A brief history of social reporting

By Alice and John Tepper Marlin: Posted 9 Mar 2003

We are together teaching a course for MBA students at NYU's Stern School of Business on "Models of CSR".  We cover in our class and our textbook the subject of corporate reporting, so we were interested in the article describing a 1991 Shell Canada report as being the first-ever new-style social/environmental report (Business Respect No. 49).  It suggested that this was the first combined social and environmental corporate report, a few years ahead of the Body Shop.  It said that in 1991 the terms CSR and "stakeholders" were not in common use. 

We respectfully take issue with this view of CSR history.  The term CSR was in common use in the early 1970s (although seldom abbreviated), and the term "stakeholders" was used to describe corporate owners beyond shareholders at least as long ago as 1989.  More generally, the social/environmental report is a second-phase report and the third phase of CSR reports is by far the most interesting for reasons that we shall suggest. 

The first phase of CSR reporting was composed of advertisements and annual-report sections in the 1970s and 1980s that paid homage to the environment the way a person might throw a coin into a fountain along with a wish.  The reports were not linked to corporate performance.  Leaving aside the "green-wash" reports that were disinformative and were also labeled "eco-pornography," there were a few isolated corporate efforts, such as that by Abt & Associates in 1972, to add an environmental report to its annual financial statements. 

The Abt report was pioneering, but it was also idiosyncratic.  Its concept of social responsibility was strictly related to air and water pollution and its financial auditor disclaimed any responsibility for the data on the basis that no standards had been introduced for such audits.  It also rashly attempted to reduce everything to a dollar bottom line.  So one of us (John Tepper Marlin) wrote an article for The Journal of Accountancy in February 1973 suggesting ways in which accountants could measure pollution; it included a model environmental report and hypothetically added an Auditor's Opinion.  We also contributed a joint article to the first issue of Business and Society Review suggesting how International Paper could have handled and should handle environmental issues in its annual report.

The second phase of CSR reporting, of which the Body Shop and Shell Canada are examples really began with Ben & Jerry's, which in 1989 commissioned a "social auditor" to work with the B&J staff on a report covering 1988.  It was an extraordinary move by B&J.  The social auditor" was given free rein to interview anyone in the company for two weeks, on any day or night shift.  The social auditor visited not only the main ice cream factory but also a smaller one that made "Peace Pops" and other special products.  The social auditor was also encouraged to speak with suppliers such as their dairy processor, and with public and private representatives of the community. 

This social auditor recommended that the report be called a "Stakeholders Report" (the concept of stakeholders existed but this was possibly the first-ever report to stakeholders) and that it be divided into the major stakeholder categories: Communities (Community Outreach, Philanthropic Giving, Environmental Awareness, Global Awareness), Employees, Customers, Suppliers, Investors.  Suppliers had not previously been thought of by B&J as a stakeholder.  B&J prepared the Stakeholders Report with the social auditor's input and the social auditor then appended a "Report of Independent Social Auditor" and signed it, saying it was his "opinion that the Stakeholders Report fairly describes the performance of the company in the area of social responsibility for the year 1988 with respect to the five stakeholder groups" (this social auditor was John Tepper Marlin). 

To our knowledge, this is the first of what Mallen called the New Model corporate reports.  It meets all your definitions of such a report.  After this first social audit in 1989, B&J continued to issue annual social reports, rotating to different social auditors as they sought to develop the concept.  Improvements were made both in B&J practices and in the annual social reports, but as the firm grew year after year the ways in which it was strong and the ways it was weak, as reported each year, in our view did not change greatly.  The social audits still lacked a set of generally accepted standards against which B&J performance could be measured.  B&J's social auditors were still individuals without external validation of their qualifications, or of the process they used for their audits or of the standards against which they measured the company's performance.

The third phase of CSR reporting is surely the most interesting because it introduces not only third-party certification of the reports, but certification by bodies that are accredited to certify against social or environmental standards.  It breathes life into standards and on-site inspection, because social auditors are firms and people who are accredited by environmental or social accreditation bodies (or by both).  The new phase makes the social auditor at the same time both stronger and more circumscribed than the independent social auditor of the B&J vintage.  The social auditor today has much more clout because large buyers are serious about wanting a facility certified, because their customers care.  No certification, no business.  Because more is at stake, the social auditing team in the new phase does not have the same latitude the first B&J auditor did to interview and to interpret.  The standards are already determined before an auditor goes in and the procedures are specified.  When a violation is found, the facility is given a chance to take corrective action.  Some of the violations are considered small, some enough to put certification in jeopardy; the auditor must say which it is.  The auditor returns to see that required corrective actions are made.  Major problems are not allowed to remain year after year.

The global leader of the new phase in the social area is Social Accountability International (SAI), founded in 1997.  The first facility certified against its multi-stakeholder global standard was an Avon factory in New York State, on January 1, 1998.  Other pioneers on the environmental side were the Forest Stewardship Council, the International Federation of Organic Agriculture and the Dutch Max Havelaar Foundation, now FairTrade.  Together, these groups have formed the International Social and Environmental Accreditation and Labeling (ISEAL).  The formation of ISEAL is very significant because it is an international group of standard-setting and accreditation bodies that have joined together to help make social and environmental standards meaningful, widely recognized and of a high quality.  SAI alone has so far accredited nine certification bodies (organizations of auditors), with thousands of social auditors at their disposal. 

The three phases of CSR reporting overlap with the dating of the three "waves" of media coverage of CSR issues by Sustainability, because both were influenced by changing economic conditions (the preoccupation of corporations with oil shortages and inflation in the late 1970s preempted much progress on CSR issues) and by events (such as the Exxon Valdez oil spill). 

This social auditing work now adds up to a lot of business that accountants could have had if they had followed up on the suggestions in the February 1973 article in The Journal of Accountancy.  Not until 2002 did two of the Big Four accounting firms, KPMG and PwC, jointly sign a Verification of the 2001 Shell Report.  But there was an obstacle in the way of traditional accounting firms going this route.  The key to the new social audits is that certification auditors are accredited, with regular on-site inspections of their certification practices.  Financial auditors in the United States never have been subject to accreditation or investigations of on-site practices by an accreditation body ("peer review" is not a long-term substitute).  The new Accounting Oversight Board has the power to do what accreditation bodies do, i.e., remove the right of an auditor to certify against a standard.  But until this new Board asserts such power, financial accountants and auditors operate less rigorously than social auditors. 

Thank you for inspiring us to review the history of CSR reporting.  We may not have it all exactly right, but we think this is a marginal improvement on the perspective you provided in your last Dispatch.  This is not to take anything away from the good work of Shell Canada or Shell anywhere.  Shell has got the message, but we don't believe they were the first.

Alice Tepper Marlin, alice@sa-intl.org
John Tepper Marlin, Ph.D., jtm6@nyu.edu
Adjunct Professors of Markets, Ethics and Law
Stern School of Business, NYU

Their day jobs: Alice TM is President of Social Accountability International in New York City.  John TM serves as Chief Economist for the currently  elected Comptroller of the City of New York and held this position under the  two previous Comptrollers.

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