A Frank Dialogue: Spotlight on the ‘Social’ dimension of ‘ESG’ reporting

June 2021 marked the tenth anniversary of the adoption of the UN Guiding Principles on Business and Human Rights: a set of guidelines for states and companies to prevent, address and remedy human rights abuses committed in business operations. With this in mind, for Episode 2 of our Frank Dialogue event series, CDP gathered a group of experts to look back at progress made and remaining gaps in reporting on social and human rights topics and corporate accountability.

In this frank discussion, CDP’s Global Director of Policy Engagement and External Affairs Pietro Bertazzi was joined by Dante Pesce, Executive Director Vincular Centre, Catholic University of Valparasío-Chile; Linda Kromjong, President Amfori; Richard Howitt, Strategic Advisor on Corporate Responsibility and Sustainability, Business and Human Rights and Elin Wrzoncki, Department Director, Human Rights and Business, Danish Institute for Human Rights to explore if we are on the right path.

UN Guiding Principles: An accepted foundation

Dante Pesce explained that, in his opinion, progress has been made in the last ten years. As a result of the UN Guiding Principles, social reporting is now an accepted part of the business equation – it’s not being challenged, there is a widely-shared consensus on the importance of this reporting. Without foundations, nothing can be built. The UN Guiding Principles have provided this foundation.

However, there is still a way to go. Many companies still need to ensure they not only conduct due diligence and report social impacts, but actually integrate it into their business practices. Linda Kromjong expressed that the social reporting landscape remains very scattered, and this is causing problems for companies and their ability to easily integrate social reporting. Governments, Linda stressed, should be working to encourage the alignment of existing initiatives to ensure companies can make a positive impact.

Europe: leading the way on corporate reporting

Richard Howitt, who was Rapporteur on Corporate Social Responsibility over four successive European Parliaments and one of the key figures in the European Union’s non-financial information directive, described how Europe has come to emerge as a leader in corporate reporting. After consistent examples of abuses in the mid-1990s, governments were forced to act, he explained.

By bringing businesses together with governments, trade unions and NGOs, they were able to establish a consensus on the need to act. Members of the European Parliament (MEPs) then felt they had a mandate, Elin Wrzoncki explained, and MEPs then made the wise decision to begin with the corporate reporting element. The assumption of disclosures in Europe, Elin said, is that the best players will be rewarded by the market. It’s a stepping-stone to improving performance.

This is why, Linda Kromjong says, instead of “naming and shaming” poor performance, we should focus on “knowing and showing” best practice, which proves more effective. This theory of change is shared by CDP – our corporate A-List is designed to incentivise best practice, and push those who are already leading to be better.

The critical role of SMEs

Our panellists all highlighted the critical role of small and medium-sized enterprises (SMEs). Linda Kromjong expressed a challenge present in the existing corporate reporting discourse: when you say ‘corporate’, you don’t think about SMEs, which the majority of corporates are. The focus on SMEs and their inclusion in corporate reporting frameworks and directives is critical to encouraging further positive impacts. The risk remains that we are focusing only on a handful of large multinational corporations, and not the full scope of businesses.

Richard Howitt explained that because of the exclusion of the majority of SMEs from the new European legislation, it will apply to only 2% of companies. There remains a “get out” clause for big corporates, which will allow them to pass risk down the supply chain – most likely to SMEs. Large companies must be proactive and work with their supply chains to improve things. Without this, there won’t be better social and human rights outcomes for people around the world.

Looking ahead and raising the bar

Our panellists were asked how we can continue to raise the bar on social reporting. Richard Howitt stressed that if the UN Guiding Principles and social reporting can become the norm, it has the potential to transform how companies are working with supply chains. He celebrated the global movement towards mandatory disclosure and believes that in a further ten years we will be looking at remarkable change as a result.

We’ve seen in recent years a shift in business – the aim is no longer just to generate profits for shareholders. Companies have woken up to the fact that they have many stakeholders, and this has driven positive changes. What is going to be important, Richard emphasised, is the just transition and the continuation of the fight against world poverty.

Dente Pesce explained how the next ten years should focus on the full implementation of the UN Guiding Principles, with specific guidance for each stakeholder outlining what they must do. He also stressed the need to bring everyone with us on the journey, all countries of the world. For example, he said, major economies such as China must be part of the global solution. We need to really focus on how to engage constructively to drive progress. Frameworks and conversations must translate into real action. Linda Kromjong agrees. We must be more inclusive and consider how to reach people who are “outside of our own bubble.”

Elin Wrzoncki echoes these sentiments: it will be importance that mandatory reporting, whilst having strong potential to become a game changer, must not become just a tick box exercise or additional paperwork.

This blog was originally posted on cdp.net