporting provides investors with real-time data about market situation, present challenges, future of the corporate, and making decisions based on facts and figures. The majority believe that GRI is the best foundation and guideline for CSR report creation because it includes corporate size, profit, activity sector, and internal governance. CSR reporting should respond to the demand of internal and external stakeholders and be a tool to fix the management problems and weaknesses, enhance capabilities and strengths and improve corporate sustainability policies.
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