Is Mandatory CSR Reporting the Way Forward?

I had mentioned in an earlier post that the Indonesian Government had made CSR reporting mandatory and argued that such a move is unlikely to produce desired outcomes due to the weak enforcement capacity in developing countries. I was therefore interested to read this report in the Jakarta Globe which highlights the opposition of the leading business and trade associations in Indonesia, against the mandatory reporting. Their reasons for the opposition however, are different, as the associations and representative bodies claim that Foreign Direct Investment (FDI) is shying away from Indonesia due to the CSR-related legal regimes. This assertion begs research but poses an interesting issue.

Denmark also recently launched its own version of mandatory CSR reporting. Here, the initiative is targeted at big business including listed firms, state owned enterprises and institutional investors and requires firms to report on their CSR initiatives (or lack thereof) as part of their annual financial reports. The law was passed with a vast majority in the Danish parliament and requires 1100 of the country's largest firms to disclose CSR policies, the status of their implementation and results achieved. Given the quality of governance in Denmark and the stage of development of their markets, corporate governance structures and the effectiveness of their regulatory regime, there is every likelihood that the law will be complied with by majority of the target firms.

I do hope that such reporting is not made mandatory in Pakistan. I serve as a member on the panel of judges for the ACCA-WWF Sustainability Reporting Awards and over the years, we have seen an increase in the number of firms developing and submitting their reports, as well as a gradual improvement in their quality. I believe that is the path to continue on, at least for Pakistan: encouraging and incentivising quality sustainability reporting.