Not long ago, I wrote about the growth of sustainability reporting among public companies. (See this Doug’s Note.) It is now widely believed that effective sustainability reporting, also called “corporate social responsibility” reporting, facilitates a perception among investors, employees, customers, suppliers and other stakeholders that a company is committed to operational, compliance and governance values that enhance its reputation and increase shareholder value. This increase in quantity and quality of reporting has been encouraged by various non-profit organizations formed to flesh out and standardize disclosures.
It is important to remember, however, that the evolution of CSR reporting from fringe puff pieces to mainstream disclosure means that companies must also be alert to possible liability for misstatements or other inaccuracies. In fact, the last few years have seen a rise in the number of law suits claiming violations of securities or consumer protection laws due to CSR statements.
Basically, companies must analyze all CSR communications, whether in an SEC report, on their websites, in a special report, or otherwise, in accordance with their established disclosure controls and procedures. Resist the temptation to treat CSR disclosures as nothing more than soft marketing or public relations materials unrelated to the company’s “real” disclosures. Be sure that they are thoroughly reviewed prior to dissemination and are subject to the same layers of scrutiny, which may include the disclosure committee, chief risk officer, chief compliance officer, board risk oversight committee and other persons performing similar duties.
Here are some tips to keep in mind:
- Avoid overly broad, unsubstantiated statements of fact about what the company has done or will do regarding CSR matters.
- Wherever possible, use language indicating the company’s intent, goals, emphasis or priorities, rather than actual practices or results. For example, language like “we always treat our associates in compliance with all applicable laws” could be problematic in the wake of a successful employment-related claim against the company.
- Consider adding disclaimers or other mitigating statements to your CSR disclosures in the same manner as you do with forward-looking statements. Talk in terms of assumptions and expectations, and consider cross-referencing to disclosures that provide more detail regarding limitations faced as the company strives to achieve its goals.
- Although this may seem obvious, be sure what you say has been properly vetted for accuracy. CSR reporting can sometimes become dominated by rose-colored, consultant-generated prose, rather than statements specific to the company’s actual CSR practices.
- As with all disclosure controls and procedures, educate and continuously train all relevant employees and service providers regarding the need to be accurate and consistent with the company’s other public communications and reporting.
On the other hand, avoid riddling your CSR disclosures with distracting boilerplate caveats and cautious language that undercuts its very purpose. Or worse yet, don’t let the threat of liability discourage you from reporting in the first place. Rather, simply be mindful of the company’s overall risk tolerances and established controls and procedures. No doubt Oscar Wilde had CSR disclosure in mind when he said, “Everything in moderation, including moderation.”
All the best,