Companies fail to adequately report corporate responsibility risks

Though most large companies acknowledge that they face environmental and social ‘megaforces’ that could scupper their businesses, only 5 percent choose to quantify or report the effect such risks could have on financial performance.

Three quarters of the world’s largest companies – those that make up Fortune’s 2012 G250 – researched by KPMG recognize risks to their business from such threats, which include resource scarcity, climate change or natural disasters, in their corporate responsibility (CR) reporting.

The report, produced as part of KPMG’s Survey of Responsibility Reporting 2013, also finds that only 5 percent of the same companies choose to quantify or report on the potential financial cost of such events.

At the same time, only one in 10 companies in the G250 that produce CR reports clearly link executives’ pay to their CR performance. KPMG’s report suggests that, as a result, many companies are failing to incentivize their executives to ‘manage these risks effectively’.

Yvo de Boer, KPMG’s chairman for climate change & sustainability services, says environmental and social risks are shown to affect supply chains, productivity, financial performance, reputation and brand value.

‘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,’ he adds.

Companies in the financial and energy industries were found to be the best CR reporters when considering their risk allowances: eight of the 11 G250 companies that quantify at least some of their environmental and social risks in financial terms are to be found in these sectors, reports KPMG.

De Boer adds that investors are increasingly aware such ‘megaforces’ can put a company’s value at stake. ‘As their understanding grows, [investors] 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,’ he explains.

‘Our research suggests many companies still have a long way to go on that front.’

The survey also shows that CR reporting is now considered a mainstream business activity, practiced by 71 percent of the 4,100 companies KPMG studied across 41 different countries. When KPMG published its first version of the survey in 1993, the average global CR reporting rate stood at only 12 percent.