Global Policy Forum

By Dinesh Narayanan

Corporate accountability has come to the fore following unprecedented scrutiny of business ethics issues by the media, investment community, regulators, NGOs and protesters. As company valuation becomes wrapped up in brands and reputation, ethical, environmental, and social performance are becoming increasingly important strategic assets, says Mr Carlo di Florio, Director, PricewaterhouseCoopers, in a paper prepared for the World Bank-International Monetary Fund (IMF) meeting at Prague.

From corruption to human rights to environmental sustainability, a company's reputation, governance and ability to operate successfully over the long term increasingly requires it to have a clear sustainability or "corporate citizenship" policy and programme. A "sustainable" business is one that incorporates social, economic and environmental values and practices within a long-term framework, mindful of its global context and impact. Sustainability builds upon the notion that the current generation should use resources and generate value in a way that allows future generations to enjoy an undiminished quality of life, the paper says.

The new paradigm - sustainability (corporate social responsibility) - is redefining the successful relationship between corporations and society in the new information and global economy. Ethics, transparency, good governance and social accountability are becoming strategic sustainability issues as companies seek to balance financial performance with social responsibility, it says. Increasingly well-organised and vocal social interest groups are having a powerful impact on the bottomlines of companies that they choose to target. More and more studies support a strong correlation between social, environmental and financial success, Mr di Florio notes in the paper.

Quoting a report of the Council on Economic Priorities, he says NGOs and media are increasingly targeting multinational corporations operating in developing countries, arguing that their policies (use of child labour, lack of community consultation, hiring of alleged paramilitary forces as security firms) threaten to exploit communities, destroy traditional ways of life, cause human rights abuses or perpetuate cycles of poverty.

The paper says that in the new business environment, poor management of corporate reputation, employee practices, product stewardship and environmental management can give rise to social and environmental risks that damage shareholder value. Managers of socially-responsible investment funds have been incorporating this social analysis into investment decisions, principally for two reasons - a recognition and knowledge of investor value, and a recognition that socially- responsible companies are good investment prospects.

To ensure shareholder value in the new economy, sustainability principles require that companies implement a strategy and internal control framework designed to provide reasonable assurance regarding sustainability of operations, reliability of triple bottomline reporting on the company's economic, social and environmental performance, and compliance with applicable sustainability standards and expectations, Mr di Florio says.

The study concludes that good corporate citizenship and a demonstrated commitment to sustainability can provide companies with a strategic and comparative advantage in the new economy that is shaped by information technology, Internet speed, and a growing chorus of civil society that globalisation be made more socially and environmentally accountable. This chorus is reaching legislatures and impacting the flow of capital and media coverage, the three powerful forces. Accordingly, reputation and governance are more important strategic assets than ever before.

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