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What are the risks of corporate social responsibility reporting?

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Corporate social responsibility (CSR) reporting is a way for businesses to communicate their social and environmental impacts to their stakeholders and the public. It can enhance their reputation, attract customers and investors, and improve their performance. However, CSR reporting also involves some risks that businesses should be aware of and manage effectively. Here are some of the main risks of CSR reporting and how to mitigate them.

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Peadar Duffy

Risk Governance, Sustainability, CSRD, IFRS - TCFD, GRI, Chairman Technical Committee The ESG Exchange, Global Director…
Michael Kelly FPRII

Chief Executive, Independent Broadcasters of Ireland

1 Accuracy and credibility

One of the biggest risks of CSR reporting is that the information provided may be inaccurate, incomplete, or misleading. This can damage the trust and confidence of the stakeholders and expose the business to legal, regulatory, or reputational consequences. To avoid this risk, businesses should ensure that their CSR reporting follows relevant standards and frameworks, such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). They should also verify and audit their data and disclose their sources and methods.

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Peadar Duffy

Risk Governance, Sustainability, CSRD, IFRS - TCFD, GRI, Chairman Technical Committee The ESG Exchange, Global Director Risk & Sustainability, Value Commissioner, Executive Education Adjunct, ISO (Risk, Governance, ESG)
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CSR reporting is now superseded by global regulations, the EU’s CSRD, the U.S. SEC and ISSB for the rest of the world. Independent assurance (limited rising to reasonable) and penetrating AI enabled ESG ratings have all but eliminated voluntary CSRs where you can publish what you want regardless of efficacy to mandated regulatory disclosure.

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Michael Kelly FPRII

Chief Executive, Independent Broadcasters of Ireland
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CSR and ESG have a major downside - they are most often implemented without sufficiently transparent objectives and without enough rigour to ensure those aims are delivered. It is vital that organisations ensure that their CSR and ESG work is closely linked to their real-life business impacts and challenges. If a business is being criticised for not treating consumers or staff fairly, it is not appropriate to respond by launching a major initiative to address environmental concerns. It is vital to do an audit to ensure your CSR and ESG is rooted in reality. That is why it just cannot be an accountancy/investor relations initiative. The best acronym for this area is simple - DTRT (Doing The Right Thing).

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2 Stakeholder expectations

Another risk of CSR reporting is that it may raise the expectations of the stakeholders, such as customers, employees, suppliers, communities, and regulators. They may demand more transparency, accountability, and engagement from the business, or challenge its claims and actions. This can create pressure and conflict for the business, especially if it fails to meet or exceed the expectations. To manage this risk, businesses should align their CSR reporting with their strategy and values, and communicate clearly and consistently with their stakeholders. They should also solicit feedback and address any concerns or complaints.

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Peadar Duffy

Risk Governance, Sustainability, CSRD, IFRS - TCFD, GRI, Chairman Technical Committee The ESG Exchange, Global Director Risk & Sustainability, Value Commissioner, Executive Education Adjunct, ISO (Risk, Governance, ESG)
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Already a small number of issuers have received ‘Dear CEO’ letters querying apparent differences between past CSR reports and more recent 10 -Ks. In fact organisations would be well advised to assess their ‘acclaimed greenness’ as per their CSRs and what they expect to disclose under new regulations. Significant deltas may well lead to allegations of greenwashing

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3 Resource allocation

A third risk of CSR reporting is that it may require a significant amount of resources, such as time, money, and expertise. CSR reporting can be a complex and costly process that involves collecting, analyzing, and presenting data from various sources and departments. It can also divert resources from other core activities or priorities of the business. To mitigate this risk, businesses should plan and budget their CSR reporting carefully, and use appropriate tools and systems to streamline and automate the process. They should also evaluate the benefits and impacts of their CSR reporting and adjust accordingly.

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4 Competitive disadvantage

A fourth risk of CSR reporting is that it may create a competitive disadvantage for the business, especially if its competitors do not report or report less. CSR reporting can reveal sensitive or proprietary information that can be used by the competitors to gain an edge or undermine the business. It can also expose the business to criticism or scrutiny from the competitors or the media. To reduce this risk, businesses should protect their intellectual property and confidential information, and monitor their competitive environment. They should also highlight their unique value proposition and differentiation in their CSR reporting.

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5 Legal compliance

A fifth risk of CSR reporting is that it may affect the legal compliance of the business, especially if the regulations or standards change or differ across jurisdictions. CSR reporting can create additional obligations or liabilities for the business, or expose it to fines or penalties for non-compliance or misrepresentation. It can also create conflicts or inconsistencies with other reporting requirements or disclosures. To avoid this risk, businesses should keep abreast of the relevant laws and regulations, and consult with legal experts or advisors. They should also ensure that their CSR reporting is consistent and compatible with other reporting obligations.

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Peadar Duffy

Risk Governance, Sustainability, CSRD, IFRS - TCFD, GRI, Chairman Technical Committee The ESG Exchange, Global Director Risk & Sustainability, Value Commissioner, Executive Education Adjunct, ISO (Risk, Governance, ESG)
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CSR reports are voluntary in nature. They are not subject to regulations wherein normative ‘shall disclose’ statements mandated by statute. As such they are not subject to compliance, other than a corporates internal compliance checks, when, and if, they are applied.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the risks of corporate social responsibility reporting?

1

2

3

4

5

6

1 Accuracy and credibility

2 Stakeholder expectations

3 Resource allocation

4 Competitive disadvantage

5 Legal compliance

6 Here’s what else to consider

Business Administration

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What are the risks of corporate social responsibility reporting?

1

2

3

4

5

6

1 Accuracy and credibility

2 Stakeholder expectations

3 Resource allocation

4 Competitive disadvantage

5 Legal compliance

6 Here’s what else to consider

Business Administration

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