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s the call for greater corporate social responsibility grows louder and more urgent, tools to measure social responsibility are being developed and refined.
They’re also slowly gaining in popularity.
According to a survey by sustainability consultancy Stratos, some 100 Canadian companies published sustainability reports in the 2001 and 2002 reporting years, an increase over the 57 companies that did so in 2000.
And out of the 220 companies on the TSX Composite Index, 22 per cent published sustainability performance information in their 2001 or 2002 annual reports, up from 10 per cent in 2000. The Stratos survey, released in November, included both 2001 and 2002 reports because a number of companies report on a two-year cycle, and some had not released 2002 performance information at the time the Stratos survey was compiled.
The terms and definitions in this area continue to evolve, but typically, sustainability reports are performance reports that take into account a company’s economic, social and environmental performance, the three factors that make up what’s known as the “triple bottom line.”
Generally, economic performance is not just a measure of a company’s financial well-being but also its contribution to human capital development, particularly in local economies. It may be assessed in terms of whether the company supports local employment, procures locally or shares best practices.
Environmental considerations take into account a company’s energy consumption, waste disposal policies and the like. And social performance refers to a company’s commitment to equality, diversity and human rights. A measure of a company’s social performance would take into account whether or not it uses child labour, engages in anti-union practices or permits unfavourable working conditions.
The growth of sustainability reporting over the past several years means not only terms and definitions are in flux, it has led to an explosion of competing standards, said Ellen Mary Mills, executive director of Canadian Centre for Ethics & Corporate Policy, also known as EthicsCentre CA.
“There are a number of different standards, and people are wondering which should be used,” said Mills. Among the standards currently used are AccountAbility’s AA1000, Social Accountability International’s SA8000, the Jantzi Social Index developed by Toronto-based Michael Jantzi Research Associates Inc, the Global Reporting Initiative (GRI) and the Dow Jones Sustainability Index.
For the past few years, an International Organization for Standardization (ISO) committee, headed by Alcan’s senior vice-president of corporate and external affairs Daniel Gagnier, has been looking into setting up an ISO standard for corporate social responsibility. The committee is expected to wrap up its research and issue recommendations next month.
Another challenge faced by Canadian organizations interested in sustainability reporting, said Mills, is a shortage of resources for such auditing. “A lot of companies are saying, ‘We would rather be audited by an independent body, but there aren’t very many companies and individuals available to do that.’ So what you have as a result is most companies are still auditing themselves.”
David Simpson, director of Toronto-based ethics consultancy Interpraxis, noted that the verification of such reports is becoming an issue of concern for investors and customers.
“Was this done in a fair way? Were employees pressured to respond a certain way? Were they listened to? Who designed the questions? It’s a question of completeness, balance and fairness.”
Simpson said the growing status of the concept of corporate responsibility falls in line with a macro-level shift from the 20th-century notion of wealth creation, which emphasized production input and access to capital, to that of the 21st century, which is now built around knowledge, innovation and competency.
Simpson noted that social responsibility plays a role in attracting and retaining talent. “When I interview different people in companies, I find that the issue is on their mind. People want to work for companies that have similar values to their own,” said Simpson. “So if employees are looking at a prospective employer, they may one day download a social report to see what other employees are saying about this employer.”
Julie Pezzack, a member of the sustainability reporting team at Stratos, said verification is indeed emerging as an issue, but she added: “External, third-party verification is not the only way to add credibility to a report.” Some companies, for example, set up stakeholder panels to review the report and provide feedback, sometimes in one or two pages enclosed in the report itself, said Pezzack.
“We do find that the quality of reporting is improving,” she added. “The coverage of issues is expanding. So a few years ago, there might have been a greater reluctance to report on social issues. But now, companies are reporting on a greater range of topics, including human rights and business ethics.”
Social audits and sustainability reporting are typically public exercises done for the purpose of building investor confidence and improving a company’s reputation. The people behind one of Canada’s largest social audit agencies, EthicScan, are now using the concept to create an internal, confidential tool aimed at helping organizations detect ethical transgressions at the workplace.
David Nitkin, EthicScan president, said it was created to probe beyond structures and through to behaviours within an organization.
“There is nothing in the research literature that says particular board structures, or composition of the board, or the separation of the chair and president, or having a certain number of independent directors, is correlated with good ethical performance, high employee morale or good rates of return,” said Nitkin.
Bre-X had a code of ethics and so did Enron, added Nitkin. “Structures alone don’t accomplish what it is that the system needs to make it better.”
ValueScan, as this Web-based tool is called, would allow anyone from the worker on the shop floor through to the department head and the director to sit down at a computer and go through a series of questions designed to home in on lapses in environmental, ethical and social responsibility. Like social audits and sustainability reports, the tool takes as a starting point an organization’s declarations of values, and tests them out by surveying the actual behaviours of personnel. Nitkin sees a market for an ethical assessment that doesn’t necessarily expose a company’s failings to public purview.
“The vast majority of companies are not getting on the bandwagon in terms of making a public study of this kind,” said Nitkin. “We’d rather give them a tool that they can use inside, confidentially, and have them get the insight and the information on the governance or human resources or ethical problems first.”
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