Nowhere to hide: Transparency is becoming the new norm

Huge progress has been made to improve corporate disclosure; companies today are far more open about their sustainability impact. Standardising reporting will help benchmark performance, letting transparency serve its purpose and dodging the risk of reporting into the void.
“There’s no place to hide anymore in the world. That’s very, very powerful. I like to say transparency is not an act, it’s a condition. Let’s face it, when people are watching us, we behave differently.”
ARON CRAMER PRESIDENT & CEO, BSR

Since 2000, there has been a monumental shift in disclosure by companies on their sustainability performance. For example, while 646 Communications on Progress reports (COPs) were submitted to the Global Compact in 2005, 5,404 COPs were submitted during 2014. This increase is also seen in the number of Global Reporting Initiative reports submitted, from 44 in 2000 to close to 4,500 in 2014.

This shift reflects the growing recognition of the materiality of sustainability issues to business, as well as the enhanced stakeholder expectations of how companies are addressing sustainability. The resulting transparency and engagement has also helped to improve companies’ understanding of good practice and shape their sustainability progress.

Evidence of the shift over the last 15 years is provided by the dramatic increase in sustainability reporting, to the point that it is now considered the norm for most large or multi-national companies. Reporting is also gaining traction within SMEs, often in response to top-down requirements from large companies for their suppliers to know and disclose their sustainability performance.

For Global Compact participants there has been significant progress in the disclosure in all principle areas, either through sustainability reports, Communication on Progress reports or other channels like company websites. For example the survey shows that there has been an average increase of 9 percentage points in the number of respondents that publicly disclose policies and practices related to the principle areas.


DISCLOSURE IS BECOMING MANDATORY

There is a clear trend going toward regulation of non-financial disclosure from large companies. Most notable is the recent EU Directive (2014) on disclosure of non-financial and diversity information by certain large undertakings and groups’. This amendment will require some 6,000 large businesses across Europe to publicly report on social, environmental, and human rights.

Mandatory reporting requirements have been introduced in South Africa, where 450 companies on the Johannesburg Stock Exchange are required to produce an integrated report. There are also reporting requirements in Denmark, Norway, Brazil, India and in the United States.


THE EVOLUTION OF SUSTAINABILITY REPORTING

As the volume of sustainability reports has increased, so has the sophistication and maturity of reporting practices:

• Shifting focus: From EHS and CSR reports to sustainability and, more recently, integrated reports

• Materiality: Reports reflect issues with the greatest importance to an organisation and its stakeholders

• Assurance: Independent validation of sustainability reports has grown, particularly for larger companies

• Evolving standards: Global Reporting Initiative (GRI) remains the dominant standard, targeting a broad range of stakeholders. The International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) are gaining traction particularly amongst investors

• Issue-specific reporting: Growing maturity and understanding of material issues has led to more sophisticated issue-specific reporting (on GHG emissions, human rights, supply chain)

• Reporting systems: Significant rise in the number of sustainability software systems to automate data collection and reporting

• Reporting fatigue: Some reporters showing ‘reporting fatigue’ caused by ever-greater information requirements from rating agencies, investors and disclosure initiatives


HEADING IN THE RIGHT DIRECTION

Disclosure levels on human rights, anti-corruption and supply chain have increased over the last 15 years. However, many companies remain hesitant to report openly on sensitive issues like human rights violations and corruption. This is perhaps due to difficulties in identifying risks and impact within their own operations, as well as concerns that transparent disclosure might backfire, generate negative publicity or result in legal issues.

For human rights, a recent study suggests current disclosure is mainly limited to general statements on human rights policies and processes with little reporting on specific risks or impacts and companies’ responses to them.

THE ROLE OF THE UN GLOBAL COMPACT:

ADVANCING OPENNESS ON SENSITIVE ISSUES

As transparency is increasingly becoming the norm, what has the Global Compact done to catalyse change?

Although not a reporting initiative, the Global Compact has transparency at its core. Not only does it promote transparency through its annual Communication on Progress reporting requirement for participants, it is also a strong supporting voice for other sustainability reporting and disclosure initiative like the GRI, IIRC and the Carbon Disclosure Project (CDP).


REQUIRING DISCLOSURE

In fact, a notable 65 per cent of business participants surveyed in the 2015 Implementation Survey state that they agree that the Global Compact has played an important role in guiding their sustainability reporting. This points to the fact that the Global Compact is no longer only a driver of sustainability performance but very much also a driver of reporting.

To strengthen the accountability of the initiative, the Global Compact introduced the reporting requirement for business participants in 2004, making it a requirement to report on progress in implementing the principles every year. Today, the Global Compact has the world’s largest database of publicly available sustainability disclosures, containing close to 28.000 Communication on Progress reports.

The most notable outcome from this has been the drive to encourage companies to talk openly about the impacts and opportunities that they face in these areas, in particular on challenging issues like corruption and human rights.

As of 2013, non-business participants to the Global Compact are required to disclose specific activities in support of the initiative and the results of these activities every two years - a Communication on Engagement. In the spirit of continuous improvement and engagement, this is designed to be a tool for non-business participants to express their commitment through transparency, and to communicate the ways they advance the Global Compact.


IMPROVING REPORTING PRACTICES

By issuing reporting tools and guidance on a variety of topics for different audiences, the Global Compact, together with partners such as the GRI, has helped improve company reporting on the different principle areas. In doing so, it has enhanced transparency. In some areas, the Global Compact has been the first mover, in particular the reporting guides on anti-corruption, human rights, gender equality and water.


HARMONIZING EXPECTATIONS

By deepening collaboration with other reporting initiatives, the Global Compact has helped to harmonize expectations on reporting. Examples include the Memorandum of Understanding signed with the GRI, the collaboration with the IIRC, and the encouragement to use the CDP to report on carbon emissions.