The rise of global citizenship reports

Corporate sustainability reporting is gaining ground – and has some surprising benefits for companies who report.

Logistics giant FedEx last month published its global citizenship report, tracking progress on a number of environmental, social and governance (or ESG) measures, such as greenhouse gas emissions, workforce diversity and benefits, and community programmes.

In recent years, firms across industry sectors, from Citigroup to Hewlett Packard, have all published global citizenship reports. According to the United Nations Global Compact’s database, some 12,000 firms and non-business organisations, are now reporting their impact in some way.

“Global citizenship reports are not too different from corporate social responsibility reporting,” said Professor N. Craig Smith, an expert on corporate ethics and responsibility at top graduate business school Insead.

“They’re part of a communication effort that all large companies today are engaged in; it’s very unusual for a company not to be producing some sort of CSR, global citizenship, or sustainability report,” he noted.

In countries or markets where government regulations, stock-exchange listing rules, or investors require it, corporate sustainability reporting is becoming even more commonplace.

In Asia, for instance, India has since 2014 passed a law requiring companies of a certain size to carry out mandatory corporate social responsibility reporting. And in Singapore, the local bourse Singapore Exchange announced in January a new ‘comply or explain’ reporting rule that is paving the way for more of such reports.

The who and why

This annual reporting exercise incurs both time and costs to firms who do it. But these companies and researchers see surprising benefits from these reports.

Take the case of FedEx. Because the company is so large – it serves customers in 220 countries and territories -  its Global Citizenship Report takes some time to put together each year. It is worth the effort, however, as the reports help it to set and achieve tangible targets, said the firm.

For instance, FedEx set a 2008 target to improve fuel economy by 30 per cent, and surpassed that target in 2015 – some five years earlier than expected.

The company achieved this through its “Reduce, Replace, Revolutionise” strategy, which involved reducing overall mileage by better route planning; replacing vehicles with more efficient models; and revolutionising the vehicle fleet with alternative fuel vehicles.

FedEx added that by producing the report, “we declare to our stakeholders what is important to us, and how that relates to them.” That helps internal and external stakeholders like clients, banks, and investors make informed decisions.

In turn, that has driven the firm’s actual sustainability performance.

“Since we first published our Global Citizenship Report [in 2008], we have seen a continued improvement in our external ESG (Environmental, Social and Governance) rankings,” said FedEx. Indeed, since 2009, the firm has seen its sustainability performance creep upwards.

Karen Reddington, president, FedEx Express Asia Pacific, said that its report “reaffirms FedEx determination to have a positive impact wherever we do business”.

“The more than 17,000 FedEx team members in Asia Pacific have all contributed towards our achievements in these areas,” she added.

Beyond just publishing a report, the information collected from the process is repurposed to serve customer information requests, and put into business pitches and proposals.

In 2015, according to FedEx, some $6.2 billion of enterprise-wide revenue was associated with customers who cared about their emissions from using FedEx services.

Global citizenship reports are not too different from corporate social responsibility reporting. They’re part of a communication effort that all large companies today are engaged in; it’s very unusual for a company not to be producing some sort of CSR, global citizenship, or sustainability report.

Craig Smith, corporate ethics and responsibility expert, Insead

It’s not just large multinationals who report environmental and social data these days, said Junice Yeo, Singapore director of international sustainability consultancy Corporate Citizenship. Traditionally, publicly listed companies started reporting on their environmental and social data in response to regulatory or investor pressure.

In a globalised world, however, major multinational firms now want to see such data from suppliers when they procure goods and services. This has had a  ripple effect all the way through the supply chain, she said.

“More and more companies throughout the value chain are reporting on their ESG data, knowing full well that non-disclosure basically means they will lose points.”

Sustainability’s upside

But with such a high volume of reporting, might audiences suffer from report overload?

The short answer is yes, said Insead’s Professor Smith. During a case study of clothing firm GAP, he found only a handful of external users read the report in sufficient detail to give feedback.

“It can be a little disappointing if companies feel nobody’s reading [their reports],” he said. But, he added, “It’s a mistake to focus solely on the output - I think there is huge merit to companies going through a process whereby they evaluate their social and environmental impacts, stakeholder relationships, what stakeholders expect of them, how they’re meeting or not meeting those expectations …If anything, the merit of reporting is more in the process than in the actual output.”

Smith’s research shows that high external CSR ratings, by watchdogs like Paris-based Vigeo Eiris, are a proxy measure of trustworthiness, and that potential employees are willing to work for socially responsible companies – at lower salaries.

For instance, MBA students surveyed by Smith and his colleagues were willing to sacrifice EUR 2,500 of annual salary for every ten units of CSR score their employers could provide.

Conversely, there are some people who wouldn’t ever work for a tobacco company, for instance, and tobacco companies have to pay more to get the talent, notes Smith.

Another study, also by Smith, found 49 per cent of employees were willing to give up 12 to 18 per cent of their earnings to work for what they viewed as a more socially responsible company.

Elsewhere, research by Assistant Professor Albert Tsang at the Chinese University of Hong Kong has found that auditors actually charge lower fees to clients with higher CSR scores.

“Auditors might make the assumption that companies with higher CSR scores have more integrity and as a result the auditing experience is smoother and holds lower risk,” Smith said.

FedEx added: “While there is a considerable time investment needed for planning, data and content collection, and in creating the physical assets, we find it time well worth spending.”

This story was first published on Future Ready Singapore. Click here to subscribe to the newsletter.

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