Green fingers

The pressure on companies to be responsible for their social, ethical and environmental impacts increased further on 3 July 2000, when the amendments to the Pension Act took effect. This requires British pension fund trustees to incorporate their policy on socially responsible investment in their statement of investment principles. It follows a commitment by the Universities Superannuation Scheme, one of the largest in the UK, to put pressure on companies in which it invests to adopt policies to deal with their social, ethical and environmental impacts.

Pension fund trustees are now being held accountable for their fund's ethical as well as its financial performance. Faced with increasing demands from their investors and other stakeholders, companies are finding that having a good social, ethical and environmental performance is no longer enough - they must also strive to demonstrate greater accountability.

Such "accountability" is generally taken to mean "giving an ethical, social, environmental or sustainability account". It demonstrates corporate acceptance of the firm's social, ethical and environmental responsibility. The benefits of accountability as identified by CEOs, company directors and managers include the perception that it:

* minimises risks (for example, of consumer boycotts and unforeseen issues);

* influences legislation;

* attracts and retains the most talented people;

* ensures inclusion in ethical investment funds;

* facilitates better internal systems and control, leading to better decision-making and cost savings;

* allows a better understanding of corporate activities by stakeholders, which reduces criticisms;

* communicates the group's values and targets to all of its companies.

I recently carried out research, funded by CIMA, which involved interviewing three British and four German companies in sectors that have high ethical, social and environmental impacts'. My research concerned how these firms reported on their ethical (including social and environmental) performance. The published results describe what these companies and other companies in their sector report, and how they do so. Specific questions addressed in the research are:

* staff/departments involved in the reporting;

* the extent to which journalists are used;

* how decisions concerning reporting are made;

* which voluntary guidelines are referred to;

* the extent to which companies study each others' reports;

* how reports are distributed;

* othertypesofmediausedtocommunicate this information;

* perceived costs and benefits ofthis type of reporting;

* attitude to reporting information that might be regarded as bad news;

* views onthe extent of regulation;

* views on verification;

* links with the system for collecting economic data; the extent and nature of stakeholder involvement.

The report identifies key areas where improvements could be made in the reporting process. These include the breadth of issues and indicators identified for reporting, and the extent and nature of the involvement of stakeholders. What is perhaps not obvious to many companies is that adopting better practices to involve stakeholders helps to identify relevant issues and indicators.

In practice, the nature of stakeholder engagements varies considerably, but best practice involves: identifying stakeholder groups; communicating corporate values to stakeholders; involving stakeholders in identifying, prioritising and reviewing issues, indicators and targets; and obtaining feedback from stakeholders on reporting. CEOs, company directors and managers adopting good practice identify the benefits of stakeholder dialogue as:

* improved governance;

* increased trust, which in turn improves image;

* products which satisfy stakeholder demands;

* improved information access and decision-making;

* further minimised risk.

The issue of stakeholder involvement is one of particular concern to the Institute of Social and Ethical Accountability. Its AA1OOO process standard.2 provides guidelines for companies keen to develop a process that provides accountability for their social, ethical and environmental performance. Regarding the extent and nature of stakeholder involvement, it stresses the importance of two-way dialogue. It is not enough for your clients to tell stakeholders what they are doing. The standard also stresses the importance of the stakeholder selection being inclusive, recognising that it may not always be obvious to companies who their stakeholders are.