As the European Commission makes regulatory moves to enhance corporate transparency on social and environmental matters, will companies be encouraged to embrace a more sustainable approach by boosting their CSR credentials?
Annual accounts are never far from the agenda of the finance department. With every transaction and shift of the abacas, the bottom-line remains in focus. Typically, it’s only when it comes to the publishing of accounts that it sneaks onto the radar of the communications department; the HR department’s contribution to this fiscal accounting deadline can be even more limited.
But the parameters of business performance reporting are about to become a lot broader. From 2018 onwards, EU legislation - Directive 2014/95/EU - will set out rules requiring large companies (public interest companies with more than 500 employees) to disclose information on the way they operate and manage social and environmental challenges. Under the Directive, companies will be obliged to disclose their corporate social responsibility (CSR) policies on a wide range of issues, such as environmental protection activities, social and employee-related initiatives, as well as respect for human rights, anti-corruption and bribery issues, and diversity on the boards of directors.
The concept of these non-financial disclosures is two-fold. On the one hand, they are designed to help investors, consumers, policy makers and stakeholders to evaluate non-financial performance. But on the other, the European Commission is hoping to encourage companies to develop a more responsible approach to business. It will be important that this legislation does not simply become a box-ticking exercise for large corporations who, given their size and scale, should already have such policies proactively in place.
Authentic corporate social activity is crucial for a company’s reputation
The conceptual link between soaring in the social responsibility space and a business’s financial success is well-worn. Many companies attribute their success, both in terms of yields and strong market positioning, to their stance on social issues. And yet CSR fails are not uncommon, with programmes often backfiring due to misalignment between the cause, their own brand values and their audience’s ideals.
Case in point was the mishap of millennial brand Abercrombie & Fitch who was accused of excluding larger-sized customers and catering only to “thin and beautiful” people – an accusation that flew in the face of their ‘diversity and inclusion’ policy. The disparity between actions and intentions sparked a viral video of Greg Karber handing out old Abercrombie & Fitch clothes to appreciative homeless people, spurring consumers into a realisation that the company did not have the interests of the common good at heart and causing its reputation among 18 – 34 year olds to fragment.
While the components of CSR may appear to derive from the softer side of the business, calibrating the correct blend of social responsibility practices should not be calculatedly plucked from thin air to fall in line with the current zeitgeist or the industry’s standard buzzwords. By taking stock of the values your stakeholders hold near and dear and testing attitudes to planned corporate citizenship outreach, companies are more likely to deliver a genuine and sustainable CSR vision.
Failure to listen to the social activism of stakeholders can wreak havoc on a brand’s reputation. In the lead up to the 2014 FIFA World Cup for example, a study found that 61 percent of Brazilians believed hosting the games would have a negative impact on the nation. And yet, FIFA and their roster of global sponsors underestimated the statistic, leading to an onslaught of damaging headlines. Corporate involvement in the tournament offered brands the opportunity to put their values into play and leverage their resources to leave Brazil a better place. Instead, Brazilians took to the streets to protest against a number of what they perceived as serious human rights violations, ranging from uprooting approximately 250,000 homeless people away from the World Cup stadium, to the creation of exclusion zones that would prohibit trading for local vendors.
A number of the corporate partners involved called for the government to be held accountable for the complaints. However, sometimes a sincere CSR statement by relevant stakeholders, delivering legitimate proof points rather than shifting responsibility carries more value than a ‘blame game’ attitude.
Avoid reporting for reporting’s sake
It’s arguable that Directive 2014/95/EU has been a long time coming but should be welcomed nonetheless, with the caveat that it is built into the ongoing business development strategy.
Accountants and our financial peers would not wait until the end of the financial year to identify revenue issues or liquidity risks; likewise, communicators and HR professionals should take heed and push for the evaluation of CSR strategies – after all, they are key drivers of the company’s reputational balance sheet.