A Simple Way to Boost Corporate Social Responsibility

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It’s unrealistic to expect most CEOs to be in favor of more government regulation, and mandatory reporting on corporate sustainability is no different. Now a new study from Ioannis Ioannou of London Business School and George Serafeim of Harvard Business School gives some evidence that might persuade at least some CEOs to rethink their positions.

Corporate sustainability reports are designed to allow companies to report their environmental, social, and governance performance much the way they do their financial progress. While many companies voluntarily issue such reports, Corporate America has generally been of the opinion that mandating such reports would be a costly waste of time. That argument is bolstered by the fact that studies of sustainability reports have failed to conclusively prove that they boost a company’s return on investment.

But there are other measurements, besides ROI, where mandatory corporate sustainability reporting seems to make a big difference. Ioannou and Sarafeim looked at ?laws mandating various aspects of sustainability reporting in 58 countries. They then examined other data for a five-year period after a particular law was passed. After corporate sustainability reporting became mandatory:

Business leaders are perceived to be more socially responsible. Employee training becomes a higher priority Boards do a better job overseeing companies Managerial credibility increases overall Bribery and corruption appear to decrease (the evidence for this particular effect is not as strong as it is for the others) Third-party vetting of reports increases the effects of mandatory sustainability reporting.

The authors were also able to make comparisons between countries:

Singapore, Austria, and Denmark top the list of countries doing the best at sustainable development. Venezuela, Argentina and Italy are at the bottom of the list. Singapore, Finland, and Denmark give their corporate managers the highest marks for credibility. Managers in Russia, Poland and the Czech Republic do the worst. Denmark, Finland and New Zealand appear to have the least corruption; Venezuela, Russia and Romania appear to have the most.

Australia, France, Italy, Malaysia, Netherlands and Sweden have all passed laws or regulations that mandate comprehensive corporate sustainability reporting. Do you think the U.S. should do likewise?