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Valuing Corporate Responsibility

How Do Investors Really Use Corporate Responsibility Information?

Investors have taken a long time to pay attention to corporate responsibility. Despite the growing number of companies that were taking action to manage the social and environmental impacts of their activities and operations and that were reporting on their corporate responsibility performance, mainstream investors' interest in governance issues was, on the whole, piqued only in those situations where a major accident or scandal hit the headlines.

This has changed dramatically. With over 600 large investment institutions, including asset managers, insurance companies and pension funds having signed the UN-backed Principles for Responsible Investment, it can now be plausibly argued that "responsible investment" has become mainstream. This change is potentially of huge significance, and the investment community is now widely seen as one of the key audiences for the thousands of corporate responsibility reports produced each year.

Yet the reality is that there is a striking lack of understanding among companies of investors' interests. The consequence has been that, despite many companies identifying investors as one of the critical audiences for their corporate responsibility reports, most investors – even those that have made commitments to responsible investment – see these reports as irrelevant to their investment decision-making. The problem is compounded by the singularly poor job that investors do of explaining to companies what sort of information they are really interested in, and where corporate responsibility performance fits into their overall assessments of companies. This has led to frustrations on both sides. Investors have been accused of not paying sufficient attention to companies' corporate responsibility performance, and companies have been accused of producing information that not only has no immediate relevance to investors but, worse, seems to have no relevance to the key business challenges that these companies face.

Valuing Corporate Responsibility aims to address the "dialogue of the deaf" that characterizes too many of the discussions between companies and their investors on corporate responsibility issues, through:

1. Explaining to companies what responsible investment looks like in practice and, from this analysis, explaining what sort of corporate responsibility information investors are interested in and how this information is used in practice.

2. Explaining to investors some of the practical difficulties faced by companies when preparing corporate responsibility reports and the implications for the quality and utility of the data provided in these reports.

Valuing Corporate Responsibility also analyses how issues such as investors' views on materiality and investment time-frames influence the dialogue that investors have with companies on corporate responsibility matters. It concludes that there is a need for a major rethink of current approaches to responsible investment, as the manner in which most investors are implementing their responsible investment commitments is unlikely to see them making a substantial contribution to improving corporate responsibility performance or to the wider goals of sustainable development.

Written by one of the world's leading experts on responsible investment, Valuing Corporate Responsibility is one of the most important books to be written on corporate responsibility over the past decade. It is of relevance not only to companies and to responsible investment professionals but to all those interested in really understanding how companies and their investors relate to each other and the implications of this relationship for sustainable development.

Rory Sullivan's new book about corporate responsibility reporting is worth a read. I have to say that the stuff I like best in it is where he is honest about the limitations of responsible investment, because few people are willing to say this stuff publicly ... Full post...

labour and capital blog, 19 May 2011 Tom Powdrill

Written by Rory Sullivan, one of the world's leading experts on responsible investment, Valuing Corporate Responsibility provides insights that anyone responsible for or involved in CSR reporting should know and understand ... Regardless of one's position on these two issues, Rory Sullivan's book presents a challenging and well-informed analysis of some of the key issues related to valuing corporate responsibility. As such, it is a concise and noteworthy contribution to what is often a complex and polarized debate. Full post...

CSR Europe, 6 May 2011 Colleen M. Fletcher

Most corporate responsibility professionals approach the task of reporting in much the same way as spending Christmas with the in-laws: they grit their teeth at the prospect, try to keep from screaming during the event, and pray they don't have to repeat it once it's all over. Social and environmental reporting is time-consuming, labour-intensive and expensive. So what's the value? Well, more than you might think, argues social responsibility investment guru Rory Sullivan ... Full post...

Ethical Corporation's Management Blog, 1 May 2011 Oliver Balch

This book exposes the chasm in understanding that currently separates companies and investors on the critical issue of corporate responsibility. It explains why a dialogue of the deaf has continued for so long, and also provides wise guidance based on practical experience on how to bridge the divide. Importantly, it also points the way to a new relationship between company management and their shareholders based not on better corporate reporting but on actual improvements in social and environmental performance.

Nick Robins, Head, HSBC Climate Change Centre of Excellence

Rory Sullivan is one of most provocative thinkers in responsible investment. This book is a timely "reality check" for the responsible investment and corporate responsibility movements, and challenges companies and investors to look afresh at their respective efforts in these areas, and how they are conducted and communicated.

Dr James Gifford, Executive Director, Principles for Responsible Investment

Rory Sullivan is widely recognised as one of the most incisive and challenging thinkers in the responsible investment community. Informed by his deep practical experience of this evolving field, his book gives an illuminating and constructive insight into responsible investment practice today.

Penny Shepherd MBE, Chief Executive, UKSIF – the sustainable investment and finance association

If we are to make the world a better place, we must first understand how the world works... Rory Sullivan provides the definitive analysis of the strengths and limits of responsible investment as a tool for delivering sustainable development.

Barbara Stocking, Chief Executive, Oxfam GB

This is a definitive and provocative analysis of CSR reports and reporting – their use and abuse, certainties and uncertainties, potentials and limitations – which will go far in moving our field forward.

Steve Lydenberg, Chief Investment Officer, Domini Social Investments

The dialogue of the deaf between investors and companies on CSR is costly to all parties, not least to companies' wider stakeholders in communities across the globe. Rory Sullivan's book is a major addition to the literature on CSR. It arrives at a timely moment as governments grapple with the effects of short-termism in our capital markets. At least some of the solutions can be found within the covers of this important new book.

Catherine Howard, Chief Executive, FairPensions

The author draws on his wealth of experience in the social investment community in offering timely advice to both companies, so they might make their CSR reports more relevant for investment decision-making purposes, and to investors seeking to effectively utilise the information provided. Highly recommended.

David L. Owen, Professor of Social and Environmental Accounting, International Centre for Corporate Social Responsibility

Understanding how corporate responsibility factors affect company performance and having the right information to do so is one of the key challenges facing markets in the 21st century. This book provides great ideas as to how investors, companies and others involved in improving corporate responsibility information may make further progress.

Paul Simpson, Chief Executive Officer, Carbon Disclosure Project

Preface

1. Introduction

2. Investors and their interests

2.1 Responsible investment: an overview

2.2 Investors’ expectations of corporate responsibility reporting

3. Case studies on investment research and engagement

3.1 About Insight Investment

3.2 Case study: linking policy and performance in the oil and gas sector

3.3 Case study: climate change disclosures in the European electricity sector

3.4 Case study: taking the temperature on greenhouse gas emissions management and reporting

4. Analysing and interpreting corporate responsibility reports

4.1 Does the company publish a corporate responsibility report?

4.2 What is the scope of the report?

4.3 How are corporate responsibility risks and opportunities identified and assessed?

4.4 What governance and management systems are in place?

4.5 Are corporate responsibility policies important?

4.6 Issues in performance evaluation

5. Key issues in corporate responsibility reporting

5.1 Uncertainty in performance data

5.2 Reporting boundaries

5.3 Assurance

6. Investment practice and its implications for corporate responsibility

6.1 Materiality

6.2 Social issues

6.3 Investors are not the only stakeholder

7. Wider recommendations and proposals

7.1 Recommendations to companies

7.2 Recommendations to investors

7.3 Public policy design and implementation

8. Conclusions

8.1 The value of corporate responsibility reporting

8.2 The evolution of corporate responsibility reporting

8.3 Responsible investment and sustainable development

References

RORY SULLIVAN is a Senior Research Fellow in the Centre for Climate Change Economics and Policy at the University of Leeds.

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