By James Bonner, independent sustainability consultant
The growing focus on organisations to report on wider ESG (environmental, social and corporate governance) impacts and dependencies – fuelled by stakeholder interest, a greater understanding of their significance to core business activities and wider society, and consequently justification via materiality definitions – leads to an important question: what is the best way of ensuring such disclosure is undertaken? Considering the significant impact businesses have on such sustainability matters, and the critical nature of many such issues for society, seems to support mandatory reporting. However, with an understanding of such ESG impacts and dependencies becoming increasingly clear as fundamental to core business activities and organisational value, allowing business to undertake reporting voluntarily might be more successful in creating lasting organisational change.
There have been different perspectives on the relative value and merits of either approach to corporate reporting, often shaped by a variety of factors from vested interests and perceptions to organisational culture (with a quite generalist view that corporations have historically supported voluntary reporting, while external groups such as NGOs and trade unions have pushed for objective and enforced regulation).
The appropriately titled ‘Carrots and Sticks- Promoting Transparency and Sustainability’ a 2010 report involving partners KPMG, GRI (Global Reporting Initiative), Unit for Corporate Governance in Africa and UNEP (United Nations Environment Programme) – presents a comprehensive overview of methods, trends, and perspectives on voluntary and mandatory approaches to sustainability reporting and assurance. The following table from the paper highlights some of the reasons that have (traditionally) been used to support, and oppose, mandatory and voluntary reporting frameworks:
While a number of these perceptions are still labelled at either form of disclosure, the report goes onto explain that over the past few years there has been a ‘maturing’ of the debate around the usefulness of each approach, which has seen some private sector bodies promoting the benefits of regulation, and groups such as trade unions and governments referring to voluntary frameworks because of their particular advantages. As such, the report states that ‘an emerging emphasis on a combination of (complementary) voluntary and mandatory approaches’ is becoming increasingly perceived as the most appropriate way forward- with certain minimal reporting requirements on specific sustainability issues, coupled with voluntary approaches that allow organisations to work within, as depicted in the following figure:
While the theoretical benefits of a reporting process which combines the qualities of comparability, objectivity, and standardisation more typical mandatory regulation, with the flexibility, compliance and scope for innovation of voluntary frameworks is quite obvious – it does pose some further pertinent questions and challenges:
- For governments, regulators and society: what are the minimum levels of reporting criteria/metrics businesses should be expected to report on?
- For businesses: to what extent should reporting go beyond minimal levels for compliance – taking into account the relative competitive advantages of doing so?
This blogpost intends to primarily support ACCA’s Accounting for the Future session ‘Voluntary vs. Mandatory’ on Tuesday the 10th of October by introducing some perspectives on voluntary and mandatory reporting approaches- issues that, along with implementation methods/strategies of such reporting procedures, will be discussed further in the session.