New research suggests that government involvement in multilateral organisations is a core influence on corporate reporting
A recent Harvard Business School working paper by Christopher Marquis and Michael Toffel – The Globalisation of Corporate Environmental Disclosure: Accountability or Greenwashing? – seeks to identify the key country and organisational determinants of corporate environmental reporting and to examine how pressures from governments and civil society influence reporting.
Marquis and Toffel note that a company’s relative size, visibility and environmental impacts may all increase the pressures to report. But their most striking conclusion is the apparent importance of governments’ involvement in international governmental organisations such as the Food and Agriculture Organisation, the United Nations, the International Council for the Exploration of the Sea, and the World Meteorological Organisation.
Their research suggests that the quality of corporate reporting is higher for companies that are headquartered in countries whose governments that are more “embedded” in global regimes, where this is measured by the number of memberships each government holds in 100 major environmental intergovernmental organisations.
This conclusion reinforces the argument recently set out in the United Nations Conference on Trade and Development’s (UNCTAD’s) 2011 World Investment report that, in seeking to scale up and extend the scope of corporate responsibility, governments need to take action at both the domestic and international levels.
Recommended actions at the international level include strengthening compliance promotion mechanisms for intergovernmental standards, applying CR to investment and trade promotion and enterprise development, and introducing CR to the international investment regime (see also here).
While Marquis and Toffel’s research lends support to the case for more globalised environmental policy, a careful reading of the analysis also points to some important qualifications.
The first is that while the quantity of corporate environmental reporting has risen over the last decade, the quality remains unsatisfactory. There are ongoing systemic weaknesses in corporate responsibility reporting.
These include the many companies that provide no information on their corporate responsibility performance at all; the reality that the quality of much of the reported data is simply not fit for purpose (reflecting issues such as the limited scope of much corporate responsibility reporting, the lack of clarity around how data has been calculated); and the ongoing problem of selective disclosure.
In relation to this latter point, Marquis and Toffel note that “…corporations [tend] to disclose relatively benign environmental impacts to create an impression of transparency while masking their true environmental performance”. The consequence is that the correlations that Marquis and Toffel present must be seen as indicative (and sometimes possibly coincidental) rather than definitive.
The second qualification is that the paper does not offer much explanation of the causal factors at play. That is (and acknowledging the data quality limitations), are there plausible causal mechanisms that help explain the correlations that they have found?
Specifically, the question is how exactly does host country participation in international organisations influence corporate reporting? Is it through the globalisation of norms? Is it through the creation of formal obligations around implementation? Or – given that the measure used is number of memberships – through some sort of vague diffusion of a culture of environmental responsibility?
In relation to this latter point, there is at least some anecdotal evidence to show that where the government actively promotes uptake of a certain standard (such as former French president Jacques Chirac’s call on French CEOs to sign up to the Global Compact), the business sector does respond.
The third is that the focus of the research is on the quality of disclosure rather than performance outcomes. The research does not allow conclusions to be drawn about the quality of the performance outcomes being achieved.
Reporting and performance
While there is some evidence that better reporting can lead to better performance outcomes, the overall case remains somewhat contested given the data quality issues outlined above.
From a sustainability perspective, performance (as measured in terms such as total resource consumption, greenhouse gas emissions, etc) and impacts, rather than reporting per se, should be the key measures of the effectiveness of public policy. Expressed another way, the facts that more companies report and that this reporting is more comprehensive do not mean that company performance or environmental outcomes are better.
In conclusion, for those of us who work on the ground in the corporate responsibility field, one of the most important questions that we have to ask is whether, and to what extent, government commitments to international law and regimes (or even their participation in such regimes) delivers better outcomes.
Marquis and Toffel’s paper challenges the common assertion that participation in international regimes is solely a symbolic process rather than one that drives real change within the country. It suggests that encouraging participation in such regimes is important and should remain a central message for NGOs and others concerned about corporate performance.
Dr Rory Sullivan is an internationally recognised expert on corporate responsibility, climate change and investment-related issues. He is strategic adviser, Ethix SRI Advisers, a senior research fellow at the University of Leeds and a member of the Ethical Corporation advisory board.
Paul Hohnen is an Amsterdam-based consultant who advises, speaks and writes on global sustainable development issues. He is also a member of the Ethical Corporation advisory board. For more info visit here.