Mandating accountability

“There is no time for a regulatory business-as-usual approach. After decades of voluntary laissez-faire reporting, the time is ripe for stronger regulatory action.” With this statement, Mervyn King, former Chairman of the Global Reporting Initiative (GRI), called for a more robust regulatory environment at the ESG Disclosure Workshop in 2010. More governments seem to be hearing the call and the trend towards government regulation in CSR appears to be growing.

As noted in the 2010 Carrots and Sticks report by KPMG, the public, NGOs, and investors are demanding that governments take a greater role in sustainability reporting. “Mandating sustainability reporting is a strong signal, sent from regulators to the business community, about the long-term goals and objectives of the country as whole.” (See “The Consequences of Mandatory Corporate Sustainability Reporting”).

Many groups do not trust companies’ ability to regulate themselves. A solution to these questions about voluntary reporting standards would be binding, third party, government standards. These standards could allow stakeholders (and particularly stockholders) to more confidently assess a company’s sustainability, CSR, or ESG efforts. A frontrunner in this regard is the EU, which has consistently emphasized CSR and enhancing economic competitiveness by building trust between business and society.

A number of governments are raising their regulatory bars. In the 2010 Carrots and Sticks report, more than 140 national instruments on ESG reporting were identified, of which about two-thirds are mandatory standards. For example, the Danish Government’s Financial Statements Act of 2001 requires both state-owned companies and companies with revenues over 38 million euro and more than 250 employees to report on their corporate responsibility. The accompanying guidance documents refer to and encourage the use of GRI Sustainability Reporting Guidelines. Austria, Belgium, Canada, Finland, Germany, Netherlands, Norway, Sweden, and the US also formally refer to the GRI G3 guidelines in their regulations. Governments are implementing a mix of voluntary guidelines or codes, incentives, and endorsement of GRI guidelines to mandate at least a minimum level of ESG disclosure.