Two recent reports suggest that the stick may work better than the carrot in making companies embrace good risk management, with mere guidelines not being enough.
Balanced against the view that companies embrace good risk management because it creates value, opportunities and competitive advantage is the contention that regulation is the biggest driver of risk management and corporate governance.Two recent reports suggest that the stick may work better than the carrot, with mere guidelines not being enough to encourage best practice.
The Environment Agency's latest study of the environmental disclosures of the first 100 companies in the FTSE All-Share to report under the Business Review requirement of the European Union Accounts Modernisation Directive shows that four out of five failed to disclose environmental performance indicators in accordance with Government guidelines. Further, research carried out by Trucost reveals that although there has been a small increase, with 96% of the companies referring to some aspect of the environment in 2006, compared to 89% in 2004, the reporting is 'of low quality and little use to investors'.
The second report on research by FairPensions concludes that statements on corporate social responsibility from some of the UK's largest organisations are not matched by the actions of their pension schemes: The research found only five of the UK's 20 largest pension schemes disclosing policies on social and environmental responsibility and only one out of 20 disclosing how shareholder votes have been cast on scheme members' behalf.Recent losses from BP's pipeline spill, and the effect on online gambling firms of US ant-gaming laws demonstrate that ethical issues often turn into financial problems. Must we wait once again for non-disclosure and lack of transparency to produce a financial disaster that will prompt legislators to act? Is it too much to ask that the majority of large organisations, rather than just the far-sighted few, voluntarily take responsibility?