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Reporting ‘misrepresents’ business sustainability: study

Several prominent Australian companies could be inflating their adherence to corporate social responsibility guidelines…

Corporate social responsibility guidelines are meant to augment financial reporting, but there may still be gaps in what companies are disclosing. Flickr/Clogwog, CC BY-NC-ND

Several prominent Australian companies could be inflating their adherence to corporate social responsibility guidelines, often filing reports with “partial and missing information”, according to a new report.

The lack of information would make it nearly impossible to verify whether large Australian firms are meeting the social responsibility targets they set themselves.

Analysis undertaken for Catalyst Australia found inconsistencies between how companies ranked their application of widely-used sustainability guidelines and publicly available information used to verify this.

Global Reporting Initiative (GRI) guidelines are widely used as a measure of performance on six indicators including economics, environment, labour standards, human rights, society and product responsibility.

The guidelines ask companies to meet a number of indicators, or justify why they are immaterial. The number met then qualifies the company for a rank of A, B or C. Each indicator needs to be backed up by a publicly available document.

The Conversation

According to the research, mining giant Rio Tinto and biotechnology firm CSL had the most inconsistencies in their reporting, with 50% of Rio Tinto’s report based on information that was either missing or unexplained.

Researcher Jenni Downes says some companies aren’t taking the indicators seriously. “It is a widespread practice to provide generic information where specific information is required,” she said.

“For instance, one indicator may require the publication of a basic ratio of men and women’s salaries by employee category, and while a company may say they are fully reporting, they are often not.”

“In some cases, that indicator is only addressed by a statement that says the company respects pay equality, or that their gender pay gap is below the Australian average. It touches on the topic, but it doesn’t meet the indicator.”

However, Sara Bice, research fellow at the Melbourne School of Government, said companies want sustainability reports to be readable and engaging.

“Companies operating in Australia, for instance, may make a stylistic choice to provide qualitative data for that indicator because the quantitative data may simply be 1:1 and a qualitative statement communicates this better,” she said.

“It might be assumed that gender pay ratios for the same role at the same level within one company are 1:1 due to compliance with Australian equal pay laws.”

“Companies then question whether they need to report items they see as obvious. Businesses are running up against the issue of what is material against what level of reporting they should try to achieve.”

Human rights and stakeholder engagement indicators were the most inconsistently reported across companies surveyed. 70% of companies reporting on the number of “significant suppliers and contractors that have undergone screening on human rights” provided conclusions inconsistent with publicly available information.

Many companies aren’t trying to hide information, Dr Bice said. Instead they may report against certain indicators without fulfilling the quantitative requirements because they are trying to achieve an A level instead of simply reporting against the indicators most material to them.

“I’ve been asked by companies whether they need to respond to human rights indicators. Ideally, these issues would be fully considered, but if you’re Telstra, it’s very unlikely you’ll have child labour issues.”

The report went on to conclude that even external verification didn’t guarantee accuracy. In some cases, including Rio Tinto’s, the checks were conducted by the Global Reporting Initiative themselves.

Downes said the scope of the check was concerning. “It seems in some cases they haven’t looked into the details, and there is an issue with the narrowness of the process.”

“If they checked a random sample of indicators, then they have picked only the ones that are correct. But it is difficult to see how the level of inaccuracy and inconsistency found by our research is possible if the checks were conducted properly.”

Max Baker, an accounting lecturer at the University of Sydney, said this was particularly worrying because it showed assurance providers do not need to check whether claims about being consistent with GRI requirements are accurate.

“The findings are consistent with prior research on the topic which demonstrate that voluntary sustainability reporting is both inconsistent and incomplete and point to the need for mandatory reporting requirements and comprehensive audits,” he said.

Dr Bice says more important questions are raised by the nature of the guidelines. “It’s attempting to provide a global sustainability framework for all types of companies operating in all types of environments, and the one size fits all approach sometimes doesn’t fit.”

She said the GRI never meant for all companies to achieve A ratings and “the choice of this particular nomenclature was ill-considered,” with CEOs seeing an A+ as the best type of report often pushed their sustainability team to aim for these levels, mistaking them for excellence.

Newly released guidelines removed the rankings and encouraged companies to choose which indicators were most relevant for the organisation.

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6 Comments sorted by

  1. Christopher Wright

    Professor of Organisational Studies at University of Sydney

    Who would have thought it - companies' voluntary sustainability reporting may not be entirely accurate! Of course this is not surprising and highlights the need for regulation of business impacts on the environment, particularly in regard to carbon emissions reductions.

    But of course this is politically unthinkable. Even mentioning the need for regulation of business activities is tantamount to heresy in the neoliberal age. Unfortunately, the political zeitgeist is aimed more at the removal of so-called 'green-tape' and other 'restrictions' on laissez faire capitalism. We have forgotten the very apt insight of British economist William Beveridge many years ago that markets make good servants but very poor masters!

    In the meantime I guess we can rely on the myth that business will save us from our excessive consumption and environmental degradation!

    1. James Jenkin

      EFL Teacher Trainer

      In reply to Christopher Wright

      Hi Christopher - if you argue our consumption is 'excessive' (and, yes, capitalism will be its nature provide more than people need), what is the level of appropriate consumption, who decides this, and how will it be enforced?

  2. Bron Larner

    Retired Humantities

    If you want to roll around on the floor laughing, check out the statements the Export Finance and Insurance Corporation (EFIC) make about themselves. These are the people who have just allocated $110.6 million to BHP Billiton and Rio Tinto for mining activities in Chile.

  3. Fred Pribac

    logged in via email

    This reminds me of the self-reported "ethical" superannuation schemes.

  4. Gerard Dean

    Managing Director

    Corporations that mis-report their so called 'Sustainability Guidelines' are merely reflecting the actions of the society they exist in.

    Major corporations reflect those in society who install solar panels on their houses then take a fossil jet fueled holiday in Europe for their own personal pleasure. Or berate the government for not keeping the carbon tax but bridle if it was to be put on petrol or jet fuel or anything that would make their lifestyle more expensive.

    It is a simple fact that…

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  5. Jenni Downes

    Research Assistant, Institute of Sustainable Futures at University of Technology, Sydney

    Sarah's argument actually underlines why research of this nature is so important and findings of this type are so alarming. People make assumptions about companies all the time. Unless companies report informative and accessible information, these remain just that – assumptions, unsubstantiated and untested.

    Her example assumption is a case in point. Many would consider this to be a reasonable assumption. And yet Australia’s Workplace Gender Equality Agency (WGEA, formerly EOWA, the Equal Opportunity…

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