Step 7: Set up internal monitoring

Corporate responsibility (CR) is gaining an increasing significance for businesses worldwide.

Step 7: Set up internal monitoring

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Corporate policies and their implementation need to be kept under constant review to keep abreast of developments in technology and scientific understanding, customer needs and wider societal expectations. It is for the company to assess its social performance through internal consultation and periodic review by management. Equally, it is the company’s responsibility to check that its business principles are being acted upon. The extent and manner of external reporting of performance is, of course, for the company to decide.

Given the wide differences between industries and individual companies, the contents of such reports are bound to vary. Several international initiatives are being undertaken to develop a common yardstick for voluntary reporting of the economic, environmental and social impact of company activity. An example is the work being done by the Global Reporting Initiative, which is supported by the UN and other international organizations, to agree on a set of common core indicators. They would enable investors and other stakeholders to make global comparisons. Companies should retain the flexibility to adapt such voluntary indicators to their particular circumstances. A key way for companies to create confidence and trust in their commitment to responsible business conduct is to provide timely and reliable information on their financial, environmental and social performance and to communicate this to their stakeholders. Markets all over the world provide examples of companies who enjoy sustained public goodwill and respect by doing this successfully.


Building a corporate responsibility management and reporting system

Setting up an adequate internal monitoring system is possibly one of the most important steps in ensuring that corporate responsibility principles are put into everyday business practice. The well-known saying that “what gets measured gets managed” applies equally well to the corporate responsibility domain, and by measuring, monitoring and reporting on appropriate non-financial indicators, companies can improve overall business performance, and thus build trust among their stakeholders and safeguard their reputations.

Monitoring is often meant, and rightly so, to include internal audit. However, internal audit is different from simple monitoring as it aims to test internal procedures rather than simply checking if the procedures are being followed. Internal audit is a means for local management to identify areas of improvement as well as examples of best practice. The latter can then be spread within the company to help drive continuous improvement.

A corporate responsibility management and reporting system is a way of implementing a strategic framework that will integrate present and planned initiatives and programmes for social responsibility, while demonstrating transparency to stakeholders. Building such a system involves a number of steps, but in well-run companies, the great majority of what is needed to manage these issues is likely to be there already. These companies may have to take account of a wider range of stakeholders or handle a greater variety of data, without needing to develop a whole set of new systems and procedures.

Selecting suitable indicators

An important step is to select what to measure, i.e. selecting indicators associated with the corporate responsibility issues that are to be managed and that provide stakeholders with the information they need. Clearly, it is also important to select targets so that performance can be measured and improved over time. In many cases, the choice of indicators will be influenced by practical considerations such as the ability to use existing data available within the company, rather than to incur the cost of developing a new system. Comparability with other companies in the company’s own sector can also be important – investors and customers alike are interested in how a company compares with its peer group.

The question of indicators for corporate responsibility can be confusing, but one of the main reasons for this confusion is frequently failure to think about what one wants to do with the measurements, before deciding what to measure. Broadly speaking, indicators may be used primarily for internal (monitoring) and/or external (reporting) purposes. In the latter case, it will be important to take into account current reporting practice within the industry as well as reporting guidelines such as those developed by the Global Reporting Initiative. For internal purposes, the indicators chosen should be suitable for managing the business in a way that takes corporate responsibility into account. These indicators would best be arrived at by consensus within the company and by dialogue with its stakeholders, with a focus on what is practicable and readily measurable for the company.

Ideally, of course, the same basic set of indicators can be used for both monitoring and reporting on performance, possibly with certain adaptations to attain external comparability with the company’s peer group. A modified “balanced scorecard” may be used to select, organize and evaluate performance indicators. This approach can become an assessment tool that enables management to explicitly link financial and non-financial performance to demonstrate the “value added” by the company’s corporate responsibility activities.

Data collection and analysis

The next step is one of data collection and analysis. For the purposes of an external report, it may be helpful to balance quantitative data and stakeholder testimony. Existing information can be combined with new data, and methods from other fields, e.g. environmental assessments can be used as a model to gather information on social issues. Stakeholders themselves are valuable sources of quantitative information (e.g. through surveys) as well as anecdotal (qualitative) testimony.

Establishing data collection systems may at first seem a daunting task, but it does not have to be such a painful experience. In many companies, most of the data necessary is already available in existing information systems. Input measures related to environmental issues (e.g. use of various resources) can for example frequently be collected from the financial accounting system or by contacting suppliers. Output measures can often be calculated relatively easily, and a number of process measures regarding e.g. employee behaviour may already be part of periodic employee surveys.

Performance appraisal and reporting

A further step is one of performance appraisal and reporting. If an external report is to make an impact, it is important to be prepared to address controversial topics and to discuss difficult issues. It is possible to surprise outside stakeholders by the honesty and openness of a published report.
Transparency is the key to a high quality corporate responsibility report. As such, reporting on corporate responsibility issues should balance good and bad news, demonstrate senior management’s commitment to core values, and be tied to relevant and reliable key performance indicators. Transparency is also critical to create verifiable statements for stakeholders.

Performance appraisal and reporting have benefits within the company too, and may be used as a basis for awarding incentives in order to further encourage continuous corporate responsibility performance improvement. Such appraisals may be done at all levels of the company, provided of course that the responsible manager also has the means to influence the company’s corporate responsibility performance.

Assurance and review

The final step is one of verification and review. Any company that reports externally on its corporate responsibility performance will ultimately consider whether it should have that report verified by an external assurance provider. If management decides that such verification could be useful, it must be determined which aspects of company performance should be verified and which stakeholders would most benefit from the verification of such information.
External independent assurance can add considerable value to a report, providing the assurance engagement is of sufficient scope to permit the assurance providers to form a well-founded opinion. It can provide an opportunity for comparison with external good practice and helps to give assurance to stakeholders that procedures and processes are reliable. In addition to enhancing external credibility, the assurance provider may give recommendations on strengths and weaknesses and identify areas for management action and appropriate changes so that future performance can be improved.

Draft content of a corporate responsibility report

Over the past decade, numerous reporting guidelines have been developed by a large variety of authorities, research institutes, business associations, and other organizations to assist and encourage companies to develop corporate responsibility reports. At present, the most well-established and generally accepted reporting guidelines are the Sustainability Reporting Guidelines developed by the Global Reporting Initiative (GRI)

Below is an outline for a corporate responsibility or sustainability report based on the 2002 version of the GRI guidelines.

a) Vision and strategy
This section encompasses a statement of the reporting organization’s sustainability vision and strategy, as well as a statement from the CEO.

b) Profile
This section provides an overview of the reporting organization and describes the scope of the report. It provides readers with a context for understanding and evaluating information in the rest of the report. The section also includes organizational contact information.

c) Governance structure and management systems
This section provides an overview of the governance structure, overarching policies, and management systems in place to implement the reporting organization’s vision for sustainable development and to manage its performance. Discussion of stakeholder engagement forms a key part of any description of governance structures and management systems.

d) Performance indicators

  • Economic performance indicators: The economic dimension of sustainability concerns an organisation’s (direct and indirect) impacts on the economic circumstances of its stakeholders and on economic systems at the local, national and global levels. Suggested indicators of economic performance include:
    • Monetary flow indicators as a measure of the impact on each stakeholder group, e.g. total payroll and benefits paid to employees (broken down by country or region).
  • Environmental performance indicators: The environmental dimension of sustainability concerns an organisation’s impacts on living and non-living natural systems, including ecosystems, land, air and water. Suggested indicators include:
    • Input indicators showing the use of various resources (e.g. materials, energy, water) and output indicators showing quantities of emissions, effluents and waste, as well as indicators showing significant impacts of products.
  • Social performance indicators: This dimension of sustainability concerns an organisation’s impacts on the social systems within which it operates. Social performance can be gauged through an analysis of the organisation’s impacts on its stakeholders. Suggested indicators include:
    • Labour practices indicators, e.g. related to employment, health & safety, training and education. Human rights indicators, e.g. policies and monitoring of non-discrimination, freedom of association, and child labour. Society indicators regarding e.g. bribery and corruption, and political contributions.

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