Sustainability reporting as a legal mandatory: What is worse? Scare or death?

(Below in spanish)

These days, both in Europe and in the United States, have emerged some voices calling for regulation of Sustainability or CSR reports.

In the European Union, the Internal Market and Services Directorate General (DG Mark) published the preliminary results of a public consultation about the future of non-financial information (ESG) to improve existing policies. Although it’s important to read the full report, the conclusions are that the current situation is not good; that the formula «reports or explain» adopted in Denmark will help to go beyond in Europe; and that reporting model based on international standards (ISO, GC,ISO26000) might be the solution.

In the U.S., Professors Ioannis Ioannou (London Business School) and George Serafeim (Harvard Business School) published «The Consequences of Mandatory Corporate Sustainability Reporting”. As they said, “using data for 58 countries, we show that after the adoption of mandatory sustainability reporting laws and regulations, the social responsibility of business leaders increases. These effects are larger for countries with stronger law enforcement and more widespread assurance of sustainability reports”.

Well; what to do with the sustainability report? There is a popular expression in Spain that comes useful to express how difficult is to choose between the bad and the worse. “What do you prefer?»- one guy ask for other- «Scare or death?”

Well, let me throw the same question in this post: What do you prefer? «Scare or death?” To not hide, I’ll tell my point of view: “scare” is regulation; death is to remain it voluntary. Let me explain.

Contrary to what some people might think, in the last five years, in the European Union, members have adopted 44 measures related to environmental, social or corporate governance. Moreover, the EU has launched a public consultation that could see light at the end of the year.  Therefore, we are not talking about hypothesis; we are talking about reality; about more and more realities.

And that’s the problem. And that is the question.

I think that a common EU legal framework on sustainability report, based on global bases & standards, and also supported by the U.S. SEC, would offer many advantages:

  • To enhance competitiveness, because it would avoid the market fragmentation, especially within the EU. In simple terms, it prevents a company has several ground rules in different countries.
  • To enhance comparability of information. If the information would be consistent, it would be easy to know who makes things better (or worse) on certain basis. And everyone (investors, unions, NGOs, etc) would have access to this information
  • To enhance transparency and its collaterals: investment decisions and an efficient risks management. Transparency is the system “disinfectant”: the more transparency, the more trust and confidence.
  • To promote sustainable development, aligning the financial figures (the “how much”) with the sustainable performance (the “how”).

Having said all, the devil is in the details, in the reporting the model itself. I still like the Danish model: the model of «report or explain»; the model that links two global initiatives (Global Compact & Global Reporting Initiative -GRI); the model followed today for a good number of global companies; the model that has received strong support from investors (for instance The Norwegian Pension Fund) with a sustainability approach.

I think that having many countries with many reporting models are a mess, expensive, non efficient and not transparent. Those who think that the best is the absence of regulation as a basic principle of liberalism probably didn’t think about the negative consequences: market fragmentation, absence of standards and accountability. If you don’t agree, please think in financial discloser. What if every single company had decided some years ago to measure their financial indicators using their own methodology?

That’s why I prefer the scare (the regulation) than the death (the absence of a common understanding). It’s possible that if we’d have done that before, it would have helped us to increase trust and confidence in markets.

Download: Ioannis Ioannou (London Business School) y George Serafeim (Harvard Business School) The consequences of mandatory corporate sustainability reporting

Download  full report in the UE Internal Market web site

(En Español)

Sobre la regulación de los informes de sostenibilidad. ¿Qué es peor? ¿Susto o muerte?

En estos últimos días desde Europa y Estados Unidos han surgido voces e iniciativas que piden por la regulación de los informes de Sostenibilidad o de Responsabilidad Corporativa.

En Europa, la Dirección General de Mercado Interior y Servicios ha publicado los resultados de la consulta pública sobre el futuro de la información no financiera (ESG) con el fin de mejorar las políticas existentes. Aunque conviene leer el informe completo, la conclusión es que la situación actual no es buena, que la fórmula “reporta o explica” adoptada en Dinamarca puede ser un avance, y que avanzar en un modelo basado en estándares internacionales (GRI, GC, ISO26000) puede ser una solución

En Estados Unidos, los académicos Ioannis Ioannou (London Business School) y George Serafeim (Harvard Business School) publicaron  «The Consequences of Mandatory Corporate Sustainability Reporting» en donde ven efectos positivos en la obligatoriedad de los informes de ESG. Para ellos, y tras sus investigaciones, los informes de sostenibilidad no sólo aumentan la transparencia, sino que también pueden cambiar el comportamiento de las empresas. La divulgación de la información de ESG (Ambiente, Social, Gobierno) fuerza a las empresas a manejar estos asuntos de manera eficaz a fin de evitar tener que revelar rendimientos negativos a sus partes interesadas».

Después de darle muchas vueltas, hay una expresión popular que viene como anillo al dedo y que es muy socorrida para elegir entre lo malo y lo peor. ¿Qué prefieres?-le dice uno al otro- ¿Susto o muerte? Y esa misma pregunta la lanzo aquí: ¿Qué es peor? ¿Que se regule el informe de Sostenibilidad ? ¿O que siga siendo voluntario?

Para no esconderme, lo diré de entrada: el susto es la regulación; la muerte es que siga siendo voluntario. Y me explico.

En contra de lo que se pudiera pensar, en los últimos cinco años, en la Unión Europea se han aprobado 44 disposiciones relacionadas con aspectos ambientales, sociales o de gobierno corporativo en los estamos miembro; además, ha lanzado una consulta pública que podría ver la luz a finales de año. En España, la Ley de Economía Sostenible ya contempla esta realidad a nivel estatal y ya hay Comunidades Autonómas que han dado el paso de regular el reporte (Extremadura). Por tanto, no hablamos de una hipótesis sino de realidades. De varias realidades, no de una realidad.

Y ese es el problema. Y esa es la pregunta

Creo que tener un reporte regulado, regulado a nivel europeo siguiendo estándares internacionales, y admitido también por la SEC norteamericana ofrecería muchas ventajas:

  • Favorece la competitividad, porque evita la fragmentación del mercado único, especialmente en el seno de la UE. En términos simples, evita que una empresa tenga varias reglas de juego en diferentes países.
  • Favorece la comparabilidad de la información. La información es homogénea, puede establecerse quien hace mejor las cosas (o peor) sobre bases ciertas. Y todos (inversores, sindicatos, ong’s, etc) tienen acceso a esa información
  • Favorece la trasparencia y con ella muchas cosas más: las decisiones de inversión y la gestión más eficiente de los riesgos. La trasparencia es el desinfectante del sistema: a mayor trasparencia, mayor confianza.
  • Favorece el desarrollo de la sostenibilidad, al equipararse la información del cuanto (las cuentas) con la del cómo (los NO cuentos).

Dicho todo lo dicho, el diablo está en los detalles, en el propio modelo de reporte. Me sigue gustando el modelo Danés, el modelo del “report or explain”; el modelo que cruza una iniciativa mundial (el Pacto mundial) con otra (el Global Reporting Iniciative, GRI); el modelo que, de facto, ya están siguiendo un buen número de empresas globales; el modelo que ha recibido apoyos firmes por parte de un número considerable de inversores institucionales (entre los que destaca el Fondo de Pensiones Noruego).

Creo que tener  tantos modelos de reporte como países es malo, es caro, y no es transparente. Quienes piensan que lo mejor es la ausencia de regulación como principio básico del liberalismo quizá no hayan pensado en las consecuencias negativas que tiene la ausencia de normas en este tema. ¿Qué pasaría si cada empresa midiera según su propio saber y entender, por ejemplo, el EBITDA? ¿Cómo podrían los inversores comparar una empresa eficiente de otra que no lo fuera?

Por todo esto prefiero el susto (la regulación) que la muerte (la ausencia de un entendimiento común). A lo mejor el haber hecho esto un poco antes nos hubiera ayudado a no llevarnos tantos sustos en los últimos años de crisis de confianza. Vamos, digo yo.

Decargate el Paper de los profesores Ioannis Ioannou (London Business School) y George Serafeim (Harvard Business School) The consequences of mandatory corporate sustainability reporting

Consulta el Informe completo de la UE full report in the UE Internal Market web site

Comentarios

7 Respuestas para “Sustainability reporting as a legal mandatory: What is worse? Scare or death?”

  1. DanielOGLE-2005-BLG-390Lb on

    muchas veces la gente se lleva las manos a la cabeza cuando oye hablar de regulación, pero como dice Andreu en este artículo muchas veces una intervención razonable y equilibrada es lo que puede salvarnos.

  2. albertoandreu on

    El debate entre lo voluntario y lo regulado siempre es el mismo: la regulacion puede frenar la iniciativa privada o limitar (por abajo) las posibilidades de ir más allá. En este tema, el problema es justo el inverso: la ausencia de un marco global crea fragmentacion por legislacion. Muchas «sublegislaciones» frenarán de facto el desarrollo de la RSC y, sobre todo, pondrán frenos al mercado único.

  3. Íñigo on

    Creo que es necesario aumentar la transparencia de las empresas y en este terreno los informes de sostenibilidad pueden jugar un papel esencial. Yo tampoco entiende las fobias desmedidas hacia una regulación, siempre que ésta no tenga un carácter periférico (lo mejor es que venga de Bruselas y sirva para los 27) y sea sensata (busca estímulos y no ate en corto, porque esto puede tener un efecto bumerán)

  4. David Connor on

    The key is better regulations, not necessarily more regulation.

    Too many people use the voluntary obligation position as a veil to avoid their wider responsibilities, usually in inherently unsustainable quest for pure financial profit.

    For the mainstream organisations to take sustainability seriously, reporting needs to be taken seriously – that is – to not be an option.

    Those who see the competitive advantages available are already engaging. We need to turn our attention to the wider business audience who need a big push!

  5. albertoandreu on

    Hello, David
    Thank you for your comment in my blog
    I agree with you: Too many people use the voluntary obligation position as a veil to avoid their wider responsibilities. But also, too many people use the legal mandatory as the maximum of their responsibilities.
    I think that CSR is go beyond the law, so going further should be a competitive advantage for companies. To solve that, in my company, we are trying to push a 3 level Sustainability reporting system:
    – Level 1: a global common approach based on Global Compact and GRI. This level is the one that I think must be a legal mandate to avoid market fragmentation. Please, imagine an European MNC operating in 27 countries with… 27 different approaches. This situation not only is an obstacle to the European single market, but also to a high inefficient approach
    – Level 2: a sectorial materiality approach. This level won’t be a legal mandate and it’s the chance for companies to show how commit are with Sustainability at a global level
    – Level 3: a local relevant issue

    I agree with you; a legal mandate is not the «Saint Grial»: but would be something useful to avoid different rules in a single market… and in a global economy

  6. Jon Woodhead on

    Alberto
    I completely agree re: having many countries with many reporting models is a mess, expensive, non efficient and not transparent.
    An issue, and real danger, is where the development of regulations is driven by those without a full understanding of the subject matter. The common complaint that ‘investors do not understand sustainability reports’ is a real problem, as it pushes us into a never-ending search for ‘better’ indicators and a model for reporting that aligns with financial reporting (‘integrated’ reporting). Of course, indicators and reporting can always be improved, but ultimately the financial community will only understand one measure – money. As you know, not everything can be boiled down to Euros, Pounds, and Dollars!
    If we are to move towards a more regulated approach, we should also have room for innovation and development. For example, in exploring the positive economic impacts of companies – not simply turnover and profits, but the deeper contributions to society through jobs, the supply chain, industrial ecology etc. These are all areas that are not well reported on (yet) by most, although some companies are starting.
    A common, basic approach that is mandatory (your level 1) plus levels 2 and 3 (mandatory but open to each company to make ‘their own’, could be a great way forward.

  7. albertoandreu on

    Hello, Jon
    Thank you for this comment
    I share your point of view: «If we are to move towards a more regulated approach, we should also have room for innovation and development»
    But, however, i think that companies don’t have to compete with the minimum (GRI+ Global Compact). The space to innovation that you are asking for may be in the 3 level Sustainability reporting system (As I comment some days ago to David Connor):
    – Level 1: a global common approach based on Global Compact and GRI. This level is the one that I think must be a legal mandate to avoid market fragmentation. Please, imagine an European MNC operating in 27 countries with… 27 different approaches. This situation not only is an obstacle to the European single market, but also to a high inefficient approach
    – Level 2: a sectorial materiality approach. This level won’t be a legal mandate and it’s the chance for companies to show how commit are with Sustainability at a global level
    – Level 3: a local relevant issue
    Thank you again

Escribir una respuesta