GREEN WASHING
Sustainability reporting no longer shields companies from criticism
Radboud University Nijmegen
In the past few years, new rules from governments across Europe have required companies to increase their reporting on their sustainability efforts. Since then, stakeholders such as NGOs and journalists have been able to use those insights to ramp up their criticism against companies. That’s according to a new study published this month in the Journal of Management Studies.
“Stakeholders have raised more critiques, because these new rules have made it easier to compare companies”, explains Julia Bartosch, assistant professor of organizational change at Radboud University. “In the past, companies could reduce criticism by highlighting relatively generic efforts in sustainability when regulation was lacking altogether. We found that with the more equal playing field the regulation provides, companies that provide more details on their sustainability activities actually raise expectations on responsible business conduct and accordingly scrutiny. “This is for the functioning of the regulation a positive result” says Bartosch, “and business have to catch up with such expectations in order to avoid scrutiny and thus to close the gap between their conduct and raised expectations.”
The research is timely, as policymakers across Europe are currently debating how detailed sustainability reporting requirements should be. Recent proposals succeeded in reducing reporting obligations for companies, because of concerns that extensive disclosure creates administrative burdens and harms business. According to Bartosch, the results suggest something different. “With this research, we show that less precise and more voluntary regulation that became more or less standard across many countries is simply not better for business, because such lax regulation does not protect against stakeholder complaints."
“Stricter regulations could have been a way to better distinguish between companies that truly invest in the sustainability of their business operations and those that merely ‘pretend’ to do so. That opportunity has now been missed”, Bartosch explains.
Shield against criticism
For a long time, reporting on corporate social responsibility efforts (so-called CSR) was voluntary for businesses. “This allowed those companies that were reporting to use their reporting to show off their activities, also as a shield against criticism”, explains Bartosch.
Since 2017, regulation in the EU has forced companies to disclose what activities they’re having on CSR. Such regulation has increased the amount of information and created a level playing field, meaning that the reports of different firms have become more similar, particularly as those that were behind the times have caught up. Importantly, Bartosch highlights that the regulation is set up in such a way that disclosure is mandated, but the actual oversight is done by stakeholders and the private market rather than by governments. In their study, Bartosch and her colleagues Emma Avetisyan (Audencia Business School) and Philipp A. Thompson (Freie Universität Berlin) were interested in finding out whether these policies actually worked in terms of activating this way of oversight.
More transparency, more scrutiny
To do that, Bartosch and her colleagues analysed data from more than 1500 companies across the world, between 2007 and 2018. Bartosch: “What we found was that companies that were required to disclose information about their environmental, social and governance activities received significantly more public accusations about irresponsible business conduct. The transparency has made it easier for investors, NGO’s, journalists and other stakeholders to point out failures and shortcoming by these companies. The regulation worked as intended to activate oversight.”
Journal
Journal of Management Studies
Article Title
Government Orchestration at Play: The Influence of Disclosure Regulation on Stakeholder Accusations and the Role of CSR
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