CSR: How Investors and Companies Talk Different Languages

Money by EpSos.deResponsible investors and companies with proud CSR track records are failing to understand each other’s needs. A new book to be published next month claims both sides are missing out as a result.

Valuing Corporate Responsibility: How Do Investors Really Use Corporate Responsibility Information? by Rory Sullivan argues that CSR reports are made null and void by this communication gap.

Dr Sullivan, himself an expert on ethical investment, claims that investors see CSR reports as irrelevant to their decision-making. This is despite companies believing that investors are one of the most critical audiences for these reports.

He argues that investors are not blameless in this, as they are not good at explaining the sort of information they want, or where corporate responsibility performance fits in to their analysis of companies.

As a result, both sides have become frustrated. Companies are angry that investors are ignoring their CSR performance. Investors accuse companies of producing irrelevant information that does not address the business challenges the companies face.

The end result is dissatisfaction for both sides, despite the fact that there is a growing interest in both companies and investment institutions in CSR activities and performance.

Dr Sullivan points out that more than 500 large investment institutions (including asset managers, insurance companies and pension funds) have signed the Principles for Responsible Investment, which are backed by the United Nations. He argues that this has helped to make responsible investment mainstream. Consequently, investors are a key audience for the CSR reports that they are predominantly ignoring.

So what can be done to bridge this gap? It is not as if there isn’t a desire on both sides to make it work.

As is often the case, each side needs to step into the others’ shoes.

Companies need to understand what responsible investment actually looks like, the corporate responsibility information investors need, and how the information is used in practice.

Investors need to acknowledge the difficulties companies face when drawing together their corporate responsibility reports, and how this impacts on the quality and usefulness of the data.

The issue of the investment timeframe is also important – when investors actually need the information.

Most importantly, is investment actually driving an improvement in corporate responsibility? At the moment, it seems that it is not. Given the power that the investment community has, this is ultimately a missed opportunity. Dr Sullivan argues that there is a need for a complete rethink of the current approaches to responsible investment. Investors should be able to help boost sustainability.

The book will attempt to analyse what both sides need from CSR reporting, and bridge the knowledge gap between them. In order to do so, it will use a number of case studies as well as making recommendations for both companies and investors.

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