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KPMG International Survey of Corporate Responsibility Reporting 2005

© 2005 KPMG International. KPMG International is a Swiss cooperative of which all KPMG firms are members. KPMG International provides no services to clients. Each member firm is a separate and independent legal entity and each describes itself as such. All rights reserved.

KPMG International Surveyof Corporate ResponsibilityReporting 2005

Research conducted by

University of Amsterdam and KPMGGlobal Sustainability ServicesTM

Amsterdam graduate

Business School

University of AmsterdamRoeterstraat 111018 WB Amsterdam The Netherlands

Prof. Dr. Ans Kolk, Mark van der Veen,Jonatan Pinkse and Fabienne Fortanier

Contact: Mark van der VeenTel. +31 (20) 525 4285Fax +31 (20) 525 5092Internet: http://www.wimm.nl

KPMG's Global Sustainability

ServicesTM offices

(contact information in the back)Australia, Belgium, Canada, Denmark,Finland, France, Germany, Italy, Japan,The Netherlands, Norway, South Africa,Spain, Sweden, UK and USA

KPMG Global Sustainability

ServicesTM

PO Box 745001070 DB AmsterdamThe NetherlandsTel. +31 (20) 656 4500Fax +31 (20) 656 4510e-mail: [email protected]: http://www.kpmg.com

Co-ordination and final editing by

Shari Peters and Charlotte Extercatte,KPMG Global Sustainability ServicesTM

Special contributions by

Sophie Punte, UNEP, Regional Officefor Asia and the Pacific, ThailandDenis Baletinskikh, Perm TechnicalUniversity, Perm, Russia

Copyright KPMG International

All rights reserved. No part of thisreport may be reproduces or publishedin any form without written permissionfrom the publisher.

ISBN 90-5522-031-0

Layout and graphic design by In1 bv, Rotterdam

Printed by Drukkerij Reijnen Offset, Amstelveen


KPMG International Survey of Corporate Responsibility Reporting 2005

June 2005



Forewords

Executive summary

1 Introduction to the 2005 survey1.1 Background1.2 Survey methodology1.3 Contents of the report

2 Trends in corporate responsibility reporting2.1 Overview2.2 Type of CR reports2.3 CR reporting by country2.4 CR reporting by sector

Emerging CR reporting

3 CR reporting: drivers and issues3.1 Drivers for corporate responsibility

3.1.1 Business drivers3.1.2 Governance

3.2 Issues in CR reporting3.2.1 Materiality3.2.2 Stakeholder engagementIssues and topics in CR reportsIndustry focus

4 Assurance4.1 Overview4.2 Country results4.3 Sector results4.4 Choice of assurance provider4.5 Developments in assurance

4.5.1 Assurance standards4.5.2 The assurance process

5 Appendices A Comparison of the surveys, 1993, 1996, 1999, 2002 and 2005 B Fortune sectors and clusters C Mandatory reporting D Standards, codes and guidelines E Assurance standards F Glossary

Contents

2

4

6

9

17

30

37


I have always believed that there is astrong moral and business case forcorporate responsibility. The moral casespeaks for itself: it is simply aboutdoing the right thing. The businesscase is that businesses perform bestwhen they play a strong role in thecommunities in which they operate, for example, by encouraging theiremployees to do voluntary work. AsInternational Chairman of KPMG and ofBusiness in the Community in the UK,my strong conviction is that the bestbusinesses of the 21st century will bethose that are both profitable andresponsible.

As our survey underlines, the importantbusiness drivers for corporateresponsibility for companies are:• to have a good brand and reputation• to be an employer of choice• to have and maintain a strong market

position• to have the trust of the financial

markets and increase shareholdervalue

• to be innovative in developing newproducts and services and creatingnew markets.

These are important given recentcorporate scandals since companiesshould not just talk about responsiblepractice but be seen to be actingresponsibly. This can only happen ifthere is active communication withstakeholders and transparent reporting.I am pleased to provide you with thissurvey. I hope it will give you an insightinto the current developments incorporate responsibility reporting andstimulate your own ideas.

Mike RakeChairman, KPMG International

KPMG International

I am delighted to present KPMG's fifth International Survey of corporateresponsibility reporting since 1993. The survey reflects the growing importancewithin the business community of corporate responsibility as the key indicator ofnon-financial performance, as well as a driver of financial performance. It alsoreflects the responsibility that business has to be transparent and accountablenot just to shareholders but also to the wider community.

2 KPMG International Survey of Corporate Responsibility Reporting 2005

Forewords


Corporate responsibility reporting inindustrialized countries has clearlyentered the mainstream. We haveobserved an increasing professionalismin the form of new global reportingstandards, standards that can be usedto provide assurance on corporateresponsibility reports. We also see thatcorporate responsibility performance ofcompanies has definitely caught theeye of the financial sector as isreflected in recent developments likethe Equator Principles, the Dow JonesSustainability Index (DJSI) and theFTSE4Good Index on the stockmarkets, and the emergence ofSocially Responsible Investment funds.The awareness of the financialimplications of climate change issueson businesses is also growing amongthe financial sector after theintroduction of the European UnionEmissions Trading Scheme (EU ETS)and the ratification of the KyotoProtocol.

What are the business drivers behindcorporate responsibility? In theircorporate responsibility reports almost75 percent of companies state thatthese are economic reasons, whileover 50 percent give ethical reasonsand talk about integrity and values. Webelieve that corporations are still busyfinding their way in managingcorporate responsibility, which mightmean something different for eachcompany. Many of them are still in thestart-up phase.

During our research conducted by theUniversity of Amsterdam and theprofessionals of KPMG's GlobalSustainability Services TM practice wewere excited by the new trends wefound and the overwhelming amountof information. We have focused onsome major trends in this report togive you better insight into the globaldevelopments in CR reporting. If youwould like to know more or havespecific questions, we will be pleasedto assist you.

We are aware that there are differentapproaches to corporate responsibilityin different regions and they might allhave an influence on each other. Thiswas not the subject of our survey, butsome of these differences might bereflected in the results.

Corporate responsibility is easier saidthan done. The real challenge is in theintegration of corporate responsibilityinto strategy and operations of acomplex organization in a more andmore globalizing economy. It is anunfolding learning journey. Thedestination cannot be predicted andthe outcomes cannot be controlled.This is where we as KPMG memberfirms can play a role. Our professionalsin corporate responsibility in more than33 countries globally, with theirexperience in working for multinationalcorporations will be pleased to offeryou support on your company's ownlearning curve and help you to makethe change from a business perspective.Do not hesitate to contact us.

George MolenkampChairman, KPMG Global Sustainability

ServicesTM

KPMG International Survey of Corporate Responsibility Reporting 2005 3

KPMG Global Sustainability ServicesTM

When we published our first global survey in 1993, we did not expect that in lessthan a decade the number of top companies in industrialized countries producingthese kinds of reports would almost triple. Neither did we expect that corporateenvironmental reporting would be the 'icebreaker' for a much wider form ofcorporate responsibility (CR) reporting in the form of sustainability, triple bottomline or corporate social responsibility (CSR) reports. Reporting aimed atcommunicating with stakeholders, not only on environmental performance, butalso in an integrated manner on environmental, social and economic performance,to be transparent and accountable. We could not envisage that in countries and inindustry sectors lagging behind during the past few years, a tremendous effortwould be made to catch up with these developments, sometimes evenovertaking the vanguard. Looking back now to the beginning of the nineties,these facts are both striking and exciting.


Major survey findings:• CR reporting has been steadily rising

since 1993 and it has increasedsubstantially in the past three years.In 2005, 52 percent of G250 and 33percent of N100 companies issuedseparate CR reports, compared with45 percent and 23 percent,respectively, in 2002. If we includeannual financial reports with CRinformation, these percentages areeven higher: 64 percent (G250) and41 percent (N100).

• A dramatic change has been in thetype of CR reporting which haschanged from purely environmental reporting up until 1999 tosustainability (social, environmentaland economic) reporting which hasnow become mainstream amongG250 companies (68 percent) andfast becoming so among N100companies (48 percent).

• Although the majority of N100companies (80 percent) in mostcountries still issue separate CRreports, there has been an increasein the number of companiespublishing CR information as part oftheir annual reports.

• At national level, the top twocountries in terms of separate CRreporting are Japan (80 percent) andthe UK (71 percent). Reporting hasincreased considerably over the lastthree years in most of the 16countries in the survey, with thehighest increases seen in Italy,Spain, Canada and France.

• The typical industrial sectors withrelatively high environmental impactcontinue to lead in reporting. At theglobal level (G250), more than 80percent companies are reporting inelectronics & computers, utilities,automotive and oil & gas sectors,whereas at the national level (N100),over 50 percent of companies arereporting in the utilities, mining,chemicals & synthetics, oil & gas, oil & gas and forestry, paper & pulpsectors. Most remarkable is thefinancial sector which shows morethan a two-fold increase in reportingsince 2002.

The KPMG International Survey of Corporate Responsibility Reporting 2005 hasbeen the most comprehensive survey of its kind since its initiation in 1993. Thistriennial survey analyzes trends in CR reporting of the world's largestcorporations, including the top 250 companies of the Fortune 500 (Global 250,G250) and top 100 companies in 16 countries (National 100, N100). With its vastcoverage of 1600+ companies the survey provides a truly global picture ofreporting trends over the last ten years.


Executive summary


The survey includes a detailed analysisof the reports from the G250companies which is focused on whycompanies are committed to corporateresponsibility and what influences thecontent of reports. These results aresummarized below:• Business drivers for CR are diverse,

both economic (74 percent) andethical (53 percent). The top 3reported economic drivers areinnovation & learning, employeemotivation and risk management & reduction with about 50 percentcompanies reporting these asmotivating factors.

• Almost two-thirds of CR reportsinclude a section on corporategovernance, although most reportslack specifics on how CR isstructured and information on howgovernance policies are implementedwithin the organization.

• The survey analyzed how companiesselect the issues discussed in thereports and whether the users of thereport are systematically consultedduring the process. The surveyrevealed that report content is most

commonly decided based on GRIguidelines (40 percent) with only afifth (21 percent) mentioningstakeholder consultation. About athird of the companies (32 percent)invite stakeholder feedback on thereport.

• Stakeholder dialogue was mentionedin almost 40 percent of reports withdialogue focused more on CRpolicies rather than reporting.

Compared with environmental issues,coverage of social and economicissues and topics is far moresuperficial. • Social topics are discussed by almost

two-thirds of the companies,generally, in one or more of fourareas: core labor standards, workingconditions, community involvementand philanthropy. While the majorityof companies express theircommitment to these issues,reporting performance remainssketchy, possibly due to the lack ofclear social indicators.

• Economic issues are discussed bythe minority of companies. Although

61 percent of reports includefinancial information such as profits,only 25 percent discuss theeconomic impacts of their businessfrom a broader, sustainabilityperspective.

• Reporting on the supply chain is nowcommon. Supplier issues are men-tioned in a vast majority (80 percent)of reports, albeit without specifics,as companies are increasingly beingasked to extend their responsibilitydown the supply chain.

• The survey analyzed reports for oneof the most pressing environmentalissues of today, climate change,which was addressed in about 85percent of reports.

Independent assurance1 remains avaluable part of reporting. In 2005 thenumber of reports with an assurancestatement increased to 30 percent(G250) and 33 percent (N100) from 29percent and 27 percent, respectively, in 2002. Major accountancy firmscontinue to dominate the CRassurance market with close to 60percent of the statements.


1 Assurance, as used here, refers to services other than audit as defined by the International Auditing & Assurance Standards Board.


As in our last two surveys, the 2005survey explores trends in CR reporting,both regionally and by sector. It alsoinvestigates the drivers for corporateresponsibility; discusses issues relatedto CR reporting, and provides someinsight into the contents of the reports.

The G250 group of companies isindicative of the large multinationalcorporations that often tend to beleaders or pioneers in CR performance2.On the other hand, the N100 group ofcompanies gives a broad view ofworldwide developments at nationallevel. Together this parallel researchprovides a comprehensive view of theglobal trends in CR reporting.

1.1 Background

Seen from a purely ethical orphilanthropic viewpoint, CR is notwithout its critics who claim that it is

yet another promotional campaign toimprove corporate image and publicrelations. Others believe that costly CRactivities are detrimental to the classicshareholder value theory. However, agrowing number of companies (andtheir stakeholders) believe that long-term business success depends notonly on a healthy balance sheet, butalso on social and environmentalperformance. Analysis of the widertangible and intangible impacts oncommercial performance, along withgreater focus on risk and opportunities,is steadily establishing the businesscase for CR. Companies will build(long-term) shareholder value byengaging with stakeholders other thanthe legal owners of the company andby taking into account the impact ofbusiness on the society (andenvironment)3. This puts CR firmly onthe agenda of corporate boards andaudit committees.

The KPMG International Survey of Corporate Responsibility Reporting 2005 is thefifth in the series of KPMG surveys initiated in 1993 and published every threeyears since then. Conducted jointly by KPMG International's Global SustainabilityServicesTM (GSS) and the University of Amsterdam, the survey analyzes morethan 1,600 of the world's biggest companies, by selecting the top 250 from theGlobal Fortune 500 (Global 250, G250) and the top 100 companies in 16industrialized nations (National 100, N100) where reporting on corporateresponsibility (CR) is already an established practice. An additional feature of thissurvey is the commentary on emerging trends in CR reporting in four regions.


1 Introduction to the 2005 survey

2 “Towards transparency: progress on global sustainability reporting”, The Association of Chartered Certified Accountants (ACCA), 20043 “CSR: is there a business case?”, ACCA, 20034 “Corporate Social Responsibility: What's in a Name?”, World Business Council for Sustainable Development (WBCSD), 2004

Defining corporate responsibility

The terminology used in relation tocorporate responsibility and forreporting on CR performance isvaried. Companies may refer tosustainability, sustainabledevelopment, corporate socialresponsibility and corporateresponsibility, to name a few4. Allof these terms broadly cover thetopics of social, environmental andeconomic performance withdiffering levels of detail. For thepurpose of the survey, we refer toall such activities and relatedreports by the general termCorporate Responsibility.

Corporate responsibility:

The commitment of business tocontribute to sustainable economicdevelopment, working withemployees, their families, the localcommunity and society at large toimprove their quality of life.

- World business Council forSustainable Development(WBCSD), 2004


In the 1990s, non-financial reportingwas dominated by environmentalconcerns. The trend toward sustainablebusiness practice, against a backdropof recent corporate governancescandals, has increased companyawareness of the need to beaccountable to a wider audience for allaspects of performance. Systematicpublic reporting on environmental andsocial (and ethical issues), togetherwith economic performance, is animportant way for companies tocommunicate their corporateresponsibility to their stakeholders,thereby improving transparency andpublic trust.

In addition to the rising strategicimportance of CR at board level,increasing standardization and newregulations, not least in the field ofcorporate governance, is alsoinfluencing CR reporting. The 2005survey therefore addresses theseissues in more detail, including aspecial section on the motivation forCR reporting, based on an analysis ofinformation in the G250 reports.

In terms of CR reporting guidelines theSustainability Reporting Guidelines ofthe Global Reporting Initiative (GRI)5,developed through a multi-stakeholderprocess, are now well established.Currently, 660 companies spreadthroughout 50 countries report6 on thebasis of GRI guidelines. The guidelinesprovide principles and detailed indicators for reporting on all aspects

of CR performance. Furtherrefinement, such as the ongoingdevelopment of sector-specificguidelines and protocols, for exampleon reporting boundaries, should helpcompanies to focus their reporting andimprove possibilities for benchmarkingperformance.

The need for consistency andtransparency in relation to externalassurance7 on CR reporting is alsoreceiving considerable attention. Sincethe last survey, a number of standardshave also been introduced in this field(Appendix E). Globally, the accountancyprofession has introduced a standardfor assurance on non-financialinformation, the International Standardfor Assurance Engagements (ISAE)3000, while AccountAbility hasreleased AA1000 Assurance Standard,AA1000AS.

Finally, dialogue continues on thesignificance of CR information to thefinancial community. As aconsequence, companies areincreasingly being asked to report onCR and governance information in asystematic and standardized mannerby identifying and prioritizing keychallenges, and to report this, whererelevant, as part of the annual(financial) report. The financialcommunity invites regulators toprovide a framework for disclosure andaccountability in these areas to supportinvestment decisions8.


5 www.globalreporting.org6 www.globalreporting.org7 Assurance, as used here, refers to services other than audit as defined by the International Auditing & Assurance Standards Board.8 “Who Cares Wins: Connecting Financial Markets to a changing World”, The Global Compact, 2004

“The findings of this authoritativeKPMG survey on the worldwidepractice of sustainability reportingsends GRI a significant message –the increase in use of the GRIGuidelines since 2002 as thesingle, global, framework forsustainability reporting highlightsthe need for a more robustplatform to support growth innumbers of reporters, andincreases in high-quality, relevant,performance-focused, andcomparable reporting. This will bean ongoing reminder about GRI’sconstant responsibility to itsstakeholders to continuouslyimprove the SustainabilityReporting Guidelines based onuser’s experiences and needs.”

- Ernst Ligteringen, CEO, GRI



1.2 Survey Methodology

The survey involved a parallel analysisof the CR reporting of two groups ofcompanies. The first set consisted ofthe top 250 companies of the GlobalFortune 500 (G250) and was analyzedby the University of Amsterdam. Thesecond set, consisting of the top 100companies (N100) in 16 countries –Australia, Belgium, Canada, Denmark,Finland, France, Germany, Italy, Japan,Netherlands, Norway, South Africa,Spain, Sweden, UK and the USA –were analyzed by the KPMG practicesin those countries. The N100 list wascreated by revenue ranking based on arecognized national source.

The reports, either separate CR orpublished as part of corporate annualreports, were gathered betweenSeptember 2004 and January 2005.These were the most recent corporatereports published in the previous twoyears, with the majority covering thecalendar year 2003 or financial year2003/4. The survey included only thosereports that fit the definition of CRreports. Brochures, promotionalmaterials and other available informa-tion, including websites andcommunications strictly devoted tocommunity involvement, wereexcluded from the research. Similarly,information from websites, other than

CR reports in HTML format, was alsoexcluded from the analysis.

The majority of the reports weredownloaded from corporate websites.If the report was not available online,the companies were approachedindividually. This resulted in a responserate of 98 percent. The remaining 2percent was assumed not to have areport. Reports from both groups(G250 and N100) in the survey wereanalyzed by country, sector as well aslevel and type of assurance. Inaddition, a more detailed analysis ofthe content of the G250 reports wasundertaken. The analyses wereconducted systematically using astandard questionnaire to maximizeconsistency and objectivity. Thecommentary on four regions where CR reporting is emerging was basedon desk research by field practitioners.

1.3 Contents of the report

The results of the trend analysis, with regard to number of reports andsectors, at both global (G250) andnational (N100) levels, are presented inSection 2. This section also gives anoverview of emerging, regional CRreporting activities, in particular in fourregions: Asia, Latin America, Africa andRussia (Emerging CR reporting).Section 3 presents the reported

business-related motivation of theG250 companies for reporting on CRand the factors that influence thescope of the reports, namelymateriality, use of standards, andstakeholder engagement. Section 4provides information regarding specifictopics discussed in the CR reports(Issues and topics in CR reports) andinformation regarding CR issues incertain industry sectors (Industryfocus). Section 5 presents an overviewof survey trends and fielddevelopments related to externalassurance. The survey report alsoincludes interesting case studies andcommentary from industry andthought leaders.

In Appendix A, the 2005 survey iscompared with previous years'surveys. Appendix B provides anoverview of the G250 sectors. A summary of mandatory reportingrequirements is included in AppendixC, while Appendix D lists the standardsand guidelines available for reportingboth internationally and by country.Appendix E provides information onstandards relating to externalassurance on CR reports atinternational and national level.Appendex F provides a glossary ofabbreviations and terminologies usedin this report.


2.1 Overview

As shown in Figure 1, 64 percent (161companies) of the G250 corporationspublished CR information, either as aseparate report or as part of the annualfinancial report, and 52 percent

(129 companies) published a separatereport, compared with 45 percent9

(112 companies) in 2002. Seen at anational level, 41 percent (658companies) of the N100 corporationspublished CR information, either as a

separate report or as part of the annual report, and 33 percent (525 companies)published a separate report, comparedwith 23 percent10 in 2002.

2.2 Type of CR reports

The most remarkable change since2002 has been in the type of reportscompanies are issuing as separate(stand-alone) CR reports. In 2005,almost 70 percent of the global G250and almost 50 percent of the N100reports are published as sustainability(social, environmental and economic)reports. In 2002, however, almost 70percent of both global and nationalreports were environmental, health andsafety (EHS) reports. Stand-alone EHSreporting has dropped to about 20percent.

The 2005 survey shows that the sheer number of organizations, both at globaland national levels, reporting on CR information has risen significantly since the2002 survey. There is also an overall increase in the scope of issues discussed,showing a trend of moving from purely environmental reporting tocomprehensive reporting on the wider aspects of corporate responsibility.

2 Trends in corporate responsibility reporting

N100

G250

0 10 20 30 40 50 60 70%

Percentage companies with CR reports (separate only), 2002

Percentage companies with CR reports (separate and published as part of annual report), 2005

G250 - Global Fortune 250 companies N100 - Top 100 companies in 16 countries

Percentage companies with CR reports (separate only), 2005

45%

41%41%33%

23%

52% 64%64%

9 The 2002 survey did not segregate information regarding reports that publish CR information in annual reports10 Due to change in survey methodology this number has slightly changed from one reported in 2002

Figure 1: Corporate responsibility (CR) reporting,Global 250 and Top 100 in 16 countries (2002, 2005)


Sustainability

68%

14%

17%

10%13%

73%

2%3%

Environmentaland Social

EnvironmentalHealth and Safety

Social

2002

2005

10

20

30

40

50

60

70

% %

0Sustainability Environmental

and SocialEnvironmental

Health and SafetySocial

10

20

30

40

50

60

70

0

48%

12%

29%

11%

21%

65%

2%

12%

Figure 2a: Type of corporate responsibility (CR) reports, Global 250 (2002, 2005)Figure 2b: Type of corporate responsibility (CR) reports, Top 100 in 16 countries (2002, 2005)


2.3 CR reporting by country

Reporting trend by country for N100

companies

Figure 3 presents the data on thenumber of CR reports published asseparate reports and those publishedas part of annual reports for 2005.Because of the change in the nature ofreporting, the trend at national level isonly analyzed for separate CR reports.

Japan (80 percent) and the UK (71 percent) take the lead in publishingstand-alone CR reports. The reports arepublished mainly as separate reports.In all but two of the N100 countries,with the exception of South Africa andBelgium, more than 70 percent of theCR reports are published as separatereports.

Since 2002, the number of separateCR reports in most countries hasincreased considerably with nearly atwofold increase seen in Italy, Spain,Canada and France. In South Africa thenumber of separate CR reports hasrisen from 1 to 18 in the last threeyears. The research also showed asignificant decrease in separatereporting in Norway and Sweden.Although some of these changes canbe partially explained by changes inlegislation, impetus for these trendscan be complex and such analysis isoutside the scope of this research.


Figure 3: Corporate responsibility (CR) reporting trend by country, Top 100 in 16 countries (2002, 2005)

100 20 30 40 50 60 70 80 90

Number of companies with CR reports (separate and published as part of annual reports), 2005

Number and percentage of companies with CR reports (separate only), 2005

Belgium

Norway

South Africa

Sweden

Denmark*

Australia

Spain

Netherlands*

Italy

Finland

USA

Germany

France

Canada

UK

Japan


*Data reported in 2002 has been revised

11%9%

26%20%

20%22%

14%23%

11%25%

26%29%

12%31%

32%31%

36%32%

32%36%

21%40%

19%

41%

49%71%

72%80%

1%18%

29%15%



100 20 30 40 50 60 100 110

Total number of companies in the country, 2005

Number and percentage of companies with CR reports (separate and published as part of annual reports), 2005

Venezuela

Malaysia

Canada

Brazil

India

Luxembourg

Russia

Mexico

Belgium

China 33%33%0%

60%60%100%

100%100%25%

75%75%25%

80%80%50%

100%100%83%

89%89%86%

Scandinaviancountries

Spain

South Korea

Italy

Switzerland

Netherlands

UK

Germany

France

Japan

USA


Total number of companies in the country, 2002

No percentages are given for countries with small number of companies

100%100%73%

86%86%57%

92%92%35%

83%83%64%

35%35%

30%

Geographical distribution of

reporting G250 companies

Based on the composition of theFortune list, the distribution of G250companies may vary over the years.Therefore, even if the G250 resultsillustrate the global trend of CRreporting among the biggestmultinational companies, they do notrepresent a truly global overview. In 2005, the G250 corporations aredistributed across 21 countries/regionswith the largest number of companieslocated in the USA (100) followed byJapan (40), France (24) and Germany(21).

In 2005, almost 80 percent ofcompanies in nearly all 21 countries/regions have CR reports comparedwith just over 50 percent in 2002. Theonly exceptions are USA (35 percent),China (33 percent) and theScandinavian countries (60 percent). Asseen from Figure 4, the CR reportingactivity in the G250 countries is inproportion to the number of companiesin each country, with the exception ofthe USA and China. This, to someextent, supports the assumption thatthe CR movement as indicated byreporting is led primarily bymultinational (G250) corporationsrather than by other nationalinfluences.

Figure 4: Geographical distribution of reporting companies, G250 (2002, 2005)



2.4 CR reporting by sector

This section illustrates sectors that aremost active in CR reporting. Both theN100 and G250 sets show an increasein reporting activity in all sectors since2002. However, the most notableincrease is the change in reportingactivity of the financial sector, whichhas traditionally lagged behind othersectors because of the nature of itsoperations. In 2005, reporting in thefinancial sector has increaseddramatically among both G250 andN100 companies, reflecting thegrowing attention in this sector for CRrelated issues (see also Industry focusin Section 3).

N100 At the national level (Figure 5),CR reporting activity has increasedsince 2002 in all but one sectors forseparate reports11. Sectors in whichmore than 50 percent of companieshave CR reports include utilities,mining, chemicals and synthetics, oiland gas, and forestry, pulp and paper.Similar to the G250 results, the N100results show a 170 percent increase inthe number of CR reports published bythe financial sector (31 percent).

Figure 5: Corporate responsibility (CR) reporting by sector, Top 100 in 16 countries (2002*, 2005)

11 Because of changes in survey methodology, comparison is done only for separate reports.

500 100 150 200 250 300 350

Number of companies with CR reports (separate and published as part of annual reports), 2005

Total number of companies in the sector, 2005


Pharmaceuticals

Forestry, pulp & paper

Mining

Other service

Construction & building materials

Transport

Communication & media

Metals, engineering &other manufacturing

Automotive

Chemicals & synthetics

Electronics & computers

Oil & gas

Food & beverage

Utilities

Trade & retail

Finance, securities & insurance



*Data reported in 2002 has been revised

30%

30%

43%

50%

36%

52%

6%

18%

17%

28%

37%

38%

20%

29%

24%

25%

28%

32%

45%

52%

24%

35%

38%

52%

26%

29%

50%

61%

15%

22%

12%

31%



Figure 6: Corporate responsibility (CR) reporting by sector, Global 250 (2002, 2005)

G250 All but one sector of G250corporations showed increasedreporting activity. Sectors in whichmore than 80 percent of the com-panies have CR reports includeelectronics and computers, utilities,automotive, and oil and gas. Thefinancial sector (57 percent) shows a138 percent increase in reportingactivity since 2002 Some sectors aretoo small or have a considerablydifferent composition of companiescompared with 2002 to be able todraw any conclusions about thechanges in reporting activity.

10

100%

N/A

100%100%

100%75%

0%100%

50%56%

100%100%

0%47%

41%47%

40%

57%

86%

100%

58%

92%

26%

31%

58%

80%

73%

85%

84%

91%

24%

57%

20 30 40 50 60 70



Mining


Transport

Construction &building materials

Food & beverages


Other services



Pharmaceuticals

Utilities

Trade & retail

Oil & gas

Automotive


Finance,securities & insurance





Emerging CR Reporting

Reporting on corporate responsibility has become common practice in a numberof countries like the USA, Japan, Australia and South Africa, which are included inthe 2005 survey. Four of the regions where CR reporting is still at an emergingstage are described in this section: Asia, Latin America, Russia and Africa.Included are the views of academics and professionals; this may not representthe full picture of the CR reporting practice in emerging regions.

Asia

CR reporting practice in Asia is slow but growing; Japan being the biggest'outlier' to this generalization. For a number of years, CR reporting in Japanhas far surpassed that of Western countries. The picture in the rest of Asia isquite different. Although CR reporting in South Korea has taken offconsiderably in the past two years, it has still to take root in many othercountries including India, Pakistan, Bangladesh, Sri Lanka, Malaysia,Indonesia, Singapore and Thailand.

CR reporting in Asia outside Japan is largely encouraged by Asiansubsidiaries of multinational companies, and is generally restricted to largelocal corporations from sectors with a high environmental impact such as oiland gas, chemicals and steel. Many local companies, driven by the supplychain requirements of multinational companies, are also beginning to showinterest in CR reporting, as they hope to win these multinationals as theircustomers. In the Asian cultures where public recognition plays a veryimportant role, award schemes like the Association of Chartered CertifiedAccountants (ACCA) corporate reporting awards in Sri Lanka, Malaysia,Pakistan and Hong Kong are a significant stimulus.

CR reporting activity in two of Asia's fastest growing economies is describedbelow:• In India, although CR reporting is not mandatory, a small but sizeable

number of both subsidiaries of multinationals and local companies in, forexample, the steel, automotive and entertainment industries are publishingCR reports mostly based on GRI guidelines. However, most CR activities ofthese companies are focused on community initiatives rather thangovernance, risk and disclosure.

• In Mainland China, CR reporting is almost non-existent, but this isexpected to change as China continues to expand foreign trade, seekoverseas listings and as multinational companies increase sourcing ofproducts from Chinese suppliers. In 2002, the GRI guidelines werepublished in Chinese to encourage local companies to report. At themoment, several Chinese banks publish CR reports as part of the bankingsector's reform in anticipation of privatization.


12 “Corporate Social Responsibility in Latin America and the Caribbean”, Estrella Peinado-Vara, Inter-American Development Bank, 2004


Russia

Leading Russian companies have begun to formulate their ideas regardingcorporate responsibility and many are engaged in specific programs in thesocial and environmental spheres. Current CR reporting may not yet reflectthe level of involvement of companies in CR activities, but public andgovernment appetite for reporting seems set to increase.

According to Perm State Technical University, out of the top 100 Russiancompanies, in 2003-2004 only five produced a separate report onenvironmental or social matters. Twenty more included CR relatedinformation in annual reports. However, many of these reports do not yetfollow standard, internationally accepted guidelines such as those publishedby the GRI. The sectors in Russia with the most reports include oil, non-ferrous and ferrous metals, utilities, banks, and food. A key driver for thedevelopment of CR reporting in Russia is the need for transparent reliableinformation for key stakeholder groups, in particular the general public andlocal communities and international business partners. Russia's recentcorporate governance scandals have also fuelled a broader need to rebuildthe confidence of the international investors now skeptical of themanagement practices and ethics of Russian companies. The positiveinfluence of foreign business partners such as the leading multinationalcompanies with well-established CR activities is also likely to provide addedimpetus towards increased CR reporting in Russian companies.

Latin America

Developments in the CR field in Latin America are at an early stage. In LatinAmerica there are at present about 20 CR reports, with 80 percent of theseconcentrated in Brazil, Chile, Argentina and Mexico. Reporting sectors arediverse, with the most active sectors being tobacco and mining, followed byconstruction and forestry. CR reporting is mainly restricted to largecompanies. Seven of the 10 largest companies operating in the regionproduce a report on the CR activities. Report titles vary, but they all signify abalanced approach to sustainability reporting recommended by the GRIguidelines. In Latin America, there is also a strong tendency for obtainingexternal assurance of CR reports, with more than half of the reports currentlyhaving been verified.

Main proponents of corporate responsibility in Latin America are private sectorinstitutions, with weak impetus from the government12. Unlike some otheremerging regions, reporting practice is considerably higher among companieswith Latin-American headquarters than for local subsidiaries of multinationalcompanies.


Africa

With the sole exception of South Africa, where mining, food and beverage,retailing, and insurance sector companies have been producingenvironmental and corporate citizenship reports for several years, publicreporting by companies on their CR performance is still a comparatively newconcept in Africa. However, it appears that South Africa is not lagging farbehind the rest of the world. Of the 642 reports listed on GRI's website, 31are from companies operating in Africa, nearly double the number (19) fromSouth and Central America, the Caribbean and the Middle East combined. Itshould be noted however, that with the exception of those reports fromSouth Africa, the five other African reports are produced by wholly-ownedsubsidiaries of UK-based tobacco and alcohol companies.

Particularly in the case of South Africa, recent increases in the quantity andquality of CR reporting may be explained by a number of socio-politicalfactors. Increased corporate governance requirements, including the adoptionof the King Code of Corporate Governance (King II) for all listed companies,and the advent of the first Socially Responsible Investment (SRI) Index in anemerging market, the Johannesburg Stock Exchange (JSE) SecuritiesExchange's SRI Index, have increased the level of transparency andaccountability required from companies operating in South Africa. Moreover,investors and analysts are becoming increasingly interested in how SouthAfrican companies are managing their levels of social and environmentalresponsibility outside South Africa by expecting disclosure of CR issues 'upin Africa'. This has resulted in a push to ensure that the quality of CRreporting is enhanced and that the scope of reports is consistent with the fullbreadth of African operations.

At present, it appears that CR reporting excellence exists in small pockets ofexcellence around Africa. Aside from the shared experience of South Africanand UK parent companies to develop separate country reports, or theinclusion of regional reporting segments in global reports by Dutch, British orUS companies, much has to be done to develop the same level of reportingsophistication that is represented by companies in South Africa.



As CR reporting continues to develop,the business drivers are becomingclearer. There is growing attention onnon-financial disclosures from a broadrange of stakeholders who can have asignificant influence on the business.Increasing regulation for listedcompanies is also leading to reportsthat are more focused on the businesscritical issues. Businesses usingstructured CR reporting and assuranceprocesses are increasingly treating this

as a learning process to improve theirinternal business value and goodmanagement practices.

This section discusses the motivationbehind corporate responsibilityreporting and the main issues orchallenges that companies face indetermining the contents of CRreports.

3 CR reporting: drivers and issues


Corporate responsibility is increasingly considered an integral part of corebusiness values and strategy, rather than an isolated function within organizationsdealing with risks of non-compliance or damage to reputation from negativepublicity or scandals. The reporting of CR performance is quickly moving awayfrom compliance-related disclosure of quantitative data to the reporting ofrelevant information that is material to the organization's key stakeholders anddecision-makers.

“Over the last seven years, The Shell Report has built a proven track recordfor helping us improve performance and build trust. We have seen how, ifdone honestly, reporting forces companies to publicly take stock of theirenvironmental and social performance, to decide improvement priorities anddeliver through clear targets. Our reader surveys confirm that peoplereceiving our report come away with a significantly greater sense of trust inShell. We see that role continuing as we redouble our efforts to make TheShell Report an honest and open account of our sustainability performance,and as we take the steps needed to improve our environmental, social andbusiness performance.“

- Jeroen van der Veer, CEO, Shell


3.1 Drivers for corporateresponsibility

3.1.1 Business drivers

KPMG's survey results (Table 1)highlight a range of drivers forreporting that businesses considerimportant. While the most commondriver for sustainability, as reported by74 percent of the companies, is'economic reasons', more than 50percent of companies reported thattheir CR behavior is motivated byethics, values and codes of conductguiding their business operations.

The economic reasons were eitherdirectly linked to increased shareholdervalue or market share or indirectlylinked through increased business

opportunities, innovation, reputationand reduced risk. Thirty-nine percent ofthe companies reported improvedshareholder value, and one in five (21percent) reported increased marketshare as an important reason forsustainability. Almost half of thecompanies reported innovation and riskreduction as their main drivers. Abouthalf the companies also listedemployee motivation as their driver forCR behavior, which is an indication ofthe 'war for talent' which isincreasingly important in manycompanies in the G250. Only about aquarter of the reports mentioned'reputation/brand' as a driver for CR.This appears reasonable as onlybusinesses where performance isclosely linked to brand or reputationname this as their driver for CR.


74535347473927211399

11

Table 1 Drivers for corporate responsibility

Driver %

Economic considerationsEthical considerationsInnovation and learningEmployee motivationRisk management or risk reductionAccess to capital or increased shareholder valueReputation or brandMarket position (market share) improvementStrengthened supplier relationshipsCost savingImproved relationships with governmental authoritiesOther


3.1.2 Governance

Regulatory developments drivecompanies towards increased scopeand governance in relation to theircorporate responsibility reporting, asdisclosure needs to be of reliableinformation. Over recent years, theattention to corporate governance hassignificantly increased, mainly due tocorporate scandals. Regulatorydevelopments, such as the 2002Sarbanes-Oxley Act, the forthcomingOperational Financial Review (OFR)requirements in the UK and the EUDirective requiring the inclusion ofenvironmental and social matters inannual reports, all contribute to theincreased reporting on this subject.

As shown in Table 2, the majority ofthe reports (61 percent) include a

section on corporate governance, albeitthat the information is often at ageneral level, and only 6 percent of thereports specifically link Sarbanes-Oxleyto corporate responsibility. The linkbetween corporate governance andcorporate responsibility is mentioned in 53 percent of reports although,surprisingly, only one-third of thereports discuss the approach to CRwithin the company. This is an area forfurther improvement, specifically inrelation to the manner in which CR isembedded in the broad organizationalframework. This is further illustrated inhow specific subjects are handled. Forexample, of the one in five reports (18percent) that include policies forbribery or corruption, few elaborate onhow such commitments are put intopractice.


67615332302929186

Table 2 Corporate governance

Topic %

Code of conduct or code of ethicsSection in report on corporate governanceLink between corporate governance and CRCR structure within the organizationUltimately responsibility for CRSeparate CSO or CR unitWhistleblower/ombudsman/other independent functionCodes related to corruption and/or briberyLink between Sarbanes-Oxley and CR



3.2 Issues in CR reporting

3.2.1 Materiality

Given that CR covers an extremelywide range of issues, effectivereporting is not about volume, butshould enable stakeholders to makeinformed decisions relevant to theirinterests. A key issue for manycompanies is how to decide what theyshould report – what are the reallysignificant or material issues for users– rather than what they can report.Central to this question is how areporter identifies the target usergroups for their CR report, and theirinformation needs. Whilst a financialreport has a key 'user group' (theshareholders and financial analysts),companies often state that thecorporate responsibility report is for 'everyone' including employees,customers, suppliers, shareholders,management, non-governmentalorganizations (NGOs), etc. This oftenresults in information overload – long,

detailed and often inaccessible reports,which are unlikely to reflect thebehavior or decision-making of thecompany or inform its stakeholders.

The survey showed (Table 3) thatreactions from stakeholders are oftenmentioned as providing input for theeditorial policy. However, only 21 percent of the companiessystematically undertake stakeholderengagement in order to identify theinformation needs of the specified usergroups and only 11 percent give detailsof their engagement process. Themost common tool used to decidereport content was GRI, mentioned by40 percent of reporters, with detailsgiven in about 30 percent (not shownin table) of the reports, in the form of aGRI table, for example. However, thediscrepancy between these resultsindicates that although reporters usethe indicator list in Part C of the GRIGuidelines, they may not have fullyconsidered the reporting principles in

Part B, particularly on relevance,inclusiveness and completeness. This conclusion is supported by theresult that less than 1 percent usedAccountAbility's AA1000 principles indeciding materiality and issueselection. The survey showed that asecond most important input fordeciding the issues to report,particularly for the Japanese (18reports) and French (4 reports), arenational standards and regulations (13 percent). It is interesting that thesereports still state that the report isseen as the starting point for dialoguewith stakeholders.

It appears that the decision-makingprocess for defining materiality, andtherefore the content of sustainabilityreports, needs further attention iffuture reports are to fulfill theinformation needs, and therefore theconsequent actions, of investors,customers, neighbors and the public.

4021133

<1<1

Table 3 Materiality: how companies select content of CR report

Reference %

GRI guidelinesStakeholder consultationOther (e.g. national standards and regulations)Business PrinciplesAA 1000 principlesRisk Assessment


3.2.2 Stakeholder engagement

A company's stakeholders are thosegroups who impact and/or areimpacted, either directly or indirectly,by the company and its activities.Where it was once a 'nice to have',stakeholder engagement is now acritical part of the business strategy ofleading global organizations. As shownin Table 4, more than 57 percent of theorganizations include information onstakeholders in their CR reports, butonly 39 percent refer to structuredstakeholder dialogue.

Benefits for companies of a strongstakeholder engagement programinclude a strengthened license tooperate; enhanced two-waycommunication and trust leading toreduced legal and reputation costs;strengthened shareholder value;increased access to markets and theidentification of potential risks. Goodstakeholder engagement should feedinto risk assessment and businessstrategy, and ultimately into thereporting process.

Although there are no legal standardsfor stakeholder engagement, theAA1000 series developed byAccountAbility includes a process oflearning through stakeholderengagement. In addition, the GRIconsists of a selection of indicators onstakeholder relationships, including thebasis for the definition and selection ofmajor stakeholders, the approaches tostakeholder consultation, the type ofinformation generated by consultationsand the use of such information. Thesurvey shows that although only 7percent of the companies report that

they systematically identifystakeholders, more than 39 percentrefer to structured dialogue to engagestakeholders. Stakeholder dialogue isused mainly to discuss corporatepolicies on CR rather than the contentsof the reports. In the future, we expectreporting to be more aligned with thecritical issues identified by thestakeholders. We also expect a trendtoward clearer identification of thetarget stakeholder groups for reports.

Over 32 percent of companies invitespecific feedback on the reports fromusers, but only 8 percent report on thefeedback. In future, companies areexpected to come under pressure todemonstrate responsiveness to theissues and concerns raised bystakeholders through the process ofengagement. While it might beimpossible for companies to pledge tomeet all of the demands of all of theirstakeholders, they should be able toshow in their CR reports that theconcerns raised have been fed into thedecision-making process at the highestlevel and provide examples of whereoutcomes have been influenced.


573932876

Table 4 Stakeholder engagement

Topic %

Key stakeholders mentionedStructured stakeholder dialogueSpecific feedback on the report from stakeholdersCompany publicly responds to stakeholder feedbackStakeholders identificationCompany measures impact of report via stakeholders dialogue



Toyota Motor Corporation, Environmental & Social Report 2004

Toyota Motor Corporation (Toyota) issued its first environmental report in 1998.When responding to the challenge of CR, the environment has always been atop priority for Toyota. In fact, developing environmentally friendly technology isalso seen as one of Toyota's key societal responsibilities. This vision is clearlyreflected in Toyota's CR reports. However, since the 2003 financial year Toyotahas extended the scope of the reports to include both social and economicalaspects of the company's CR performance.

The 2004 report thoroughly discusses the environmental management andimpact of Toyota's activities in most of its business functions from Design toSales/After Sales. The report presents environmental data and achievementsagainst both its past and future goals. The report also discusses Toyota'ssecond-generation hybrid vehicle, Prius, which has received high acclaim andsupport from a wide spectrum of stakeholders, including some environmentalNGOs.

But what is most interesting is that in the 2004 report Toyota specificallyaddresses social topics in relation to its customers, employees, businesspartners, shareholders and society at large. Toyota sees this as a first step only to be enhanced over time to further improve its accountability which is thecompany's main driver for reporting both environmental and socialperformance.

“In the future, Toyota plans to continue enhancing disclosure of informationboth the environmental and social aspects of its activities”

– Kosuke Shiramizu, Executive Vice President, Toyota Motor Corporation

Spotlight on the automotive sector

Although the need and benefits of mobility that the automotive sector brings to the society are undisputable, this sector isclearly confronted with the challenge of corporate responsibility. Issues such as air quality, reliance on non-renewableresources, CO2-emissions, traffic safety and congestion problems all present challenges which need to be addressed.Additionally automakers that increasingly operate on a global scale and outsource parts of the value chain to developingcountries have to respond to social issues like human rights, diversity and the HIV/AIDS pandemic. This trend may explainthe rise in CR reporting in this sector. In 2005, almost 85 percent of the 15 global G250 automotive companies published a corporate responsibility report, an increase of 12 percent compared with 2002.

How are the leading automotive companies responding to the challenge of CR and CR reporting? Let's take a look at Toyota and Ford.



Ford Motor Company, 2003/4 Corporate Citizenship Report

Since Ford issued its first Corporate Citizenship report in 1999, it has seen therole of its reporting change. What started as a sign of commitment and a stakein the ground on issues such as climate change and human rights is becomingmore and more a consistent and systematic discussion of Ford's economic,environmental and social performance.

The 2004 report clearly addresses the most important sector issues likesustainable mobility, hybrid cars, fuel economy, vehicle safety and diversity.Furthermore, interesting sections explore such key issues as protection ofhuman rights in the supply chain, developments in China and responding to thethreat of HIV/AIDS.

The report shows a remarkable candor in addressing challenges and presentingboth quantitative and qualitative information. It touches, for example, on notmeeting a goal of improving SUV fuel economy and includes several outsideperspectives, including critical ones. According to Ford, some challengesrevolve around discussing the need for multi-sector cooperation andinvolvement of other actors, and encouraging more stakeholder groups andpeople to read the report.

“Reporting is part of a continuous improvement process, not an end in and ofitself. While the report is certainly a means to communicate externally,surprisingly a good portion of its value comes from raising awareness andbuilding alignment internally”.

–Tim O'Brien, Vice-President of Corporate Relations, Ford Motor Company


Core labor standards

Table 5 shows that the majority ofreports contain general commitmentsto human rights, which encompass thecore labor standards defined by theInternational Labour Organization (ILO):the right to equality of opportunity andtreatment, the right to freedom ofassociation and collective bargaining,the abolition of child labor and theprohibition of forced labor. Amongthese, the right to equality ofopportunity and treatment featuresmost prominently in the reports, alongwith commitments to diversity. Incontrast, less than a third of thereports mention any of the other corelabor standards. Few of the reportsprovide details on how pledges torespect these and other human rightsare translated into practice. With thegrowing pressure on companies to beaccountable for the actions of theirsuppliers, we expect that the attentiongiven to human rights issues willincrease in future reports.

Working conditions

As Table 6 illustrates, most of the CRreports address general workingconditions. These cover aspects suchas working time and work organization,wages and incomes, work and family,

maternity protection, occupationalsafety and health, harassment, stressand violence. However, companiesusually report only on a selectednumber of issues concerning termsand conditions at work in plants andsupply firms.

Three-quarters of the reports mentionoccupational health and safety, oftenwith specific information on accidentrates and health managementsystems. An equally high number ofreports touch upon employee training,which is not surprising given thatlifelong learning features high on theagenda of organizational development.Reports that provide specificinformation on employee satisfactionare in the minority, which could be dueto the sensitive nature of potentiallynegative ratings, difficulties inspecifying the factors that affect staff(dis)satisfaction and problems inquantifying the economic cost ofemployee discontent.


686151333027

Table 5 Social issues: core labor standards

Topic %

DiversityEqual opportunityHuman rights Collective bargainingChild/forced laborFreedom of association

72726232

Table 6 Social issues: working conditions

Topic %

Health and safetyTrainingWorking conditionsEmployee satisfaction

Issues and Topics in CR Reports

Social Issues

The trend toward a greater coverage of social issues in CR reports, which untilthe end of the 1990s had primarily addressed environmental, safety and healthconcerns, has continued in recent years. Four important social topics covered inthe CR reports of G250 companies are: core labor standards, working conditions,community involvement and philanthropy. Standards and guidelines adopted byinternational organizations continue to be the main reference for companiesreporting on their social performance.


Community involvement

Most reports cite programs thataddress the needs of localcommunities. The relevance of suchprograms depends on the degree towhich they address social concernsrelated to a company's operations, andto the assumed business value of thecommunity interventions.

As Table 7 suggests, many companiesrecognize that they are not isolatedfrom the social environments in whichthey operate. Programs aimed atimproved health or education servicesor at HIV/AIDS prevention andtreatment are perceived to bebeneficial for the wellbeing of the localworkforce. Employee volunteerprograms, which constitute a particularform of community involvement, maybring additional benefits to thecompany, including skills developmentand higher employee morale, improvedcommunication across departments,deepened relations with potentialcustomers and business partners, and improved reputation.

Philanthropy

Three out of four G250 companiesreport on their philanthropic activities.Leaving aside possible PR and taxbenefits gained from making charitablecontributions or from running acorporate foundation (Table 8),philanthropic programs tend to be lessstrategic than other forms of socialinvestments in terms of the addedsocial and business value. The socialcauses addressed by voluntary givingare often of little or no relevance to acompany's productivity andprofitability. On the other hand,

companies may find it easier toimplement philanthropic programscompared with efforts to mainstreamCR programs into their strategies andoperations, e.g. by ensuring theapplication of core labor standardsthroughout the supply chain, or bystrategic long-term engagements inthe community.

International standards and codes

Most of the reports (Table 9) refer tothe standards established by the UNsystem (including ILO, the UnitedNation's (UN) Declaration of HumanRights and the Global Compact),followed by the Organisation for

Economic Co-operation andDevelopment (OECD) Guidelines forMultinational Enterprises. Managementframeworks, such as SA8000 or themore recently developed AA1000, play a relatively marginal role in CRreporting.

This suggests that the UN and ILOcontinue to be regarded as the principle providers of universallyrecognized standards for social andlabor practice. At the same time, thestandards established by the UNsystem contain no direct provision forstakeholder engagement or third-partyassurance as established underSA8000 and AA1000.


6558402911

Table 7 Community involvement

Topic %

School/education programsEmployee involvement (volunteering)Health programsHIV/AIDSWater projects

7447

Table 8 Philanthropy

Topic %

PhilanthropyFoundation


Corporate reporting on socialperformance is often anecdotal,especially where the criteria for theselection and development of specificsocial programs are not disclosed. Thiscould be explained by the absence ofuniversally accepted social indicatorsand by the hesitation of mostcorporations to fully embrace thereporting standards on corporate socialperformance that have emerged inrecent years. Information provided isnot always substantiated throughquantitative data.

In part, this may be due to thesensitive nature of such information,but also due to difficulties in measuringperformance against socialperformance indicators.

In the future, the frontrunners in socialreporting will distinguish themselvesby means of policies and programsthat are informed by the views ofstakeholder groups directly affected bycorporate decision-making and that canbe independently verified against aclear set of performance indicators.

Economic issues

Presenting data on economicperformance in CR reports not onlyprovides information on the size andeconomic importance of a company,but may have the additional advantageof serving as a reference against whichthe relative significance of voluntarycontributions to society can bemeasured. Table 10 shows that onlya minority of companies discuss theeconomic impact of their corebusiness operations in their CRreports. This may be due to theperception of corporate responsibilityas an add-on to a company's economicperformance, rather than an integralpart of it. In addition, it is difficult toquantify the diverse social gains ofeconomic activity.

Almost two thirds of G250 companiesprovide basic information on theireconomic performance, including salesand profits, in CR reports. A fewcompanies add information on theamount of taxes paid. Only a quarter ofthe companies specifically highlight theeconomic impact of their operations on society. Fair trade is mentioned byonly 6 percent of companies and refersmostly to initiatives aimed atpromoting awareness amongemployees (e.g. by offering fair tradecertified food in cafeterias) rather thanintegration of this concept in corebusiness operations. Fair competition,both in terms of anti-trust policies andprocedures for selecting supplier firms,receives little attention. We foreseethat business-to-consumer companieswill report increasingly on theirengagement with the 'bottom of thepyramid'13, i.e. lower income markets


Table 10 Economic issues

Issue %

Basic information (e.g. profits)Impact of economic activities on society (direct)Tax issues (e.g. tax payments, transfer pricing)Fair tradeFair competition

61%25%16%6%6%

13 “The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits”, C. K. Prahalad, 2004

Table 9 International standards

Standard %

Global CompactILO UN Declaration of Human RightsOECD guidelinesEquator principlesOther UN DeclarationsSA8000AA1000ICC Business CharterSullivan PrinciplesResponsible CareOther

351916117544434

<1



whose combined purchasing powerand entrepreneurial capabilities areconsidered to hold the key to bothmore profits and poverty alleviation. It is unclear if more contentious issuessuch as the social impact of corporaterestructuring and outsourcing will bemore openly addressed in corporateresponsibility reports.

Supply chain issues

Supply chain issues are a relativelynew phenomenon in corporateresponsibility reporting. In a globaleconomy with companies relocatingpart of their production to suppliers inlow cost countries, the responsibilityagenda will grow throughout thesupply chain. NGOs, media and otherstakeholders are putting significantpressure on global companies to takeresponsible actions in their supplychain. Companies are asked to beaccountable in the long-term for theirsupplier actions and conditions, notjust to take corrective actions such asremoving suppliers that are not incompliance with the company's codeof conduct. The supply chain agendascope mainly relates to human rightsissues, child and forced labor issues,working conditions and environmentalissues.

The survey results show that 80percent of the CR reports mentionsupply chain issues. Almost 70 percentof reports mention some form ofsupplier declaration, for example, acode of conduct that the companyrequires from its suppliers. However,only 16 percent companies report thatthey conduct supplier audits to seehow well these are implemented.

The results suggest that the content ofsupply chain reporting is still immaturein terms of the depth of issuesdiscussed. The fact that a minority ofcompanies report on supplier auditcould be an indication of the difficultiescompanies face with accounting forsupplier performance and thatcompanies have more developmentalwork to do before they can prove howthey 'walk the talk' in the supply chain.

Greenhouse gas issues

One of the most pressingenvironmental issues for companies isclimate change. Not surprisingly, about85 percent of the CR reports addressclimate change, while 67 percentmeasure and report on the amount ofdirect greenhouse gas (GHG)emissions from their own businessoperations.

Reporting of indirect emissions ismuch lower, with 33 percent reportingemissions from purchased electricityand 26 percent reporting emissionsfrom other sources, includingtransportation or emissions associatedwith the use of the company'sproducts or services. Many companiesreport on a wide range of activitiesundertaken to reduce emissions, suchas the introduction of hybrid vehiclesby automobile companies, purchase ofrenewable energy and carbonsequestration by capturing and storingCO2, which is growing in popularity.

Two recent developments are helpingto bring the climate change agenda tothe heart of business operations andare having a direct impact uponreporting. These are the

implementation of the European UnionEmission Trading Scheme (EU ETS) andthe ratification of the Kyoto Protocol.The EU ETS focuses on directemissions of CO2 on installation level,and companies with facilities withinthe EU will find themselvesincreasingly well equipped to collectand report verifiable GHG data inannual reports. Based on the surveyresults, about 24 percent of G250companies are beginning to explorethe consequences of emissionstrading, predominantly those fromsectors that are most affected byclimate policy, such as companies inthe energy sector and automobilemanufacturers.

The enforcement of the Kyoto Protocolin 2008-2012 creates opportunities forcompanies to participate in theProtocol's project mechanisms, Joint Implementation (JI) and CleanDevelopment Mechanism (CDM).These mechanisms are attractingconsiderable interest from companiesas they provide an opportunity togenerate emissions reduction creditsthat can be used by companiesparticipating in the EU ETS and otherschemes. Only about 13 percent of the companies discuss theirinvolvement in carbon reducingprojects or are planning such projects.These initiatives are more popularamong Japanese companies investingin other East Asian countries.



Industry Focus

Financial sector

The financial sector has madesignificant progress on corporateresponsibility in the last three years.Where the sector had seenresponsibility for protecting humanrights and the environment as an issuefor industrial companies, it is nowincreasingly recognizing its ownresponsibility. Due to the increase inpublic interest about where money isinvested and the growing evidence oflong-term financial benefits of socialand environmental consideration,financial service providers have startedto incorporate CR in their corebusiness. Almost 60 percent of thesector in G250 and more than 30percent of the sector in N100publishes a CR report.

Financial companies show differentstyles in incorporating CR into coreactivities. Thirty-five percent of thereporting companies have a SteeringGroup that places CR directly at thebusiness units. Thirteen percentestablished a CR department tosupport their business units. In somecases similar but more decentralizedstructures were found, such asworking groups, a 'policy review' groupand a CR advisory committee.

Most significant sector developmentsin terms of CR have been the EquatorPrinciples guidelines for projectfinance, industry-wide attempts toencourage socially responsible lendingin emerging markets, and the growthof sustainable asset management inAsia, Europe and the USA, whichcurrently represents about 6 percent

of the total amount of retail andinstitutional assets worldwide. Underpressure from external stakeholderslike customers and NGOs, the mainchallenges for the financial sector arethe incorporation of CR related risksand opportunities in mainstream assetmanagement, credits and insuranceactivities.

Consumer markets: food & beverage

and trade & retail

In the food & beverage sector 56percent of the G250 companies and 29 percent of the N100 companiespublished a CR report. In the trade &retail sector, the numbers are 31percent and 22 percent, respectively.Compared with 2002, there was nosignificant change in the number ofcompanies reporting on CR in bothsectors. These sectors are thereforestill lagging behind others, while theCR issues in these markets becomeincreasingly evident. For example,there have been a number of highprofile media cases highlighting poorlabor standards in supply chains andfood safety scandals and there isgrowing government and publicconcern on issues associated withobesity and consumer health.

Both sectors state that employeemotivation is an important driver formanaging sustainability related issues;a company with a visible approach tosustainability is viewed positively byemployees and helps to attract newrecruits. For trade & retail companies in particular, sustainability is stronglylinked with quality and customersatisfaction. For food & beveragecompanies, ethical behavior throughoutthe value chain, towards suppliers,

employees and customers, is viewedas essential.

The majority of reports mention supplychain management, specifically ethicaltraining provided to suppliers andsupplier audits. There seems to begeneral acceptance that responsibilitiesgo beyond companies' direct controland that the management of supplychain issues serves to both enhanceand protect brand and reputation. In 40 percent of the reports publishedin both sectors, consumer health andsafety issues were covered, includingspecific information on ingredient use,animal testing, genetically modifiedorganisms, and pesticide use inagriculture. About 60 percent of thetrade & retail company reports discusshow they are improving the integrity oftheir product ranges, e.g. by means ofthe introduction of organic or fair tradeproducts, or through local sourcinginitiatives to support local suppliers andbusinesses.

Energy and natural resources:

oil & gas

The oil & gas sector has for years been one of the leading sectors inenvironmental reporting /sustainabilityreporting. This explains why 80 percentof the twenty G250 oil and gascompanies report on CR issues.Approximately half of these werepublished as part of annual reports. The trend towards reporting in annualreports is an indication of theincreasing importance attached to CRissues by shareholders. This trend islikely to increase with nationalregulatory listing requirements.



Another interesting trend is the linkmade by companies with corporategovernance. In their reports, half of the companies specifically link goodcorporate governance to CR, withmany discussing transparency and 46percent specifically referring tocontributions to the ExtractiveIndustries Transparency Initiative(EITI)14.

Despite the relatively long experiencewith environmental or sustainabilityissues in this sector, most of thereports do not mention specific targetgroups. Only one company mentionsthat it targets specific groups for thereport. This could indicate a lack ofclarity as to who the key audiences ofCR reports in this sector are and raisesthe question whether these reports aresufficiently tailored to the specificinformation needs of theirstakeholders.

Companies in the sector are becomingmore explicit about the businessdrivers for CR. Of those reporting, halfor more mentioned the following asbusiness drivers for CR: economicreasons (69 percent), risk managementand reduction (56 percent); innovationand learning (56 percent); and 37percent mentioned access to capital/shareholder value. This pattern is verymuch in line with the pattern of driversfor the survey overall.

There was little mention of specific CR standards (one company mentionsAA1000 and two mention national CSRstandards). The ISO14001 standard forenvironmental management systemswas mentioned by 50 percent and the

Global Compact was mentioned by 37percent. All 16 of those reporting referto GRI with 14 claiming to be inaccordance with GRI.

As would be expected for this sector,most reports talk about climate changeissues, verification of GHG emissionsand preparation for participation inemissions trading schemes, with 93percent mentioning the economicimplications of climate change policy.

Chemicals & pharmaceuticals

The chemicals and pharmaceuticalsectors have for many years beenscrutinized for their environmental andsocial performance. Traditionally, thechemicals sector has been perceivedas polluting and hazardous and hasbeen afflicted by several high profileincidents (Seveso, Sandos, Bhopal).Issues such as affordability and accessto medicines in deprived communitieshave been the subject of significantattention in the pharmaceuticals sector.The sectors have been subjected toincreasing regulation as well asdeveloping their own sector guidancethrough the Responsible Care®programs. This may explain why all ofthe thirteen G250 chemicals (fivecompanies) and pharmaceuticalcompanies (eight companies) report ontheir CR performance, either as part ofthe annual report and accounts or as aseparate report.

Nine of the companies specifically linkgood corporate governance to CR, andeleven referred to codes of conduct,which suggests that CR performance isembedded in the way most companiesdo business in this sector.

All the chemicals companies and fiveof the pharmaceutical companiesmentioned supply chain audits whichindicates the importance attached tosupply chain integrity in the sector.Stakeholder analysis is mentioned intwelve of the reports illustratingrecognition in the sector of theimportance of stakeholders.

In terms of drivers for CR, thepredominant drivers quoted in thechemicals sector are: economicreasons (80 percent), ethical reasons(80 percent) and innovation and learning (60 percent). In thepharmaceuticals sector, the maindriver, at 60 percent, appeared to beinnovation and learning. Interestingly,only two of the pharmaceuticalcompanies reported on the affordabilityand access issue, although alldiscussed the effects of patentchallenges. Two of the chemicals andall of the pharmaceuticals companiesreport on their performance in theResponsible Care program. Allcompanies report against GRI anddeclare to be in accordance with GRI.

As would be expected for this sector,most reports discuss climate changeissues, verification of GHG emissionsand preparation for participation inemissions trading schemes, with 93percent mentioning the economicimplications of climate change policy.

14 www.eitransparency.org



4 Assurance

4.1 Overview

The increase in the number andproportion of reports with externalassurance in both the G250 and theN100 (Figure 7) indicates that reportingorganizations continue to value theoverall contribution assurance makesto the reporting process, by helping tocontinuously improve the underlyingmanagement and reporting systemswe well as the reliability of theinformation. The number of reportswith a formal assurance statement has increased slightly to 30 percent (48 reports) from 29 percent in 2002for the G250 and to 33 percent (171reports) from 27 percent in 2002 forthe N100. Two reports in the G250contained statements from more thanone assurance provider. In addition tothe formal assurance statements, anumber of companies sought othertypes of (expert) opinions, sometimesalong with formal assurance (5 forG250) or, mainly in Japan, instead of it(14 for G250).

Although companies appear to valueindependent assurance, very fewreports mention the reasons for seeking assurance. Furthermore, theG250 statements analyzed in thesurvey showed considerable variationin the scope of the assuranceengagement and the approach andmethodologies used, leading to verydivergent assurance statements. These varied from reporting findings onmanagement systems at selected sitesto detailed opinions on aggregatedcorporate performance data. Themajority was restricted to assurance onspecific information or data sets withonly 22 percent of statements coveringthe whole report. These results, inconjunction with the finding that only21 percent of companies mentionstakeholder consultation in decidingreport content (see Section 3.2.1),would suggest that not only dostakeholders have very little influencein deciding what information they needfor decision-making, but they are rarelyconsulted about the type or level of

assurance they need in order to feel'assured'.

If the companies' stakeholders are thetarget audience for assurance, thesurvey indicates that more attention isneeded in some cases to ensure thatusers can access and actually read theassurance statement.

It is interesting to note that companiesthat include CR information as part oftheir annual (financial) reports havestarted seeking assurance on the CRsection in their annual report (6 of theG250) along with the audit of thefinancial statements. For example, inrelation to their CR governancestructure or the social andenvironmental risks associated withinvestments. In the reports withoutassurance statements, a number ofcompanies state that they areinvestigating options for assurance,while another has asked for 'expertopinions' while this process continues.

Overall, assurance on CR reports isincreasing. However, it seems thatfurther thought is needed to developfocused and rigorous assuranceprocesses that are useful andmeaningful for both reporters andreport users.

Figure 7: Corporate responsibility (CR) reports with external assurance statements, Global 250 and Top 100 in 16 countries (2002, 2005)

N100

G250

0% 5% 10% 15% 25% 30% 35% 40% 45% 50%

2002

2005

30%

29%

33%

27%

G250 - Global Fortune 250 companiesN100 - Top 100 companies in 16 countries



4.2 Country results15

The results for the N100 (Figure 8)show that, outside Europe, an increasein assurance on reports is seen inJapan, Canada, Australia and SouthAfrica. In the USA, only one report outof 32 was assured, indicating that UScompanies, despite the Sarbanes-Oxley requirements for transparency incorporate affairs and governance, arestill reluctant to submit their non-financial reports to the scrutiny ofassurance.

In Europe, assurance continues toincrease but the picture has changedconsiderably since the 2002 survey,with large increases in France, Spainand Italy (a total of 50 in 2005compared with 14 in 2002). In Italy, 72 percent of the reports included anassurance statement. However, weobserve assurance statementsdecreasing in the CR reports of all ofthe Scandinavian countries, perhapscompensated by the increasingintegration of non-financial informationinto financial reports. The UK shows anincrease of 12 percent and is the onlycountry other than Italy where morethan 50 percent of the CR reportscontain an assurance statement. InWestern Europe, Germany, with itsemphasis on management systemscertification is still scoring remarkablylow on report assurance.

15 Results for the G250 are not presented as some countries are poorly represented in this group making the results unrepresentative.

100 20 30 40 50 60 70 80

Total number of CR reports, 2005

Number of CR reports with assurance statement, 2005

USA

Sweden

Canada

Belgium

South Africa

Germany

Norway

Finland

Denmark

Australia

Netherlands

Spain

France

Italy

Japan

UK

Number of CR reports with assurance statement, 2002Total number of CR reports, 2002

(a/b) Number of reports with assurance/total number of reports

(1/36)(1/32)

(4/26)(1/20)

(2/19)(4/41)

(4/11)(4/9)

(1/1)(4/18)

(2/32)(5/36)

(6/29)(5/15)

(7/32)(6/31)

(9/20)(7/22)

(6/14)(10/23)

(10/26)(11/29)

(3/11)(11/25)

(3/21)(16/40)

(8/12)(22/31)

(19/72)(25/80)

(26/49)(38/71)

Figure 8: Number of reports with assurance statement by country, Top 100 in 16 countries (2002, 2005)


4.3 Sector results

The results of the N100 (Figure 9)show a large increase in assurance onCR reports in the utilities and financialservices sectors. As a result, the oiland gas sector has been pushed downfrom top to third place even thoughthis sector had the same number ofreports assured as in 2002. This mayreflect the high number of oil and gascompanies that, due to theirenvironmental and social impacts and ahigh level of public interest, werealready seeking assurance in 2002.

The results in the financial servicessector are partly due to an increase inthe number of companies in this sectorin the N100, but may also reflect publicinterest about where money isinvested and awareness of theinfluence of financial institutions onCR, for example through lending.

Utilities companies have now joinedmining as the only two sectors wheremore than 50 percent of the separatereports include an assurancestatement.

The top three G250 sectors in terms of assurance reports are the same asthose of the N100. In the oil and gasand utilities sectors, 50 percent ofreports contained assurancestatements, with financial serviceswith 37 percent coming in second. TheUK and the Netherlands dominatedfinancial service sector companies withassurance, while France and Italyproduced three of the five assuredreports in the utilities sector.


Figure 9: Number of reports with assurance statement by sector, Top 100 in 16 countries (2002, 2005)

200 40 60 80 100

Total number of CR reports, 2005

Number of CR reports with assurance statement, 2005


Pharmaceuticals

Construction &building materials

Other services


Transport

Automotive

Mining



Trade & retail

Food & beverage


Oil & gas


Utilities

Number of CR reports with assurance statement, 2002Total number of CR reports, 2002

(2/12)(2/13)

(6/14)(4/11)

(4/18)(4/23)

(2/9)(6/24)

(10/30)(8/31)

(8/25)(8/26)

(8/30)(8/32)

(7/14)(9/15)

(2/18)(9/29)

(7/34)(9/26)

(5/37)(10/47)

(5/32)(11/34)

(9/33)(14/34)

(18/43)(18/44)

(11/40)(24/86)

(13/51)(26/48)

(a/b) Number of reports with assurance/total number of reports



4.4 Choice of assuranceprovider

The survey reveals (Figure 10) that themajor accounting firms still dominatethe assurance market in CR reportingboth at global and national level, eventhough the share of other providershas increased slightly since 2002.

Statements still vary in length anddetail, but in general appear to bemore detailed than three years ago.Overall the length of assurancestatements (particularly those referringto AA1000AS) has increased, in somecases to two or more pages of detailedfindings. One reason for this is theinclusion of recommendations in thestatement. Although most of the 35percent of statements that includedrecommendations came from technical(consulting) firms, five came frommajor accounting firms. This may be aresponse to the possibility under thenew ISAE3000 standard to includeadditional comments in thestatements.

Assurance standards were referencedin many statements with internationalauditing standards dominating theG250 statements (24 percent),followed by AA1000AS (18 percent)and national standards (8 percent). Inthe N100 statements nationalstandards were referred to most often(21 percent), followed by internationalauditing standards (14 percent) andAA1000AS (10 percent). In addition, ofthe 27 statements issued by bigaccountancy firms, 12 reportedfindings relating to a limited number ofspecific procedures undertaken ratherthan overall assurance.

Certification bodies

Major accountancy firms

Technical experts firmsSpecialist firmsOther

19%

21%

2%

58%

58%

8%

20%

5%7%

A. G250 (2005)A. G250 (2005)

B. Top 100 in 16 countries (2005)B. Top 100 in 16 countries (2005)

Figure 10: Choice of assurance providers


4.5 Developments inassurance16

In the 2002 survey we reported thatthe strong rise in the number ofreports with external assurancereflected the public's demand forreliable and credible information. Wealso highlighted some shortcomings in assurance, in particular thatinconsistencies in approach mayundermine the credibility of assurancewith stakeholders, and suggested thatthis was partly caused by a lack ofassurance standards. In this sectionwe look at whether these issues havebeen addressed.

4.5.1 Assurance standards

The last three years have seen theintroduction of new assurancestandards amid continuing discussionand debate on the value of independentassurance, in particular for the users ofCR reports. Two global standards havebeen released – ISAE 3000 andAA1000AS – which now guide thework of many assurance providers inthe field of CR. A number of nationalstandards have also been introduced(appendix E).

ISAE 3000 is designed to ensure thatassurance engagements are carried

out with professional rigor andindependence. In AA1000ASstakeholder engagement is an integralpart of the assurance process, whichlargely focuses on the underlyingprocesses an organization has in placeto manage its financial, social andenvironmental impacts.

Both of these standards addresscertain quality aspects of assurancesuch as the need for the appropriateknowledge and skills to be available inthe assurance team, and theimportance of independence. Inpractice, however, the use of thesetwo standards by assurance providerstends to result in different types ofstatements. ISAE 3000, largelyfocused on the information in thereport, places greater emphasis on thecompany reporting its limitations andweaknesses. For limited assuranceengagements (which constituted morethan 80 percent of the statementsfrom accounting firms for the G250where the level of assurance wasmentioned) it also prescribes anegative form of conclusion in thestatement. AA1000AS requires assurance providers to report theirfindings against the three core criteria.This results in a narrative statement,highlighting both strengths andweaknesses in report content as wellas underlying management systemsand the company's responsiveness tostakeholder concerns.

It will be interesting to see in the nextsurvey whether the introduction ofthese two standards produces morecomparable and understandableassurance statements.


The International Standard on

Assurance Engagements

(ISAE 3000) was introduced byThe International Auditing andAccounting Standards Board(IAASB) of the InternationalFederation of Accountants inDecember 2003. ISAE 3000 is ageneric standard for the provisionof assurance, excluding historicalfinancial information, to be used byaccounting firms for all statementsissued after January 1, 2005.

The AA1000 Assurance Standard

(AA1000AS) was launched byAccountAbility in March 2003. It isdesigned to cover the full range ofan organization's disclosure andperformance, based on the threeprinciples of materiality,completeness and responsiveness.

16 This section is based on the views of field professionals as well as on the survey results.



The form and content of the assurancestatements have certainly changedsince the last survey, with longerreports designed to make theassurance process more transparentfor users. Many statements containeda detailed description of the workundertaken as well as detailed findingsand recommendations. However, therewas still considerable variation informat as well as the volume and typeof information provided, which may notimprove accessibility to any but themost dedicated users. The increasinglength of the statements has also ledto more statements only beingpublished in full on the reporter's Website rather than in the printed report.

4.5.2 The assurance process

The second issue is whether theassurance process has progressed interms of recognizing the needs of theuser groups in its scope and approach.

As very few reports provided informa-tion in this respect, the role of stake-holder engagement in defining whatactually assures them in relation to thecompany's actions and performanceremains unclear.

Many statements from the CR reportswere restricted to an opinion on thehealth and safety and environmentalinformation systems and data, perhapsindicating that assurance is still largelyfocusing on what 'can' be assured,based on existing data registrationsystems, rather than what 'should' be assured, taking account of theidentified user groups.

The assurance process continues toevolve as do the corporateresponsibility reports themselves.Many of the challenges facing issuersof corporate responsibility reports arealso faced by the assurance provider.

“'Assurance' is a desired outcome, not a standard, method or activity. Organizations seek to 'assure' key stakeholdersthat what they consider material is being effectively taken into account - hence the importance the AA1000 AssuranceStandard places on a stakeholder-centric approach to establishing what is material. Assuring stakeholders is aboutproviding credible information that informs stakeholder decisions and behavior, which ultimately impacts on theorganization. To be credible, professional assurance providers must establish a robust duty of care to thosestakeholders to whom they offer assurance.”

- Simon Zadek, CEO, AccountAbility





Appendices



Survey Year 1993 1996 1999 2002 2005

Researchset(s)

Countries

Total number ofcompaniesincluded

Response rate

N100: Percent ofcompanies withCR reports

G250: Percent ofcompanies withCR reports

Top 100 in 10countries

(10)Belgium, Canada,Denmark, France,Germany, Ireland,Netherlands,Portugal, UK,USA

810

85%

13%

–

Top 100 in 13countries

(13)Australia,Belgium, Canada,Denmark,Finland, France,Germany, Ireland,Netherlands,New Zealand,Norway, Portugal,Sweden,Switzerland, UK,USA

1,300

69%

17%

–

Top 100 in 11countries andGlobal 250

(11)Australia,Belgium,Denmark,Finland, France,Germany,Netherlands,Norway, Sweden,UK, USA

1,100+

98%

24%

35%


(19)Australia,Belgium, Canada,Denmark,Finland, France,Germany,Greece, Hungary,Italy, Japan,Netherlands,Norway,Slovenia, SouthAfrica, Spain,Sweden, UK,USA

1,900+

96%

23% (28% for 11countries in1999)

45%


(16)Australia,Belgium, Canada,Denmark,Finland, France,Germany, Italy,Japan,Netherlands,Norway, SouthAfrica, Spain,Sweden, UK,USA

1,600+

98%

33% (41%including CRinformation inannual reports)

52% (64%including CRinformation inannual reports)

A Comparison of the surveys, 1993, 1996, 1999, 2002 and 2005


KPMG sectors

Automotive


Communications & media

Construction & building materials



Food & beverages


Metals, engineering & other manufacturing

Mining

Oil & gas

Other services

Pharmaceuticals

Trade & retail

Transport

Utilities

20

5

17

3

23

63

9

2

14

0

20

15

8

35

4

12

Motor vehicles and parts

Chemicals, rubber and plastic products, soaps, cosmetics

Telecommunications

Building materials, glass, engineering, construction

Computer, office equipment, electronics, electricalequipment, network, other communications equipment,publishing, printing, scientific, photo, control equipment,semiconductors, other components.

Banks: commercial and savings, diversified financials.Insurance: life, health, p&c (mutual and stock), securities.

Beverages, food and tobacco, food consumer products

Forestry and paper products

Aerospace, industrial and farm equipment, metal productsand metals

Mining

Petroleum refining, crude oil production and extraction

Computer services and software, diversified outsourcingservices, entertainment, health care, hotels, casinos,resorts, mail, package and freight delivery

Pharmaceuticals

Food and drug stores, general merchandisers, specialtyretailers, trading, wholesalers

Airlines, railroads, road transport, shipping, harbour/airports

Energy, utilities: gas/electric

B Fortune sectors and clusters

The sector categories are based on the 2004 Fortune list, which we have adapted a little to provide logical clustering (seethe table below). This sector classification was also applied to the Top 100 companies in the 16 countries.

Number of

Companies (G250)

Fortune sectors



Country/Region Content

European Union

Australia

Belgium

Canada

• The EU Modernization Directive (2003/51/EC) requires organizations seeking a stock marketlisting to disclose risks associated with capital assets and requires financial regulators toassess those risks (in line with Commission Recommendation 2001/453/EC). So far 23countries have transposed the law to national level.

• The application of the International Accounting Standards (IAS) at EU level (EC regulationno. 1606/2002) requires organizations to account for changes to asset values stemming fromenvironmental factor if they are financial (e.g. trading permits).

• Based on article 15 of the Integrated Pollution Prevention and Control Directive (IPPC),

(96/16/EC), Member States are required to register emission data from large companies (socalled IPPC installations) and report these data to the Commission. Monitored industrialemissions data should be made publicly available.

• Corporations Law (section 299 [1f]) was introduced in 1999 and requires companies thatprepare a directors' report to provide details of the entity's performance in relation toenvironmental regulations. On 1 July, 2004, the Corporate Law Economic Reform Program(Audit Reform & Corporate Disclosure) Bill 2003 (CLERP 9), extended this to the operationsand financial position of the entity and its business strategies and prospects (Section 99A[1]).

• Financial Services Reform Act 2001 commenced in March 2002 and requires fund managersand financial product providers to state “the extent to which labor standards or environmental,social or ethical considerations are taken into account in the selection, retention or realizationof the investment.”

• National Pollutant Inventory requires industrial companies to report emissions andinventories for specific substances and fuel to regulatory authorities for inclusion in a publicdatabase. www.npi.gov.au

• ASIC Section 1013DA Disclosure Guidelines, Australian Securities and Investments

Commission - guidelines to product issuers for disclosure about labor standards orenvironmental, social and ethical considerations in Product Disclosure Statements (PDS). Theguidelines compliment the Financial Services Reform Act mentioned above. www.asic.gov.au

• Article 4.1.8 of VLAREM II stipulates that certain companies have to issue an annualenvironmental report (only applicable for the region of Flanders).

• The Bilan Social requires organizations' reporting of data on the nature and the evolution ofemployment (e.g. training).

• The Securities Commission requires public companies to report the current and futurefinancial or operational effects of environmental protection requirements in an AnnualInformation Form.

• The Bank Act requires banks and other financial institutions with equity of USD 1 billion ormore are required to publish an annual statement describing their contributions to theCanadian economy and society.

C Mandatory reporting

This is a summary of mandatory requirements in the countries surveyed as identified by the survey team. This may not represent a complete list.




Denmark

Finland

France

Germany

Italy

Japan

Norway

South Africa

Spain

• The Danish Financial Statements Act requires reporting on intellectual capital resources andenvironmental aspects in the management report if it is material to providing a true and fairview of the company's financial position.

• The Green Accounts Act requires certain listed companies to draw up green accounts andinclude a statement from the authorities.

• The Finnish Accounting Act requires companies to include material non-financial issues intheir directors' report of the annual/financial report and refers to guidelines (Appendix D) forgood practice.

• “Law n°2001-420 related to new economic regulations (Art. 116)” environmental and socialreporting is mandatory for publicly-quoted companies.

• “La note de cadrage” (framework memo) and “L'étude d'impact” (impact study). Thesedocuments accompany the 2001-420 law and are a kind of guidelines to help companiesimplement it.

• The CJDES Bilan Societal is a tool for internal and external information exchange. By meansof a questionnaire, companies can report on their social profile and improve performance.

• The Bilanzrechtsreformgesetz (BilReG) - New law that extends reporting duties of Germancompanies to non-financial performance indicators such as environmental or employee issues.

No mandatory reporting requirements identified

• The Law of promotion of environmentally conscious business activities requires“specified entities”, to publish an environmental report every year.

• The Pollutant Release and Transfer Register (PRTR) Law concerns reporting of releases tothe environment of specific chemical substances and promoting improvements in theirmanagement.

• The Norwegian Accounting Act (Regnskapsloven) requires the inclusion in the Directors’Report of several social, environmental and health and safety issues and the implementationof measures that can prevent or reduce negative impacts and trends.

No mandatory reporting requirements identified

• The 'Resolución de 25 de marzo de 2002' (el Insitituto de Contabilidad y Auditoría deCuentas) states that organizations are obliged to include environmental assets, provisions,investments and expenses in their financial statements.

• In addition, the National Accounting Plan for the Electricity Sector specifies environmentalissues in more detail.


C Mandatory reporting (continued)




Sweden

The Netherlands

United Kingdom

United States ofAmerica

• The (amendment to the) Annual Accounts Act (Årsredovisningslagen) states that certaincompanies have an obligation to include a brief disclosure of environmental and socialinformation in the board of directors' report section of the annual report.

• The Environmental Protection Act includes a section on environmental reporting for the'largest polluters' of the country. To date, over 250 companies each publish two reports a year:one public report and one governmental report.

• The Operating and Financial Review (OFR) will be a legal requirement for all UK listedcompanies to provide a narrative within their Annual Report on the company's strategies,performance, future plans and key risks which may include ethical, social, environmental,brand and reputational risks.

• The Combined Code as part of the Financial Services Authority's listing requirements requiresorganizations to report on governance and internal controls, which cover, among other things,material non-financial issues.

• The EEO-1 Survey requires annual filing by the US Equal Employment OpportunityCommission regarding employment records, including the racial and gender profiles ofemployees.

• The Sarbanes-Oxley Act imposed several new reporting requirements for US-listedcompanies to increasing corporate transparency (mainly corporate governance).

• The Securities & Exchange Commission (SEC) Under Regulation S-K, the SEC requires“appropriate disclosure…as to the material effects that compliance with Federal, State andlocal provisions which have been enacted or adopted regulating the discharge of materials intothe environment, or otherwise relating to the protection of the environment, may have uponthe capital expenditures, earnings and competitive position of the registrant and itssubsidiaries.” In addition, disclosure is required for any material estimated capital expendituresfor environmental control facilities and for select legal proceedings on environmental matters.For foreign issuers in the United States, Form 20-F requires companies to “describe anyenvironmental issues that may affect the company's utilization of the assets.”

• The Toxic Release Inventory (TRI) tells companies with more than 10 full-time employees tosubmit data on emissions of specified toxic chemicals to the Environmental ProtectionAgency. In addition, the Securities and Exchange Commission requires disclosures on legis-lative compliance, judicial proceedings and liabilities relating to the environment in Form K-10.

C Mandatory reporting (continued)



Country/Region Standards, Codes and Guidelines

Global

Europe

• The AA1000 guidelines from AccountAbility provides guidance on how to establish asystematic stakeholder engagement process that generates the indicators, targets andreporting systems needed to ensure its effectiveness in impacting on decisions, activities andoverall organizational performance. www.accountability.org.uk

• The Association of Chartered Certified Accountants (ACCA) publishes a report on theirwebsite that gives guidance on how to report on the web. www.accaglobal.com

• The European Chemical Industry Council (CEFIC) established the Responsible Care

Programme as a worldwide commitment for chemical industry to improving EHS performanceand communication. www.cefic.be

• The Global Reporting Initiative (GRI) describes itself as a multi-stakeholder process andindependent institution whose mission is to develop and disseminate globally applicableSustainability Reporting Guidelines. Its Guidelines are for voluntary use by organizations forreporting on the economic, environmental, and social dimensions of their activities, products,and services based on reporting principles. www.globalreporting.org

• The International Standards Organisation (ISO) has developed an extensive range ofstandards. Among those that are directly related to corporate resonsibility are those that referto quality and the environment through the ISO 9000 and ISO 14000 series.

• The guideline SA8000 of Social Accountability is a uniform, auditable standard for socialaccountability with a third-party assurance system and is based on the Core Conventions ofthe International Labour Organization (ILO). www.cepaa.org

• UN Global Compact is an initiative that facilitates a network of UN agencies, business, labor,NGOs and governments to promote companies to adhere to ten principles in the areas ofhuman rights, labor, environment, and anti-corruption. www.globalcompact.org

• The Organisation for Economic Co-operation and Development (OECD) issued non-bindingguidelines based on 9 recommendations. www.oecd.org

• The Global Sullivan Principles of Social Responsibility is a code of conduct to encourageparticipating companies and organizations working toward the common goals of human rights,social justice and economic opportunity. www.globalsullivanprinciples.org

• CERES encourages corporate environmental responsibility in a number of ways, fromencouraging companies to endorse the CERES Principles, working with endorsing companies,both on meeting their commitment and on environmental reporting through the GlobalReporting Initiative, and mobilizing the network in activist projects like the SustainableGovernance Project and the Green Hotel Initiative. CERES also convenes forums fordiscussion among diverse groups, from the annual CERES conference to industry-specificdialogues. www.ceres.org

• EMAS - The EU Eco-Management and Audit Scheme (EMAS) is a management tool forcompanies and other organizations to evaluate, report and improve their environmentalperformance. The scheme has been available for participation by companies since 1995(Council Regulation (EEC) No 1836/93 of June 29 1993) on a voluntary basis.

D Standards, codes and guidelines

The main standards and guidelines on corporate management and reporting are outlined in this table as identified by thesurvey team. This may not represent a complete list.




Australia

Belgium

Canada

Denmark

Finland

France

Germany

• Australian Minerals Industry Framework for Sustainable Development "Enduring Value" -Minerals Council of Australia guidelines for sustainable development requiring a commitmentto public sustainability reporting on a annual basis from members, with reporting metrics self-selected from the Global Reporting Initiative (GRI) Mining and Metals Sector Supplement orself-developed. A commitment to independent verification of reports is also required.www.minerals.org.au

• Triple Bottom Line Reporting in Australia – A guide to reporting against environmentalindicators, Department of Environment and Heritage – All companies, guideline for companyreporting on environmental performance, consistent with the Guidelines of the GlobalReporting Initiative (GRI). www.deh.gov.au

• Greenhouse Challenge Program - Industry members commit to preparing emissionsinventories and forecasts, identifying and undertaking abatement plans and reporting progressagainst the action plan annually. They also agree to their progress being subject to independentverification where appropriate.

• No standards, codes and guidelines identified


• New guideline for Intellectual Capital Statements is a key to knowledge management.www.videnskabsministeriet.dk

• The Social-ethical Accounts is a guideline for private and public companies that wish to drawup a report on their social and ethical initiatives. www.bm.dk

• The Etikbasen / CSR Scorecard 2002 is a public database on the internet where companiescan report on their CSR initiatives and performance. www.csr-scorecard.org

• The Social Index is a tool for measuring a company's degree of social responsibility on ascore from 0 to 100. It requires external verification and certification to use the Social Index forexternal reporting. www.detsocialeindeks.dk

• The Finnish Accounting Standards Board (FASB) issues guidelines that deal with thedisclosure of environmental expenditures and environmental liabilities as a part of the legallyrequired financial accounts to the extent that the environmental information may have materialconsequences on the financial position of the company.



D Standards, codes and guidelines (continued)




Italy

Japan

Norway

South Africa

Spain

Sweden

The Netherlands

United Kingdom

United States ofAmerica

• The Study Group for Social Reporting (GBS) provides organizations with social reportingstandards. www.gruppobilanciosociale.org

• The Associazione Bancaria Italiana/IBS (ABI) has guidelines for social reporting in thefinancial sector. www.abi.it

• The CSR-SC project allows organizations to voluntarily participate and adopt a 'socialstatement' according to pre-defined guidelines and a set of indicators. www.welfare.gov.it

• Environmental Reporting Guidelines are issued by the Ministry of the Environment.www.env.go.jp

• Environmental Performance Indicators Guidelines for business issued by the Ministry ofthe Environment www.env.go.jp

• The Næringslivets Hovedorganisasjon (NHO) has recommendations from the Employers'organization, based on existing guidelines and standards. www.nho.no

• The King II Code on Corporate Governance 2002 is a non-legislated code on good corporategovernance. It includes a comprehensive section on integrated sustainability reporting.www.iodsa.co.za

• The launch of the Johannesburg Securities Exchange Socially Responsible Index requirescompanies in the FTSE/JSE All Share Index that choose to participate to report publicly onsustainability related issues. www.jse.co.za/sri


• The Swedish Accounting Standards Board (Bokföringsnämnden) provides guidelines onenvironmental information in the Directors' report section of the annual report (BFN U 98:2).www.bfn.se

• The Assurance Standards Committee (RJ) provides guidelines for the integration of socialand environmental activities in the financial reporting of companies. Furthermore, the RJprovided a framework for the publication of a separate report on these activities.

• The Department for Environmental, Food & Rural Affairs (DEFRA) published generalguidelines for environmental reporting on greenhouse gas emissions, on waste and on water.www.defra.gov.uk/environment/envrp/guidelines.htm

• The Public Environmental Reporting Initiative (PERI) provides a tool for organizations toproduce a balanced perspective on their environmental policies, practices and performance.


D Standards, codes and guidelines (continued)


Country/Region Standards

Global

Australia

Germany

Japan

Sweden

The Netherlands

The International Standard on Assurance Engagements (ISAE) 3000: AssuranceEngagements other than Audits or Reviews of Historical Financial Information was developedby the International Auditing and Assurance Standards Board (IAASB) of the International

Federation of Accountants (IFAC). IFAC is the body responsible for issuing internationalaccounting and auditing standards for the accounting profession. ISAE 3000 was firstpublished in December 2003 to be used by accounting firms to guide their assuranceengagements on sustainability reports.

In Australia, the ISAE 3000 standard has already been accepted for the audit of greenhousegas emissions under the NSW Greenhouse Gas Abatement Scheme.

In March 2003 the UK-based AccountAbility issued the AA1000 Assurance Standard

(AA1000AS). AccountAbility used a phased multi-stakeholder process to develop AA1000AS, astandard that covers the full range of an organization's disclosure and performance based onthe three core principles of “materiality”, “completeness” and “responsiveness” to ensurethat reporting and assurance meets stakeholders' needs and expectations.

• Standards Australia has published the Standard DR03422: General Guidelines on the

Verification, Validation and Assurance of Environmental and Sustainability Reports. Workon this Standard was carried out by the joint Standards Australia and Standards New ZealandCommittee QR-011 Environmental Management Systems. A marked difference between thisStandard and the AA1000, AUS and ISAE 3000 standards is the definition and use of theterms verification and validation. DR03422 has been issued as an Interim Standard for a periodof two years, after which it will be reviewed.

• Australian Auditing Standards (for accounting firms) can be applied to the audit and review ofsustainability reports. AUS102.44 states that “Australian Auditing and Assurance Standards,while developed primarily in the context of financial report audits, are to be applied, adaptedas necessary, to all audits of financial and non-financial information, to all other assuranceengagements, and to all audit related services”.

• The German Institute of Chartered Accountants (IDW) has elaborated a Standard forAssurance Engagements of Sustainability Reports. It will be available for comment duringthe first half of 2005 and is expected to be finalized within 2005.

• The Japanese Institute of Certified Public Accountants (JICPA) published the"Environmental Report Assurance Services Guidelines (Interim Report)" in 2001.

• The Swedish Institute for the Accountancy Profession (FAR, www.far.se) issued a draftrecommendation "Independent Assurance on Voluntary Separate Sustainability reports"

in February 2004. The recommendation is in compliance with ISAE 3000 and has references toAA1000 AS.

• The Royal Dutch Institute for Register Accountants (NIVRA) issued an Exposure Draft

Standard RL 3410 Assurance Engagements relating to Sustainability Reports early 2005.The Exposure Draft is designed to comply with ISAE 3000 while incorporating the principles ofAA1000AS and drawing on the Sustainability Reporting Guidelines of the Global ReportingInitiative (GRI).

E Assurance standards

The main standards used for assurance on environmental and sustainability reports are outlined below as identified by thesurvey team. This may not represent a complete list.




F Glossary

AA1000 AccountAbility's principlesAA1000AS AA1000 Assurance StandardACCA The Association of Chartered Certified AccountantsCDM Clean Development MechanismCSR Corporate Social ResponsibilityCR Corporate ResponsibilityDJSI Dow Jones Sustainability IndexEHS Environmental, Health & SafetyEITI Extractive Industries Transparency InitiativeEU ETS European Union Emission Trading SchemeG250 Global 250, top 250 companies of the Fortune 500GHG Greenhouse GasGRI Global Reporting InitiativeGSS KPMG Global Sustainability ServicesIFAC International Federation of AccountantsILO International Labour OrganizationISAE International Standards on Assurance EngagementsJI Joint ImplementationJSE Johannesburg Stock ExchangeKing II King Code of Corporate Governance, South AfricaN100 National 100, top 100 companies in 16 countriesNGO Non-Governmental OrganizationsOECD Organisation for Economic Co-operation and DevelopmentOFR Operational Financial ReviewSA8000 Social Accountability 8000SRI Socially Responsible InvestmentUN United NationsWBCSD World Business Council for Sustainable Development





Contact information


KPMG's Global Sustainability ServicesTM key contact information

Australia

Stirling Habbitts

Sydney Tel. +61 (2) 9455 9065

Belgium

Nadia Fahsi

Brussels Tel. +32 (27) 084 241

Canada

Michael Alexander

Vancouver Tel. +1 (604) 691 3401

Denmark

Jens Frederiksen

Frederiksberg Tel. +45 (38) 183 266

Estonia

Veiko Kullaste

TallinTel. +372 (6) 268 723

Finland

Tuomas Suurpää

Helsinki Tel. +358 (96) 939 3579

France

Isabelle Lhoste

Paris Tel. +33 (15) 568 7564

Germany

Michael Fahrbach

Cologne Tel. +49 (221) 2073 5367

India

Deepankar Sanwalka

New Delhi Tel. +91 (124) 254 9191

Italy

PierMario Barzaghi

Milan Tel. +39 (02) 676 43713

Japan

Soichi Ohki

Tokyo Tel. +81 (33) 266 7836

South Korea

Seung-Rok Yoo

Seoul Tel. +81 (22) 112 2551

The Netherlands

George Molenkamp

Amstelveen Tel. +31 (20) 656 4500

Norway

Job Hottentot

Oslo Tel. +47 (21) 092 231

Romania

Geta Diaconu

BucarestTel. +40 (1) 336 2266

Russia

Garry Black

Moscow Tel. +7 (095) 937 4444

South Africa

Shireen Naidoo

Johannesburg Tel. +27 (11) 647 5581

Spain

Julian Martin Blasco

Madrid Tel. +34 (91) 456 3527

Sweden

Henrik Dahlström

Malmo Tel. +46 (40) 356 2 00

UK

David Shirley

London Tel. +44 (20) 7694 4226

USA

Eric Israel

New York Tel. +1 (212) 872 6098

For copies please contact us via e-mail: [email protected] or your national KPMG Global Sustainability ServicesTM practice

kpmg.com

The information contained herein is of a general nature and is not intended to address the circumstances of any particularindividual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that suchinformation is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act onsuch information without appropriate professional advice after a thorough examination of the particular situation.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms.KPMG International provides no audit or other client services. Such services are provided solely by member firms in theirrespective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are notand nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents,partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bindKPMG International or any member firm in any manner whatsoever, or vice versa.

© 2005 KPMG International.KPMG International is a Swisscooperative of whitch all KPMGfirms are members. KPMGInternational provides noservices to clients. Eachmember firm is a separate andindependent legal entity andeach describes itself as such. All rights reserved.250/0605/2

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