Corporate responsibility risk not sufficiently tied to remuneration

Corporate responsibility risk not sufficiently ti...

75 % of the worlds 250 largest companies (G250) researched by KPMG acknowledge risks to their business from environmental and social forces.

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  • Most large companies acknowledge risks from environmental and social “megaforces”but few link corporate responsibility to remuneration 
  • Only 5 percent report the potential impact of environmental and social risks on their financial results 
  • Corporate responsibility reporting is now mainstream global business practice– 71 percent of companies worldwide publish a corporate responsibility report
Three quarters (75 percent) of the world’s 250 largest companies[1] (G250) researched by KPMG acknowledge risks to their business from environmental and social “megaforces”, such as resource scarcity and climate change, in corporate responsibility (CR) reports. Yet only one in ten (10 percent) that reports on CR clearly links CR performance to remuneration[2], suggesting that many companies are failing to incentivise their executives to manage these risks effectively.
The findings from the eighth KPMG Survey of Corporate Responsibility Reporting published today also reveal that only 5 percent of G250 reporting companies quantify and report the potential impact of environmental and social risks  on financial performance.
“Environmental and social risks can impact the supply chain, productivity, financial performance, reputation and brand value. So it is disappointing to see that so many companies still shy away from quantifying these risks in financial terms and few factor in the management of these risks into executive remuneration,” said  Yvo de Boer, KPMG’s Global Chairman, Climate Change & Sustainability Services.
“More and more investors accept that environmental and social megaforces put company value at stake. As their understanding grows, they will expect companies to be transparent about the risks they face, what the financial impacts of those risks could be and what the company is doing to mitigate them. Our research suggests that many companies still have a long way to go on that front.”
According to the KPMG survey results, financial quantification of environmental and social risks is most prevalent in the financial and oil & gas sectors. Eight of the 11 G250 companies, that quantify at least some of their environmental and social risks in financial terms, are in these sectors.
The KPMG Survey of Corporate Responsibility Reporting 2013 also shows that CR reporting is now a mainstream business activity all over the world practiced by 71 percent of the 4100 companies studied across 41 countries. In 1993, when the KPMG survey was first published, the average global CR reporting rate was only 12 percent. 
The greatest growth in CR reporting has been in the Asia Pacific region where the average CR reporting rate has increased from 49 percent two years ago to 71 percent in the 2013 survey. 
Ninety one of the UK’s largest 100 companies by revenue report on CR - the 6th highest CR reporting rate among the 41 countries studied. The top countries for CR reporting are France, Denmark and South Africa where reporting is driven by mandatory reporting legislation. 
A mindset shift from risk to opportunity?
KPMG’s research suggests a shift in mindset from risk to opportunity occurring among many large companies. More G250 companies mentioned the opportunities of environmental and social megaforces in their CR reporting than mentioned risks (87 percent vs 81 percent of G250 companies reporting).
Of the opportunities referred to, innovation and learning is the most commonly mentioned - identified in almost three quarters of G250 CR reports (72 percent). Around half (51 percent) of reporting companies mention the opportunity to strengthen their brand and around one third (36 percent) report the opportunity to grow market share. 
“Corporate responsibility is no longer simply a moral issue and companies recognise this. They increasingly view it as a critical lens on concrete business risks and opportunities. It is encouraging to see that large companies are now seeing environmental and social change as a source of opportunity as much as, or more than a source of risk, providing a more rounded view for stakeholders,” said de Boer. 
CR reporting leaders
This year, for the first time, the KPMG Survey of Corporate Responsibility Reporting includes an in-depth assessment of CR reports published by the G250 companies – the world’s 250 largest companies according to Fortune 2012.
KPMG professionals assessed the quality of G250 reports against seven key criteria (strategy, risk and opportunity; materiality; targets and indicators; suppliers and the value chain; stakeholder engagement; governance; transparency and balance). Each company’s reporting was awarded an overall quality score. For the 93 percent of G250 companies that publish a CR report, the average quality score was 59 out of 100. 
The electronics and computer sector emerged as the leader for quality of reporting, scoring an average 75 out of 100, closely followed by the mining and pharmaceutical sectors, each achieving an average of 70.  At the other end of the scale, sectors which trailed with the lowest scores were construction and building materials at 46 and metals, engineering & manufacturing at 48.
The survey was also used to identify a cluster of 10 companies that stood out for the quality of their CR reporting. They were: A.P. Møller Mærsk (Transport - Denmark), BMW (Automotive – Germany), Cisco Systems (Communications & media – USA), Ford Motor Company (Automotive – USA), Hewlett-Packard (Electronics & computers – USA), ING (Finance, insurance, & securities – Netherlands), Nestlé (Food & beverage – Switzerland), Repsol  (Oil & gas – Spain), Siemens (Electronics & computers – Germany), and Total (Oil & gas – France). 
About the Survey
This KPMG Survey of Corporate Responsibility Reporting 2013 is published primarily for business leaders, company boards and CR and sustainability professionals. It provides a snapshot of current global trends in CR reporting with benchmarks, guidance and insights to help companies worldwide determine their own approaches to CR reporting and to assess and improve the quality of their reports. This year the survey, which has been regularly published since 1993, covers a record 41 countries and 4100 companies across 15 industry sectors. 
The growth in the number of countries and companies covered in this survey is just one indication of how CR reporting has evolved into a mainstream business practice over the last two decades. 
This format of this survey has changed to reflect that evolution. This year the survey is divided into two parts:
Part 1:  Global trends in CR reporting: a view across 41 countries
This section looks at the 100 largest companies by revenue in 41 countries to explore how many companies are producing CR reports and other issues such as the drivers for reporting, sectoral variances, and the use of standards and assurance for CR reports.
Part 2: The quality of reporting among the world’s largest companies
This section looks specifically at the world’s largest 250 companies. It assesses the quality of their CR reports, identifies leaders and uses these examples to offer guidance and insights.
About KPMG 
KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 156 countries and have 152,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. 
Louisa Feltes/Emily Hartman
FTI Consulting
T: +44 (0)20 7 831 3113
Alexandra Dawe
Global Communications Manager
T: +31 655160557

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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