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Asian Corporates: Willing Participants in the Reporting Revolution?
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Environmental Reporting
Asian Corporates: Willing Participants in the Reporting Revolution? Megan Thomas
Asia represents one of the most diverse regions of the world in terms of culture, politics and economies. Not surprisingly, there is a comparative variety in who is publicly reporting, where and why. As might be expected, those countries with stronger, more mature economies are the regional leaders, notably Japan, South Korea and Hong Kong. Japan is far ahead in terms of numbers of companies reporting and also has two award schemes in place to reward best practice and innovation. Both South Korea and Hong Kong are increasingly reporting, but with limited sophistication and an emphasis on environmental issues. With the development of the Global Reporting Initiative ŽGRI., participating Asian companies are able to access a global network of reporting organisations and substantial collective experience. A number of Japanese companies have already cited using the GRI framework in preparing their reports, whilst five Asian companies are involved in the current GRI feedback process, including one in Singapore and one in Thailand. The region’s reporting pioneers are being driven by globalisation and international peer pressure. Moreover, whilst Asian companies have been notorious for limited corporate governance and transparency in their financial affairs, business models are changing and this evolution is likely to promote better disclosure not only of fiscal performance but also on environmental, health, safety and social issues. 䊚 2001 Elsevier Science Inc. All rights reserved.
Ms Thomas is a Senior Consultant in the Corporate Risk Management Group in ERM’s Hong yKong office and has extensive experience in environmental, health and safety ŽEHS. management systems, reporting, auditing and training. Ms Thomas advises clients on corporate social responsibility and reputation management in Asia, relatively novel concepts for the region.
Corresponding author: ERM Hong Kong Ltd, 21/F Lincoln House, 979 King’s Road, Taikoo Place, Island East, Hong Kong; Tel.: q852-2271-3151; fax: q852-2773-5660; E-mail: [email protected].
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If you were to look at the top ten global entities in terms of financial turnover, the list would comprise companies as well as countries, and some non-government organisations ŽNGO’s. are raising concerns about the growing power and influence of companies who are not directly answerable to society. This is amply illustrated by the well-organised protesters who shadow international forums whenever they meet, such as the World Trade Organisation ŽWTO., the European Union and global leaders at Davos.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Box 1 What do we mean by a public
report? Regulatory Reporting The origin of public reporting was under regulatory regimes whereby companies had to Žand still do. disclose certain environmental releases, incidents and safety accidents to the regulator. Such regulatory reporting has become more widespread, sophisticated and public over the years, with increasingly stringent legislation, such as the Integrated Pollution Prevention and Control Directive in Europe. Often this type of reporting comprises completion of forms which are then submitted to the regulator on a periodic basis, or on an as needs basis, such as after a reportable incident. In most western countries, this information is publicly available although access may not be easy and could require a visit to the regulators’ offices. The USA’s Toxic Release Inventory ŽTRI. is generally regarded as the most transparent system for regulatory reporting, with data made available over the internet by the US EPA. Public Reporting This refers to the type of reporting whereby a company chooses to publish a document describing its organisation, management systems, past performance and improvement objectives & targets. Many companies do this type of reporting voluntarily, but a number of governments are now requiring these types of reports to be published by law. These documents can be a few pages in length, particularly for first-time reporting, to over 100, although such tomes are not common; more typically, reports are 20–40 pages in length. Reports can vary in scope, with many companies now reporting on environment, health and safety in the west. Some companies are beginning to grapple with ‘‘social’’ reports and ‘‘sustainable’’ reports,
which endeavour to be more holistic and look beyond the factory gate. Social reports consider, for example, worker rights, impacts on local communities and impacts on the larger community Žsuch as the economy of an entire country in emerging markets.. Sustainable reports adopt a balanced framework covering EHS performance, social impacts and economic performance, with the oil & gas and mining sectors widely acknowledged as global leaders in this type of reporting. Whilst extreme and violent forms of protest against capitalism can be dismissed for what they are, it is now widely acknowledged that the private sector must respond to the concerns of respected organisations about environmental degradation, worker rights and impacts on communities. Large, international companies are therefore shifting from a position of one that is only interested in courting shareholders, to one that is more open and accountable to a wide range of stakeholders Žso called ‘‘trust me’’ to ‘‘show me’’ world.. Part of this evolution has been for companies to publicly report their performance in an objective way. Voluntary environmental and/ or health and safety reports first appeared in the late 1980’s with varying degrees of acceptance by the environmental and social community. Some were accused of being simply ‘‘greenwash’’ public relations documents, whilst others were praised as being genuine attempts to fully disclose environmental, health and safety ŽEHS. impacts and the company’s response to minimising these. EHS public reporting has since increasingly become integrated into voluntary standards, notably the Eco-management and Audit Scheme ŽEMAS. and into some European laws, such as in Sweden and France. In North America, reporting of environmental releases has been a regulatory requirement under Toxic Release Inventory ŽTRI. legisla-
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
tion since 1986 ŽEmergency Planning and Community Right to Know Act, EPCRA; see Box 1.. Environmental, health and safety reporting is now becoming standard practice in many industries headquartered in the developed world, and social or sustainability reporting is becoming increasingly prevalent and sophisticated.
Reporting Standards A common criticism subsequently raised by interested parties, was the absence of a consistent reporting framework to facilitate comparative benchmarking thereby allowing the reader to develop meaningful conclusions. This is seen as particularly important to properly engage the investment community and so integrate environmental and social performance into their financial evaluations.1 In an attempt to level the playing field on public reporting, the Coalition for Environmentally Responsible Economies therefore launched the Global Reporting Initiative ŽGRI. in 1997. The objective of the GRI is to develop a generally-accepted, widely applicable framework for preparing public reports on sustainability, covering the three aspects of environmental, economic and social performance.2 GRI is increasingly being referred to or adopted, by many companies and is rapidly becoming the accepted global benchmark. GRI is now entering a second phase of development with a Structured Feedback Process ŽSFP. on the revised Sustainability Reporting Guidelines, whereby 31 companies have signed-up to participate. As part of the SFP, companies commit to: d d d
Thoroughly reviewing the Guidelines; Providing feedback; and Considering publishing a sustainability report in accordance with the Guidelines.3
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The Asian Backdrop Asia represents one of the most diverse regions of the world in terms of culture, politics and economies. It includes three of the world’s potential giant economies, China, India and Indonesia, and is home to 3.5 billion people Ž57% of the world’s population.. The region also represents a global challenge to balance the rate of economic growth with environmental degradation and also in ensuring equitable division of income to reduce poverty. In 2000, the World Bank reported that the region was the fastest growing and most economically dynamic in the world, but according to Mr Kassum, the Bank’s Vice President for East Asia and Pacific Region, this won’t necessarily translate into a higher standard of living for the people of the region: ‘‘If growth turns out to be 5% annually until 2008, and it is equally shared, the number of people living in poverty in East Asia, including China, would fall from 278 million to 72 million. Slower growth of only 4% and with less equal income distribution would leave more than twice as many — 182 million — in poverty in 2008’’.4
What’s Happening in Asia?5 Due to the economic and cultural diversity of Asia, there is a comparative variety in who is publicly reporting, where and why. As might be expected, those countries with stronger, more mature economies are leading the pack, notably: d d d
Japan South Korea Hong Kong
Where the economies of countries are still struggling, such as in India, companies are having to deal with the day-to-day realities of staying in business and cannot necessarily afford to be outward looking. Here it can be said that public reporting is a luxury which local stakeholders are not yet demanding.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Table 1 Asian Companies Participating in GRI SFP Private Company
Industry
Headquarters
Ito Yokado Jebsen and Jessen
Retail Industrial products/ services Food and beverage Electronics Paper products
Japan Singapore
Kirin Brewing Panasonic ŽMatsushita Electric. Siam Pulp & Paper Public Company
This is not to say that there isn’t a continuing and growing interest in public reporting; of the 31 companies committed to the SFP for GRI, five are from the Asia region Žrepresenting 16% of the total,6 see Table 1..
Japan Japan has particularly embraced the environmental mantra, and has the highest global uptake of ISO 14001 as well as good representation amongst its top companies for public disclosure, with six out of the top ten companies Žby market capitalisation. publicly reporting Žsee Box 2.. In the 1990’s, Japan quickly recognised that its major export markets in the USA and Europe were driving environmental expectations down the supply chain, as had occurred with quality some years earlier. This recognition of the business opportunities led to the major Japanese companies becoming environmentally and socially active. They are considered to be on an equal footing with their western counterparts with, for example, good representation on the Dow Jones Sustainability Group Index.7 Japan is also one of only two countries in Asia where environmental reporting awards schemes are in place: d
d
Green Reporting Forum, sponsored by Toyo Keizai Inc., a Tokyo Headquartered publishing house; and Environmental Reporting Awards, administered by not-for-profit organisations with the support of the Environment Agency.
Japan Japan Thailand
Under the Green Reporting Forum scheme,8 which began in 1998, the number of companies competing for the Green Reporting Award Contest reached 100 in 2000, and almost doubled in 2001, with 192 entries received Žfor reports published in 2000..9 Companies participating in the scheme range from trading companies to end-user product, material, chemical manufacturers, reflecting well Japan’s economic sectors. According to the scheme’s organisers and judges,10 there is an apparent growing standardisation of the types of information being included in environmental reports, and a noticeable improvement has been observed regarding the presentation of environmental information and reader-friendly descriptions, although references to the GRI are not made. The winner of the 2001 First Prize was awarded to Seiko Epson Corporation, and the Second Prize jointly given to the Kirin Brewery Company and Matsushita Electric Group.11 The Environmental Reporting Awards, the competing Japanese scheme, aims to promote environmental communication and encourage the disclosure of environmental information by businesses through the recognition of excellence in environmental reporting. The scheme was first established in 1997, and is administered by two not-forprofit organisations with the support of the Environment Agency, Japan’s environmental regulator. In 2000, the Grand Prize went to the Matsushita Electrical Industrial Co. Ltd., with eight companies being given the Award
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
Box 2 Who is Reporting in Selected Asian Economies
ŽTop Ten by Market Capitalisation, May 2001. Company
Sector
Japan d NTT DoCoMo Inc d Toyota Motor Corporation
d d
d d
Nippon Telegraph and Telephone Corporation Sony Corporation
d d
d d d d
Mitsubishi Tokyo Financial Corporation Inc Mizuho Holdings Inc Takeda Chemicals Industries Ltd Honda Motor Co Ltd
d d d d
d d
Nomura Securities Co Ltd Matsushita Electrical Industrial Co. Ltd
d d
South Korea d Samsung Electronics Company Ltd d SK Telecom Co., Ltd d Korea Telecom Corporation d Korea Electric Power Corporation d Pohang Iron and Steel Co. Ltd d Hyundai Motor Company Ltd
Telecommunications Diversified Automotive Manufacturers Telecommunications Radio, T.V. & Phonograph Manufacturers Holding Company Commercial Bank Ethical Drug Manufacturers Diversified Automotive Manufacturers Securities Brokerage Diversified Electronics
d d
Kookmin Bank Kia Motors Corporation
d d
d d
Samsung Electro-Mechanics Co. Ltd Korea Tobacco and Ginseng Corporation
d d
Diversified Electronics Telecommunications Telecommunications Electric Power Companies Diversified Metal Products Mfrs Diversified Automotive Manufacturers Commercial Banks Diversified Automotive Manufacturers Parts and Components Cigarette Manufacturers
d d d d d d d d d d
Commercial Banks Telecommunications General Diversified Land and Real Estate Land and Real Estate Commercial Banks Telecommunications Electric Power Companies General Diversified Railroad Holding Company
d d d d d d
Hong Kong d HSBC Holdings plc ŽHK. d China Mobile ŽHong Kong. Limited d Hutchison Whampoa Limited d Cheung Kong ŽHoldings. Limited d Sun Hung Kai Properties Limited d Hang Seng Bank Limited d China Unicom Limited d CLP Holdings Limited d Swire Pacific Limited d MTR Corporation Limited
for Excellence12 and a further five companies receiving Special Recognition.13 It is re-assuring to note that there is alignment with those succeeding in these award schemes, with Matsushito and the Kirin Brewery Co. appearing prominently in both; these companies are also participating in the current SFP for the GRI and moreover, appeared in the Top 50 reports surveyed by
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Reporting? No Yes Yes Yes No No Yes Yes No Yes Yes No No No Yes Yes
No No No No No No No Yes29 No Yes
No No Yes No
SustainAbility, in their most recent review of global reporters.14 As well as those participating in the GRI SFP, additional Japanese companies have acknowledged using the GRI framework for their reporting, including giants such as Nissan, Fuji Xerox and Ricoh.15 Given the existing momentum for environmental reporting, it is considered that public
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Table 2 Reporting Companies in South Korea d d d d d d
Samsung Electronics Samsung Electric Samsung Corning Hyundai Electronics Žnow Hynix. Hyundai Merchant Marine Hyundai Heavy Industries Company
disclosure will continue to grow in Japan despite the looming economic recession, and that reporting will follow the international evolutionary trend of including health and safety issues, and ultimately social reporting.
South Korea Environmental disclosure in South Korea, much like North America was a few years ago, is mostly focused on regulatory reporting of environmental data to Government, rather than wider public disclosure. For example, South Korea is one of the few countries in Asia where reporting is legally required, with companies required to disclose data on hazardous waste disposal and the discharge of toxic chemicals to the environment ŽWaste Management Law and Toxic Chemical Management Law, respectively.. However, there are some pioneering companies who are voluntarily reporting to the wider community; these are mostly the well-known conglomerates and international Korean companies. According to one recent study,16 eleven environmental reports were published in 2000 Žsee Table 2.. Of these, four companies are in the top ten by market capitalisation Žsee Box 2.. In reviewing these reports, they do not appear to have adopted any particular standards or frameworks; rather they have been produced on the basis of environmental reports published by foreign multinationals in peer industries. The scope of the reports also tends to focus on environmental performance, with little attention given to health and
POSCO Žone of the world’s largest steel manufacturing companies. d Korean Airlines d LG Chemical d Hansol Paper d Pacific and Co. Žbeauty care product manufacturer. d
safety or more strategic issues such as social impacts or corporate responsibility. The type of information disclosed also ranges from generic and qualitative Že.g. Samsung Electronics. to more focused and quantitative Že.g. Samsung Corning., irrespective of whether the companies form part of the same conglomerate. The key driver for continuing environmental, and now social, reporting in South Korea is that disclosure is becoming a pre-requisite for attracting foreign investment and for expanding into foreign markets; for example, Samsung Electronic was required to publish a report under contract conditions for the Australian Olympics.
Hong Kong Hong Kong is a designated Special Administrative Region ŽSAR. of China, with a selfdetermining Government. To promote environmentally responsible management within the public sector, the Hong Kong SAR Chief Executive included a requirement in his 1998 Policy Objectives that all departments ŽControlling Officers. within Government, publish reports on their environmental policies and actions, starting from the 1999/2000 financial year. To this end, the Environmental Protection Department has published a Guide,17 which focuses on the process rather than content. Interestingly, whilst some useful resource references are given in the Appendix to this document, there is no mention of the GRI, an important oversight.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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The Government’s intention is to lead by example, although a number of commercial companies had already reported by 2000. CLP Power, the Hong Kong operations of the international China Light and Power company, is particularly active having published its first environmental report in 1997, and recently written about its experiences in a local publication.18 An additional incentive for private sector companies, is the establishment of a local reporting award scheme. The Hong Kong Environmental Campaign Committee, in collaboration with the Chinese General Chamber of Commerce, the Hong Kong General Chamber of Commerce and the Hong Kong Productivity Council, organises an annual Hong Kong Eco-Business Awards scheme to encourage organisations to enhance their environmental protection commitment.
However, only one Asian nation, Japan, is included in the FT500’s current top 10 country list. When Japan is excluded, Asian enterprises account for just 25 of the world’s 500 most valuable publicly listed companies, which could be considered surprising given the region’s growing economic weight.20 Why is this? Many Asian economies are still recovering from the 1997/98 financial crisis. But the economic model of the region also contributes to this state of affairs, where fewer public companies exist compared with the western model. Asian conglomerates are often family owned and are diverse in their operations, with an egocentric culture, minimal transparency and an overriding desire to ‘‘keep it in the family’’. As a result, these companies prefer to use retained earnings and bank debt to fund expansion rather than utilise the public markets for raising capital.
A new category, the Environmental Reporting Grand Award, was added in 2000 and was presented to CLP Power, with Carven Circuits Ltd and Cathay Pacific Airways Ltd each receiving a Gold Award.19
A recent survey « identified a number of Asian stock market heavyweights with low corporate governance standards.
However, it is generally considered that reporting is a still a developing field in Hong Kong with few companies currently disclosing their environmental, health, safety and/or social policies and performances. Only two ŽCLP Power and MTR Corporation Ltd.. out of the top ten Hong Kong companies by market capitalisation, currently publish environmental Žand health & safety. reports, whilst the more sophisticated type of social reporting being adopted by western peers is yet to be considered at all, except by CLP.
w1x But even where companies are publicly listed, the degree of corporate governance is being questioned. A recent survey by the fund manager CSLA21 identified a number of Asian stock market heavyweights with low corporate governance standards. In their report, CLSA analysts gave their assessment of 495 companies in 25 emerging markets in Asia,22 Latin America and Eastern Europe. They focused on 57 issues in seven categories including social responsibility and environmental management. Banking giant HSBC was overall no. 1 in the report, with Infosys ŽIndian based. second and Singapore Airlines third.
Will Reporting Increase? Corporate Governance In the west, public reporting has been stimulated by corporate governance requirements and shareholder accountability through being a publicly listed company.
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However, the CSLA survey questions Žsix in all, see Box 3. did not include whether the company publicly reported performance, something which is considered fundamental
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Figure 1 Public Reporting by the Top 25 Asian Companies Žexcluding Japan..
Box 3 CSLA Social Responsibility
Questions 2001 Does the company: d
d d d
d
d
Have an explicit policy emphasising strict ethical behaviour? Not employ the under-aged? Have an explicit equal employment policy? Adhere to specified guidelines on sourcing materials? Have an explicit policy on environmental responsibility? Abstain from countries where leaders lack legitimacy?
by analysts in Australia, Europe and North America. Moreover, when the top 25 companies in Asia by market capitalisation23 were surveyed using the internet, less than a quarter were found to be publicly reporting their EHS or social performance ŽFigure 1..
The growth of overall financial corporate governance in the region is considered to be gathering pace, being promulgated by governments and financial institutions to ensure the future economic well-being of the region. This represents an important driver in improving disclosure on environmental, health, safety and social performance. In fact, the consideration of a company’s social impacts may well leapfrog western reporting standards, as such issues are much more prominent in the region and are critically integral to sustained economic growth.
Access to Capital Inextricably linked with corporate governance standards, is the increasing desire of Asian companies to attract international investors and joint venture partners for expansion. Whilst we have previously mentioned that Asian companies have been averse to using the stock markets to raise capital, it is predicted that this will change over the coming decade as Asian companies learn to exploit the international investment community, par-
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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ticularly in repairing the damage done by the financial crisis. A prime example of this trend is in China, whose economy grew by 8% last year and where four giant Chinese corporations raised more than US$20 billion abroad from initial public offerings. Three of these were oil and gas companies, and they have all included an overview of EHS performance on their web-sites, an indicator of what could be coming. A range of investors, who may comprise venture capital companies, fund managers, institutional investors, domestic shareholders etc., can become involved depending on whether a company is looking for an injection of private equity or whether they are undertaking a public offering on the stock markets. Irrespective, all these investor groups are looking for assurance that their money is in ‘‘safe hands’’ and that a good return will be made. The arguments for including EHS and social issues into mainstream financial performance evaluation are becoming increasingly persuasive. There are now financial indices which track the stock market performance of companies defined as having strong EHS and social performance, and which consistently demonstrate that these companies outperform their less responsible competitors; for example, the Dow Jones Sustainability Group Index.24 Specialist environmental and social funds, are exploiting this trend for such companies being good financial performers. Whilst these funds represent a minority of global investment funds, they are becoming more prevalent and therefore influential. For example, in 2000, the UK enacted a law requiring pension funds to publicly state their position on socially responsible investment ŽSRI., an innovative way of encouraging institutional investors to become more socially responsible. A recent study into how the top 500 UK pension funds have responded to the new regulation identified that already 59% of
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funds, Žrepresenting 78% of assets. incorporate SRI into their investment strategies.25 Whether being environmentally and socially responsible directly contributes to increased share value or whether it acts as a good indicator of overall business performance, the integration of EHS and social issues into the way the financial community makes investment decisions is becoming more common. As public reporting is one of the key mechanisms for companies to demonstrate their achievements and low risk profile, the ability to report clearly and periodically could become a competitive issue. In the capitalstarved region of Asia, full financial, EHS and social disclosure may well be the best strategy for attracting inward investment.
Globalisation It is often said that we are living in a ‘‘CNN world’’, where what happens in one part of the globe is rapidly transmitted for scrutiny and comment around the world. As mentioned previously, reporting is just one of industrys’ responses to globalisation and increasing normalisation of business processes across all geographic locations. The process of reporting forces a company to ensure it monitors and manages the activities of its global operations, and therefore provides business value by helping avoid surprises. Through measuring and disclosing performance, companies are better positioned to seize the initiative rather than find themselves reacting to situations, and even worse, reacting without any data to refute or counteract media broadcasts. The downside of course, is that companies can be lulled into a potential false sense of security, thinking that all is well and that they are in control. Reporting systems are, however, only as strong as their weakest link, and in their report, SustainAbility comment on the need for multinationals to close the information gap regarding operations in, and impacts on, less developed emerging economies, such as in Asia.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Globalisation also provides impetus for Asian companies to conduct business in line with international standards, and this is beginning to include EHS and social reporting. Globalisation and international peer pressure, are often cited as key business concerns for those companies who are considered reporting pioneers in Asia. Another influence of globalisation is that whilst environmental grass roots activism is not widely evident in Asia, mostly associated with a cultural issues together with more pressing problems of poverty and social issues in many countries, local groups are learning from their western counterparts. With the help of the internet, Asian activism is predicted to grow and become more influential; this is already evident in Hong Kong. Furthermore, western activists may well start looking to the east for new targets.
«western activists may well start looking to the east for new targets. Government Policies In the west, most governments have not adopted mandatory public reporting policies, beyond specific data required under permitting regimes. Instead, governments are publicly advocating that they expect companies to produce EHS and social reports. For example, the UK Government has adopted a dual policy of encouraging companies to report through the development of reporting guidelines, but also conducts an annual ‘‘name and shame’’ for those who have not reported. Last year, the British Prime Minister challenged the FTSE top 350 to report on their environmental impacts. Meanwhile, since 1998, the Environment Minister writes annually to those companies in the FTSE 100 who have failed to publicly report, demanding to know why and strongly encouraging a commitment to future reporting.
Across Asia, government policies are immature and the future is uncertain, but there are some clear examples of governments taking a lead. In Hong Kong, all government departments Žincluding regulators. are required to publish environmental reports, whereas the Japanese Environment Agency is an advocate of one of the reporting award schemes. In South Korea, the Ministry of Environment has recently announced that they will support financial institutions for gradually integrating environmental risk assessment into decisionmaking processes. There is anecdotal evidence that companies would prefer to see a clear government stance on public reporting. Whilst the pioneering few are forging ahead, outside of Japan there does appear to be some resistance by those for whom reporting requires a major culture change for voluntary disclosure. In particular, recognition for public reporting through reduced regulatory inspections would be an attractive incentive for industry, above and beyond those discussed already.
The Future So whilst the reporting scene is variable across Asia, it is considered that disclosure will become more prevalent and sophisticated, as economies mature and companies are able, encouraged or are forced, to be more outward looking. It is also considered that the reporting trend will follow that observed in the west, but at a more compressed rate of evolution, as illustrated in Figure 2. Something which Asian companies may find the hardest to tackle is defining reporting boundaries and data collection systems for what can be complicated company structures, comprising holding entities for intricate cross share-holdings, joint ventures and subsidiaries. Here, companies need to start simple and set themselves an incremental programme for reporting. Too many companies have fallen into the trap of trying to cover too much, too soon, and ended up
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Figure 2 Evolutionary Trend of Reporting.
with meaningless tomes. Instead, it is far better to produce a high quality report which focuses on one part of the organisation, and then expand scope and coverage as the company learns ‘‘how to report’’. The establishment of a global standard will only further help in that companies can avoid re-inventing the wheel, whilst the investment community will be able to meaningfully benchmark industry sectors. It is encouraging that a number of Asian companies are already involved with GRI, and this should be set to grow. But it is possible that some Asian governments will wish to develop something which they feel is more local, as exemplified by Hong Kong, and which could potentially muddy the waters. Hence, GRI must be able to respond to the dual needs of increased global standardisation whilst allowing for local interpretation and innovation. The Asian love affair with all things technological also means that reporting will most likely focus on web-based reporting, thereby allowing greater access on a global scale. In
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Hong Kong, CLP Power and the Mass Transit Railway Corporation ŽMTRC., have both published their latest 2000 reports only on the internet.26 However, whilst this is appropriate for a developed economy such as Hong Kong, it may not be as suitable for countries where there is limited access to computers; ironically, publishing on the internet could allow someone in a distant time zone to review a company’s performance, but not an employee. Whilst such a company could well be aiming primarily to reach its western customers and international investors, this should not result in the local community being neglected. Hence Asian companies in particular, may need to think about hierarchical reporting systems tailored to separate audiences and their needs.27,28
Endnotes 1. A recent FTSE 100 survey conducted by Business in the Environment, has identified
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
2.
3. 4. 5. 6. 7. 8. 9. 10.
11.
12.
13.
14. 15. 16.
that this need is still not being satisfied, despite the UK being considered a leader in public reporting ŽENDS, No 316, May 2001.. Initially GRI focused on environmental reporting, but is evolving to align itself with ‘‘sustainability’’, based on the term sustainable development, which rose to prominence in the late 1990’s and which was first defined by Brundtland in 1987 as the ability to meet the needs of the current generation without compromising the ability of future generations to meet theirs, and is generally associated with the ‘‘triple bottom line’’ of social, economic and environmental management. www.globalreporting.org www.asria.org Excluding Australia and New Zealand, for the purposes of this article. www.globalreporting.org www.sustainability-index.com/ www.toyokeizai.co.jp/english/kankyo e 03/ index.html Source: www.toyokeizai.co.jp/english/kankyo e 03/index.html The Green Reporting Forum comprises a panel of 12 judges representing organisations as diverse as the Japan Environmental Managers and Auditors Society, the World Wide Fund Japan and the Japan Federation of Economic Organizations. Five criteria are used by the judges in determining the reporting prizes. A further 10 organisations received Third Prize: Inax Corp, NEC Corp, The Seiyu Ltd, Takara Shuzo Co., Tokyo Gas Co., Toshiba Corp., Tokyo Ink Mfg Co., Tokyo Motor Corp, IBM Japan and Fujitsu. Kirin Brewery Co. Ltd, The Sieyu Ltd, SONY Tochigi Corp, Tokyo Gas Co. Ltd, Toyota Motor Corp, NEC Corp, Hitachi Ltd and Ricoh Co. Ltd. City of Sendai, Corporate Research and Development Centre Toshiba Corp, Pickles Corp, The Yasuda Fire and Marine Insurance Co. Ltd and NEC Yamaguchi Ltd. The Global Reporters, SustainAbility/UNEP, November 2000 www.globalreporting.org Min-Young Lee, A Study on Current Status of Korean Corporate Reporting and Paths for Improvement, MSc Thesis, February 2001
17. www.info.gov.hk/epd 18. Green Productivity, published quarterly by the Hong Kong Productivity Council, Issue 1, 2001. 19. A further 6 organisations received Merit Prize: Architectural Services Department, Electrical and Mechanical Services Department, Hang Yick Properties Management Ltd, Hong Kong Housing Authority, Hotel Nikko Hongkong, and Kai Shing Management Services Ltd. 20. South China Morning Post, May 2001 21. CG Watch Corporate Governance in Emerging Markets 2001, CSLA, May 2001 22. Comprising the following countries: China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan and Thailand. 23. Thompson Financial as published in the South China Morning Post, May 2001 24. www.sustainability-index.com/ 25. Eugenie Mathieu, Response of UK Pension Funds to the SRI Disclosure Regulation, MSc Thesis, October 2000 26. www.chinalightandpower.com.hk and www.mtr.com.hk 27. The author would like to thank the following colleagues for their invaluable support in preparing this article: Inhee Chung, Matt Haddon, Melody Hoi Yan Keung, Leo Liu, James Muir, Rick Reidinger, Alastair McNair Scott. 28. An exhaustive survey was not conducted in preparing this article, and so the author would be pleased to hear from anyone who has comments or additional information. 29. Although only its operation in Hong Kong, CLP Power Hong Kong Ltd has reported.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
Asian Corporates: Willing Participants in the Reporting Revolution? Megan Thomas
Asia represents one of the most diverse regions of the world in terms of culture, politics and economies. Not surprisingly, there is a comparative variety in who is publicly reporting, where and why. As might be expected, those countries with stronger, more mature economies are the regional leaders, notably Japan, South Korea and Hong Kong. Japan is far ahead in terms of numbers of companies reporting and also has two award schemes in place to reward best practice and innovation. Both South Korea and Hong Kong are increasingly reporting, but with limited sophistication and an emphasis on environmental issues. With the development of the Global Reporting Initiative ŽGRI., participating Asian companies are able to access a global network of reporting organisations and substantial collective experience. A number of Japanese companies have already cited using the GRI framework in preparing their reports, whilst five Asian companies are involved in the current GRI feedback process, including one in Singapore and one in Thailand. The region’s reporting pioneers are being driven by globalisation and international peer pressure. Moreover, whilst Asian companies have been notorious for limited corporate governance and transparency in their financial affairs, business models are changing and this evolution is likely to promote better disclosure not only of fiscal performance but also on environmental, health, safety and social issues. 䊚 2001 Elsevier Science Inc. All rights reserved.
Ms Thomas is a Senior Consultant in the Corporate Risk Management Group in ERM’s Hong yKong office and has extensive experience in environmental, health and safety ŽEHS. management systems, reporting, auditing and training. Ms Thomas advises clients on corporate social responsibility and reputation management in Asia, relatively novel concepts for the region.
Corresponding author: ERM Hong Kong Ltd, 21/F Lincoln House, 979 King’s Road, Taikoo Place, Island East, Hong Kong; Tel.: q852-2271-3151; fax: q852-2773-5660; E-mail: [email protected].
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If you were to look at the top ten global entities in terms of financial turnover, the list would comprise companies as well as countries, and some non-government organisations ŽNGO’s. are raising concerns about the growing power and influence of companies who are not directly answerable to society. This is amply illustrated by the well-organised protesters who shadow international forums whenever they meet, such as the World Trade Organisation ŽWTO., the European Union and global leaders at Davos.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Box 1 What do we mean by a public
report? Regulatory Reporting The origin of public reporting was under regulatory regimes whereby companies had to Žand still do. disclose certain environmental releases, incidents and safety accidents to the regulator. Such regulatory reporting has become more widespread, sophisticated and public over the years, with increasingly stringent legislation, such as the Integrated Pollution Prevention and Control Directive in Europe. Often this type of reporting comprises completion of forms which are then submitted to the regulator on a periodic basis, or on an as needs basis, such as after a reportable incident. In most western countries, this information is publicly available although access may not be easy and could require a visit to the regulators’ offices. The USA’s Toxic Release Inventory ŽTRI. is generally regarded as the most transparent system for regulatory reporting, with data made available over the internet by the US EPA. Public Reporting This refers to the type of reporting whereby a company chooses to publish a document describing its organisation, management systems, past performance and improvement objectives & targets. Many companies do this type of reporting voluntarily, but a number of governments are now requiring these types of reports to be published by law. These documents can be a few pages in length, particularly for first-time reporting, to over 100, although such tomes are not common; more typically, reports are 20–40 pages in length. Reports can vary in scope, with many companies now reporting on environment, health and safety in the west. Some companies are beginning to grapple with ‘‘social’’ reports and ‘‘sustainable’’ reports,
which endeavour to be more holistic and look beyond the factory gate. Social reports consider, for example, worker rights, impacts on local communities and impacts on the larger community Žsuch as the economy of an entire country in emerging markets.. Sustainable reports adopt a balanced framework covering EHS performance, social impacts and economic performance, with the oil & gas and mining sectors widely acknowledged as global leaders in this type of reporting. Whilst extreme and violent forms of protest against capitalism can be dismissed for what they are, it is now widely acknowledged that the private sector must respond to the concerns of respected organisations about environmental degradation, worker rights and impacts on communities. Large, international companies are therefore shifting from a position of one that is only interested in courting shareholders, to one that is more open and accountable to a wide range of stakeholders Žso called ‘‘trust me’’ to ‘‘show me’’ world.. Part of this evolution has been for companies to publicly report their performance in an objective way. Voluntary environmental and/ or health and safety reports first appeared in the late 1980’s with varying degrees of acceptance by the environmental and social community. Some were accused of being simply ‘‘greenwash’’ public relations documents, whilst others were praised as being genuine attempts to fully disclose environmental, health and safety ŽEHS. impacts and the company’s response to minimising these. EHS public reporting has since increasingly become integrated into voluntary standards, notably the Eco-management and Audit Scheme ŽEMAS. and into some European laws, such as in Sweden and France. In North America, reporting of environmental releases has been a regulatory requirement under Toxic Release Inventory ŽTRI. legisla-
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
tion since 1986 ŽEmergency Planning and Community Right to Know Act, EPCRA; see Box 1.. Environmental, health and safety reporting is now becoming standard practice in many industries headquartered in the developed world, and social or sustainability reporting is becoming increasingly prevalent and sophisticated.
Reporting Standards A common criticism subsequently raised by interested parties, was the absence of a consistent reporting framework to facilitate comparative benchmarking thereby allowing the reader to develop meaningful conclusions. This is seen as particularly important to properly engage the investment community and so integrate environmental and social performance into their financial evaluations.1 In an attempt to level the playing field on public reporting, the Coalition for Environmentally Responsible Economies therefore launched the Global Reporting Initiative ŽGRI. in 1997. The objective of the GRI is to develop a generally-accepted, widely applicable framework for preparing public reports on sustainability, covering the three aspects of environmental, economic and social performance.2 GRI is increasingly being referred to or adopted, by many companies and is rapidly becoming the accepted global benchmark. GRI is now entering a second phase of development with a Structured Feedback Process ŽSFP. on the revised Sustainability Reporting Guidelines, whereby 31 companies have signed-up to participate. As part of the SFP, companies commit to: d d d
Thoroughly reviewing the Guidelines; Providing feedback; and Considering publishing a sustainability report in accordance with the Guidelines.3
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The Asian Backdrop Asia represents one of the most diverse regions of the world in terms of culture, politics and economies. It includes three of the world’s potential giant economies, China, India and Indonesia, and is home to 3.5 billion people Ž57% of the world’s population.. The region also represents a global challenge to balance the rate of economic growth with environmental degradation and also in ensuring equitable division of income to reduce poverty. In 2000, the World Bank reported that the region was the fastest growing and most economically dynamic in the world, but according to Mr Kassum, the Bank’s Vice President for East Asia and Pacific Region, this won’t necessarily translate into a higher standard of living for the people of the region: ‘‘If growth turns out to be 5% annually until 2008, and it is equally shared, the number of people living in poverty in East Asia, including China, would fall from 278 million to 72 million. Slower growth of only 4% and with less equal income distribution would leave more than twice as many — 182 million — in poverty in 2008’’.4
What’s Happening in Asia?5 Due to the economic and cultural diversity of Asia, there is a comparative variety in who is publicly reporting, where and why. As might be expected, those countries with stronger, more mature economies are leading the pack, notably: d d d
Japan South Korea Hong Kong
Where the economies of countries are still struggling, such as in India, companies are having to deal with the day-to-day realities of staying in business and cannot necessarily afford to be outward looking. Here it can be said that public reporting is a luxury which local stakeholders are not yet demanding.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Table 1 Asian Companies Participating in GRI SFP Private Company
Industry
Headquarters
Ito Yokado Jebsen and Jessen
Retail Industrial products/ services Food and beverage Electronics Paper products
Japan Singapore
Kirin Brewing Panasonic ŽMatsushita Electric. Siam Pulp & Paper Public Company
This is not to say that there isn’t a continuing and growing interest in public reporting; of the 31 companies committed to the SFP for GRI, five are from the Asia region Žrepresenting 16% of the total,6 see Table 1..
Japan Japan has particularly embraced the environmental mantra, and has the highest global uptake of ISO 14001 as well as good representation amongst its top companies for public disclosure, with six out of the top ten companies Žby market capitalisation. publicly reporting Žsee Box 2.. In the 1990’s, Japan quickly recognised that its major export markets in the USA and Europe were driving environmental expectations down the supply chain, as had occurred with quality some years earlier. This recognition of the business opportunities led to the major Japanese companies becoming environmentally and socially active. They are considered to be on an equal footing with their western counterparts with, for example, good representation on the Dow Jones Sustainability Group Index.7 Japan is also one of only two countries in Asia where environmental reporting awards schemes are in place: d
d
Green Reporting Forum, sponsored by Toyo Keizai Inc., a Tokyo Headquartered publishing house; and Environmental Reporting Awards, administered by not-for-profit organisations with the support of the Environment Agency.
Japan Japan Thailand
Under the Green Reporting Forum scheme,8 which began in 1998, the number of companies competing for the Green Reporting Award Contest reached 100 in 2000, and almost doubled in 2001, with 192 entries received Žfor reports published in 2000..9 Companies participating in the scheme range from trading companies to end-user product, material, chemical manufacturers, reflecting well Japan’s economic sectors. According to the scheme’s organisers and judges,10 there is an apparent growing standardisation of the types of information being included in environmental reports, and a noticeable improvement has been observed regarding the presentation of environmental information and reader-friendly descriptions, although references to the GRI are not made. The winner of the 2001 First Prize was awarded to Seiko Epson Corporation, and the Second Prize jointly given to the Kirin Brewery Company and Matsushita Electric Group.11 The Environmental Reporting Awards, the competing Japanese scheme, aims to promote environmental communication and encourage the disclosure of environmental information by businesses through the recognition of excellence in environmental reporting. The scheme was first established in 1997, and is administered by two not-forprofit organisations with the support of the Environment Agency, Japan’s environmental regulator. In 2000, the Grand Prize went to the Matsushita Electrical Industrial Co. Ltd., with eight companies being given the Award
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
Box 2 Who is Reporting in Selected Asian Economies
ŽTop Ten by Market Capitalisation, May 2001. Company
Sector
Japan d NTT DoCoMo Inc d Toyota Motor Corporation
d d
d d
Nippon Telegraph and Telephone Corporation Sony Corporation
d d
d d d d
Mitsubishi Tokyo Financial Corporation Inc Mizuho Holdings Inc Takeda Chemicals Industries Ltd Honda Motor Co Ltd
d d d d
d d
Nomura Securities Co Ltd Matsushita Electrical Industrial Co. Ltd
d d
South Korea d Samsung Electronics Company Ltd d SK Telecom Co., Ltd d Korea Telecom Corporation d Korea Electric Power Corporation d Pohang Iron and Steel Co. Ltd d Hyundai Motor Company Ltd
Telecommunications Diversified Automotive Manufacturers Telecommunications Radio, T.V. & Phonograph Manufacturers Holding Company Commercial Bank Ethical Drug Manufacturers Diversified Automotive Manufacturers Securities Brokerage Diversified Electronics
d d
Kookmin Bank Kia Motors Corporation
d d
d d
Samsung Electro-Mechanics Co. Ltd Korea Tobacco and Ginseng Corporation
d d
Diversified Electronics Telecommunications Telecommunications Electric Power Companies Diversified Metal Products Mfrs Diversified Automotive Manufacturers Commercial Banks Diversified Automotive Manufacturers Parts and Components Cigarette Manufacturers
d d d d d d d d d d
Commercial Banks Telecommunications General Diversified Land and Real Estate Land and Real Estate Commercial Banks Telecommunications Electric Power Companies General Diversified Railroad Holding Company
d d d d d d
Hong Kong d HSBC Holdings plc ŽHK. d China Mobile ŽHong Kong. Limited d Hutchison Whampoa Limited d Cheung Kong ŽHoldings. Limited d Sun Hung Kai Properties Limited d Hang Seng Bank Limited d China Unicom Limited d CLP Holdings Limited d Swire Pacific Limited d MTR Corporation Limited
for Excellence12 and a further five companies receiving Special Recognition.13 It is re-assuring to note that there is alignment with those succeeding in these award schemes, with Matsushito and the Kirin Brewery Co. appearing prominently in both; these companies are also participating in the current SFP for the GRI and moreover, appeared in the Top 50 reports surveyed by
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Reporting? No Yes Yes Yes No No Yes Yes No Yes Yes No No No Yes Yes
No No No No No No No Yes29 No Yes
No No Yes No
SustainAbility, in their most recent review of global reporters.14 As well as those participating in the GRI SFP, additional Japanese companies have acknowledged using the GRI framework for their reporting, including giants such as Nissan, Fuji Xerox and Ricoh.15 Given the existing momentum for environmental reporting, it is considered that public
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Table 2 Reporting Companies in South Korea d d d d d d
Samsung Electronics Samsung Electric Samsung Corning Hyundai Electronics Žnow Hynix. Hyundai Merchant Marine Hyundai Heavy Industries Company
disclosure will continue to grow in Japan despite the looming economic recession, and that reporting will follow the international evolutionary trend of including health and safety issues, and ultimately social reporting.
South Korea Environmental disclosure in South Korea, much like North America was a few years ago, is mostly focused on regulatory reporting of environmental data to Government, rather than wider public disclosure. For example, South Korea is one of the few countries in Asia where reporting is legally required, with companies required to disclose data on hazardous waste disposal and the discharge of toxic chemicals to the environment ŽWaste Management Law and Toxic Chemical Management Law, respectively.. However, there are some pioneering companies who are voluntarily reporting to the wider community; these are mostly the well-known conglomerates and international Korean companies. According to one recent study,16 eleven environmental reports were published in 2000 Žsee Table 2.. Of these, four companies are in the top ten by market capitalisation Žsee Box 2.. In reviewing these reports, they do not appear to have adopted any particular standards or frameworks; rather they have been produced on the basis of environmental reports published by foreign multinationals in peer industries. The scope of the reports also tends to focus on environmental performance, with little attention given to health and
POSCO Žone of the world’s largest steel manufacturing companies. d Korean Airlines d LG Chemical d Hansol Paper d Pacific and Co. Žbeauty care product manufacturer. d
safety or more strategic issues such as social impacts or corporate responsibility. The type of information disclosed also ranges from generic and qualitative Že.g. Samsung Electronics. to more focused and quantitative Že.g. Samsung Corning., irrespective of whether the companies form part of the same conglomerate. The key driver for continuing environmental, and now social, reporting in South Korea is that disclosure is becoming a pre-requisite for attracting foreign investment and for expanding into foreign markets; for example, Samsung Electronic was required to publish a report under contract conditions for the Australian Olympics.
Hong Kong Hong Kong is a designated Special Administrative Region ŽSAR. of China, with a selfdetermining Government. To promote environmentally responsible management within the public sector, the Hong Kong SAR Chief Executive included a requirement in his 1998 Policy Objectives that all departments ŽControlling Officers. within Government, publish reports on their environmental policies and actions, starting from the 1999/2000 financial year. To this end, the Environmental Protection Department has published a Guide,17 which focuses on the process rather than content. Interestingly, whilst some useful resource references are given in the Appendix to this document, there is no mention of the GRI, an important oversight.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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The Government’s intention is to lead by example, although a number of commercial companies had already reported by 2000. CLP Power, the Hong Kong operations of the international China Light and Power company, is particularly active having published its first environmental report in 1997, and recently written about its experiences in a local publication.18 An additional incentive for private sector companies, is the establishment of a local reporting award scheme. The Hong Kong Environmental Campaign Committee, in collaboration with the Chinese General Chamber of Commerce, the Hong Kong General Chamber of Commerce and the Hong Kong Productivity Council, organises an annual Hong Kong Eco-Business Awards scheme to encourage organisations to enhance their environmental protection commitment.
However, only one Asian nation, Japan, is included in the FT500’s current top 10 country list. When Japan is excluded, Asian enterprises account for just 25 of the world’s 500 most valuable publicly listed companies, which could be considered surprising given the region’s growing economic weight.20 Why is this? Many Asian economies are still recovering from the 1997/98 financial crisis. But the economic model of the region also contributes to this state of affairs, where fewer public companies exist compared with the western model. Asian conglomerates are often family owned and are diverse in their operations, with an egocentric culture, minimal transparency and an overriding desire to ‘‘keep it in the family’’. As a result, these companies prefer to use retained earnings and bank debt to fund expansion rather than utilise the public markets for raising capital.
A new category, the Environmental Reporting Grand Award, was added in 2000 and was presented to CLP Power, with Carven Circuits Ltd and Cathay Pacific Airways Ltd each receiving a Gold Award.19
A recent survey « identified a number of Asian stock market heavyweights with low corporate governance standards.
However, it is generally considered that reporting is a still a developing field in Hong Kong with few companies currently disclosing their environmental, health, safety and/or social policies and performances. Only two ŽCLP Power and MTR Corporation Ltd.. out of the top ten Hong Kong companies by market capitalisation, currently publish environmental Žand health & safety. reports, whilst the more sophisticated type of social reporting being adopted by western peers is yet to be considered at all, except by CLP.
w1x But even where companies are publicly listed, the degree of corporate governance is being questioned. A recent survey by the fund manager CSLA21 identified a number of Asian stock market heavyweights with low corporate governance standards. In their report, CLSA analysts gave their assessment of 495 companies in 25 emerging markets in Asia,22 Latin America and Eastern Europe. They focused on 57 issues in seven categories including social responsibility and environmental management. Banking giant HSBC was overall no. 1 in the report, with Infosys ŽIndian based. second and Singapore Airlines third.
Will Reporting Increase? Corporate Governance In the west, public reporting has been stimulated by corporate governance requirements and shareholder accountability through being a publicly listed company.
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However, the CSLA survey questions Žsix in all, see Box 3. did not include whether the company publicly reported performance, something which is considered fundamental
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Figure 1 Public Reporting by the Top 25 Asian Companies Žexcluding Japan..
Box 3 CSLA Social Responsibility
Questions 2001 Does the company: d
d d d
d
d
Have an explicit policy emphasising strict ethical behaviour? Not employ the under-aged? Have an explicit equal employment policy? Adhere to specified guidelines on sourcing materials? Have an explicit policy on environmental responsibility? Abstain from countries where leaders lack legitimacy?
by analysts in Australia, Europe and North America. Moreover, when the top 25 companies in Asia by market capitalisation23 were surveyed using the internet, less than a quarter were found to be publicly reporting their EHS or social performance ŽFigure 1..
The growth of overall financial corporate governance in the region is considered to be gathering pace, being promulgated by governments and financial institutions to ensure the future economic well-being of the region. This represents an important driver in improving disclosure on environmental, health, safety and social performance. In fact, the consideration of a company’s social impacts may well leapfrog western reporting standards, as such issues are much more prominent in the region and are critically integral to sustained economic growth.
Access to Capital Inextricably linked with corporate governance standards, is the increasing desire of Asian companies to attract international investors and joint venture partners for expansion. Whilst we have previously mentioned that Asian companies have been averse to using the stock markets to raise capital, it is predicted that this will change over the coming decade as Asian companies learn to exploit the international investment community, par-
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
ticularly in repairing the damage done by the financial crisis. A prime example of this trend is in China, whose economy grew by 8% last year and where four giant Chinese corporations raised more than US$20 billion abroad from initial public offerings. Three of these were oil and gas companies, and they have all included an overview of EHS performance on their web-sites, an indicator of what could be coming. A range of investors, who may comprise venture capital companies, fund managers, institutional investors, domestic shareholders etc., can become involved depending on whether a company is looking for an injection of private equity or whether they are undertaking a public offering on the stock markets. Irrespective, all these investor groups are looking for assurance that their money is in ‘‘safe hands’’ and that a good return will be made. The arguments for including EHS and social issues into mainstream financial performance evaluation are becoming increasingly persuasive. There are now financial indices which track the stock market performance of companies defined as having strong EHS and social performance, and which consistently demonstrate that these companies outperform their less responsible competitors; for example, the Dow Jones Sustainability Group Index.24 Specialist environmental and social funds, are exploiting this trend for such companies being good financial performers. Whilst these funds represent a minority of global investment funds, they are becoming more prevalent and therefore influential. For example, in 2000, the UK enacted a law requiring pension funds to publicly state their position on socially responsible investment ŽSRI., an innovative way of encouraging institutional investors to become more socially responsible. A recent study into how the top 500 UK pension funds have responded to the new regulation identified that already 59% of
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funds, Žrepresenting 78% of assets. incorporate SRI into their investment strategies.25 Whether being environmentally and socially responsible directly contributes to increased share value or whether it acts as a good indicator of overall business performance, the integration of EHS and social issues into the way the financial community makes investment decisions is becoming more common. As public reporting is one of the key mechanisms for companies to demonstrate their achievements and low risk profile, the ability to report clearly and periodically could become a competitive issue. In the capitalstarved region of Asia, full financial, EHS and social disclosure may well be the best strategy for attracting inward investment.
Globalisation It is often said that we are living in a ‘‘CNN world’’, where what happens in one part of the globe is rapidly transmitted for scrutiny and comment around the world. As mentioned previously, reporting is just one of industrys’ responses to globalisation and increasing normalisation of business processes across all geographic locations. The process of reporting forces a company to ensure it monitors and manages the activities of its global operations, and therefore provides business value by helping avoid surprises. Through measuring and disclosing performance, companies are better positioned to seize the initiative rather than find themselves reacting to situations, and even worse, reacting without any data to refute or counteract media broadcasts. The downside of course, is that companies can be lulled into a potential false sense of security, thinking that all is well and that they are in control. Reporting systems are, however, only as strong as their weakest link, and in their report, SustainAbility comment on the need for multinationals to close the information gap regarding operations in, and impacts on, less developed emerging economies, such as in Asia.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
Globalisation also provides impetus for Asian companies to conduct business in line with international standards, and this is beginning to include EHS and social reporting. Globalisation and international peer pressure, are often cited as key business concerns for those companies who are considered reporting pioneers in Asia. Another influence of globalisation is that whilst environmental grass roots activism is not widely evident in Asia, mostly associated with a cultural issues together with more pressing problems of poverty and social issues in many countries, local groups are learning from their western counterparts. With the help of the internet, Asian activism is predicted to grow and become more influential; this is already evident in Hong Kong. Furthermore, western activists may well start looking to the east for new targets.
«western activists may well start looking to the east for new targets. Government Policies In the west, most governments have not adopted mandatory public reporting policies, beyond specific data required under permitting regimes. Instead, governments are publicly advocating that they expect companies to produce EHS and social reports. For example, the UK Government has adopted a dual policy of encouraging companies to report through the development of reporting guidelines, but also conducts an annual ‘‘name and shame’’ for those who have not reported. Last year, the British Prime Minister challenged the FTSE top 350 to report on their environmental impacts. Meanwhile, since 1998, the Environment Minister writes annually to those companies in the FTSE 100 who have failed to publicly report, demanding to know why and strongly encouraging a commitment to future reporting.
Across Asia, government policies are immature and the future is uncertain, but there are some clear examples of governments taking a lead. In Hong Kong, all government departments Žincluding regulators. are required to publish environmental reports, whereas the Japanese Environment Agency is an advocate of one of the reporting award schemes. In South Korea, the Ministry of Environment has recently announced that they will support financial institutions for gradually integrating environmental risk assessment into decisionmaking processes. There is anecdotal evidence that companies would prefer to see a clear government stance on public reporting. Whilst the pioneering few are forging ahead, outside of Japan there does appear to be some resistance by those for whom reporting requires a major culture change for voluntary disclosure. In particular, recognition for public reporting through reduced regulatory inspections would be an attractive incentive for industry, above and beyond those discussed already.
The Future So whilst the reporting scene is variable across Asia, it is considered that disclosure will become more prevalent and sophisticated, as economies mature and companies are able, encouraged or are forced, to be more outward looking. It is also considered that the reporting trend will follow that observed in the west, but at a more compressed rate of evolution, as illustrated in Figure 2. Something which Asian companies may find the hardest to tackle is defining reporting boundaries and data collection systems for what can be complicated company structures, comprising holding entities for intricate cross share-holdings, joint ventures and subsidiaries. Here, companies need to start simple and set themselves an incremental programme for reporting. Too many companies have fallen into the trap of trying to cover too much, too soon, and ended up
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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Environmental Reporting
Figure 2 Evolutionary Trend of Reporting.
with meaningless tomes. Instead, it is far better to produce a high quality report which focuses on one part of the organisation, and then expand scope and coverage as the company learns ‘‘how to report’’. The establishment of a global standard will only further help in that companies can avoid re-inventing the wheel, whilst the investment community will be able to meaningfully benchmark industry sectors. It is encouraging that a number of Asian companies are already involved with GRI, and this should be set to grow. But it is possible that some Asian governments will wish to develop something which they feel is more local, as exemplified by Hong Kong, and which could potentially muddy the waters. Hence, GRI must be able to respond to the dual needs of increased global standardisation whilst allowing for local interpretation and innovation. The Asian love affair with all things technological also means that reporting will most likely focus on web-based reporting, thereby allowing greater access on a global scale. In
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Hong Kong, CLP Power and the Mass Transit Railway Corporation ŽMTRC., have both published their latest 2000 reports only on the internet.26 However, whilst this is appropriate for a developed economy such as Hong Kong, it may not be as suitable for countries where there is limited access to computers; ironically, publishing on the internet could allow someone in a distant time zone to review a company’s performance, but not an employee. Whilst such a company could well be aiming primarily to reach its western customers and international investors, this should not result in the local community being neglected. Hence Asian companies in particular, may need to think about hierarchical reporting systems tailored to separate audiences and their needs.27,28
Endnotes 1. A recent FTSE 100 survey conducted by Business in the Environment, has identified
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
Environmental Reporting
2.
3. 4. 5. 6. 7. 8. 9. 10.
11.
12.
13.
14. 15. 16.
that this need is still not being satisfied, despite the UK being considered a leader in public reporting ŽENDS, No 316, May 2001.. Initially GRI focused on environmental reporting, but is evolving to align itself with ‘‘sustainability’’, based on the term sustainable development, which rose to prominence in the late 1990’s and which was first defined by Brundtland in 1987 as the ability to meet the needs of the current generation without compromising the ability of future generations to meet theirs, and is generally associated with the ‘‘triple bottom line’’ of social, economic and environmental management. www.globalreporting.org www.asria.org Excluding Australia and New Zealand, for the purposes of this article. www.globalreporting.org www.sustainability-index.com/ www.toyokeizai.co.jp/english/kankyo e 03/ index.html Source: www.toyokeizai.co.jp/english/kankyo e 03/index.html The Green Reporting Forum comprises a panel of 12 judges representing organisations as diverse as the Japan Environmental Managers and Auditors Society, the World Wide Fund Japan and the Japan Federation of Economic Organizations. Five criteria are used by the judges in determining the reporting prizes. A further 10 organisations received Third Prize: Inax Corp, NEC Corp, The Seiyu Ltd, Takara Shuzo Co., Tokyo Gas Co., Toshiba Corp., Tokyo Ink Mfg Co., Tokyo Motor Corp, IBM Japan and Fujitsu. Kirin Brewery Co. Ltd, The Sieyu Ltd, SONY Tochigi Corp, Tokyo Gas Co. Ltd, Toyota Motor Corp, NEC Corp, Hitachi Ltd and Ricoh Co. Ltd. City of Sendai, Corporate Research and Development Centre Toshiba Corp, Pickles Corp, The Yasuda Fire and Marine Insurance Co. Ltd and NEC Yamaguchi Ltd. The Global Reporters, SustainAbility/UNEP, November 2000 www.globalreporting.org Min-Young Lee, A Study on Current Status of Korean Corporate Reporting and Paths for Improvement, MSc Thesis, February 2001
17. www.info.gov.hk/epd 18. Green Productivity, published quarterly by the Hong Kong Productivity Council, Issue 1, 2001. 19. A further 6 organisations received Merit Prize: Architectural Services Department, Electrical and Mechanical Services Department, Hang Yick Properties Management Ltd, Hong Kong Housing Authority, Hotel Nikko Hongkong, and Kai Shing Management Services Ltd. 20. South China Morning Post, May 2001 21. CG Watch Corporate Governance in Emerging Markets 2001, CSLA, May 2001 22. Comprising the following countries: China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan and Thailand. 23. Thompson Financial as published in the South China Morning Post, May 2001 24. www.sustainability-index.com/ 25. Eugenie Mathieu, Response of UK Pension Funds to the SRI Disclosure Regulation, MSc Thesis, October 2000 26. www.chinalightandpower.com.hk and www.mtr.com.hk 27. The author would like to thank the following colleagues for their invaluable support in preparing this article: Inhee Chung, Matt Haddon, Melody Hoi Yan Keung, Leo Liu, James Muir, Rick Reidinger, Alastair McNair Scott. 28. An exhaustive survey was not conducted in preparing this article, and so the author would be pleased to hear from anyone who has comments or additional information. 29. Although only its operation in Hong Kong, CLP Power Hong Kong Ltd has reported.
M. Thomas, Corporate Environmental Strategy, Vol. 8, No. 3 (2001) 1066-7938/01/$ - see front matter. 䊚 2001 Elsevier Science Inc. All rights reserved.
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