15% of Danish companies are breaking the law

In a resent survey of annual reports it was found that around 15% of all the Danish companies that are required to report on their CSR activities did not deliver. In 2008 a new law was implemented that required the 1100 biggest companies in Denmark to report on their CSR activities. It is required that companies state in the annual report what their CSR policy is, how they report on this and what progress they have made.

This might seem relatively easy but for around 165 companies it was too much to handle. The main issue was that companies could not show consistency between policy, reporting and subsequent action. This meant that some might have a CSR policy but reported on indicators, which was inconsistent with this policy or they had identified issues in the reporting but to actions, which did not, related to the issues identified.

Well it is apparently very hard for Danish companies to understand the relationship between company policy, reporting and required action lets hope that this does not relate to other areas that they are active in.

Lessons learned from legislation on CSR

Denmark seen from space

Image via Wikipedia

Legislation or voluntary approaches to CSR have been debated for several decades and it would seem that there is no end to the debate in sight. In Denmark legislation have been in place for a couple of years (since 2008) and the first research results have been published on how the work is progressing

Basically companies in Denmark that is required by law to report on their CSR activities are coming from Accounting class D and above. These are companies that have their stock traded on the regulated market in the EU and state-owned public limited companies that can exceed at least two of the following criteria:

  • Total assets/liabilities of 19.2 million EUR
  • Have a net revenue of 38,3 million EUR
  • An average of at least 250 full-time employees

In Denmark the number of companies that comes within these criteria is around 1250.

If a company falls within these categories they have account for three dimensions on their CSR efforts in the management review of the annual report or as a supplementary report. Under all circumstances it needs to be publically accessible. The three dimensions which needs to be included are:

  1. The organisations CSR policies
  2. How these policies are translated into Action
  3. What the Results have been on their activities.

If the company choose a supplementary report through the Global Compact, Communication on Progress the Global Report initiative or any other for of reporting standard this should be included in the management review under all circumstances.

The research done have mainly focused on the ability of companies to live up to the three dimensions of the CSR legislation and is not concerned with the quality or if the reporting really gives a accurate picture of the corporate CSR efforts. Furthermore a sample test was used which included 142 companies of the total 1250.

The findings was that only 82% of the sampled companies reported on their CSR activities in the management review even though it is a mandatory part of the legislation to at least mention that the company was active in the area. Also interesting was that about 9% referred to the UN Global Compact were as none of the companies used the UN Principles for Responsible Investment (UNPRI) Communication on Progress which is used as screen in several SRI portfolios around the world. This would indicate that CSR is not seen as a tool for attracting investments or it is not seen as a possible avenue to get access to specific institutional investors who specialise in these kinds of investments.

Another interesting element is that there seem to be more talk and less action on CSR issues. When the research looked into how the themes Environment and Climate, Human Rights, Labour rights, Anti-Corruption (all four the themes of the UN Global Compact) and how social issues aimed at the danish workplace was taken into account. Within the companies CSR work it was interesting to see how it would seem that they put more emphasis on the communication part (policies) than really putting things into reality (action) and even less on actually measuring the results. This would indicate that CSR to a large extend is believed to a communicative exercise rather rather than a strategic development tool.

For the companies that did not conform to the legislation the excuses could be separated in to the following categories:

Timing – There was not enough time to get the system in place.

Lack of Awareness – The organisation did not read the  legislation careful enough and therefor did not comply.

Documentation – That the organisation did not know how to compile date in a systematic way.

Regulation would not be enforced – Some thought that the regulation would be ‘soft’ and there would be a prolonged implementation period.

Resources – That there was not enough resources in the company to live up to all three dimensions of the legislation.

Priorities – That CSR is not a priority within the organisation and such pressure should come from the customers and CEO in order for the organisation as a whole to react.

It is interesting to follow the evolution of the Danish case because so many other countries are looking into the same subject (for instance Australia and India). What will become of the ‘law track’ we can only guess but until now it would seem that most companies have not discovered the potential of having a socially sustainable business approach.

If you want to learn more about the Danish legislation and large companies implementation you can find the paper here. The paper is written by researchers at the CBS Centre for CSR Peter Neergaard, Janni Thusgaard Pedersen, Wencke Gwozdz.