4.18 Governance

In relation to public reporting, governance is intimately tied to the concepts of transparency and accountability. Good governance practice in businesses means a willingness to be open and communicative to stakeholders about good and poor performance, management practices, policies, decisions and other matters.

Governance disclosures in reporting typically address aspects such as executive remuneration, accountabilities, performance, and the qualifications and competencies of the organisation’s board in relation to sustainability risks and opportunities. For many reporters, disclosing such information poses a challenge, in relation to both confidentiality and their ability to gather and collate the relevant data.

Enhancing governance disclosures in reporting benefits organisations and their stakeholders in the longer term by:

  • helping to place sustainability considerations, and how they relate to governance, on the board’s agenda
  • providing sustainability managers with more internal traction
  • making critical information accessible to relevant stakeholders, such as investors.

Between them, both the GRI G4 guidelines and the integrated reporting framework significantly strengthen the links between governance, performance and accountability.

The governance-related issues of corporate corruption and bribery have also been prominent in recent times and remain one of the key barriers to sustainable development. G4, in particular, makes it more difficult for reporters to completely avoid disclosing information on corruption and how it is managed within the organisation. G4’s approach demonstrates a recognition that managing the issue of corruption is a cross-functional exercise that strongly relates to the values and culture of the organisation and, importantly, its people.

4.18.1 Transparency

Transparency remains one of the biggest hurdles to effective corporate accountability and public reporting. Transparency is a cultural factor that often takes time, effort and determination to realise in companies.

There is much more work to be done to improve transparency and the degree of disclosure of corporate performance at the management, executive and board levels. However, in the current era of unprecedented and largely uncontrolled social networking, whistleblower protection and proliferating camera-equipped mobile devices, there is simply no prospect of keeping unfavourable news out of the public eye.

Organisations can no longer appear to be unresponsive, unaccountable and uncaring about issues or outcomes that stakeholders decide are important or perceive as important.

In this respect, both integrated reporting and the GRI G4 place pressure on reporters in relation to transparency and, with that, accountability. Two aspects of transparency are emphasised in public reporting—completeness and balance:

  • completeness, in that all material aspects of performance are covered in a report according to the boundaries set for that report
  • balance, in that both good and bad performance are disclosed.

Integrated reporting emphasises the importance of balance and completeness of information as one of its fundamental principles of reporting. Similarly, in G4, completeness remains one of the guiding principles for determining report content, while balance is one of the guiding principles for determining report quality.

Transparency, if recognised and seriously tackled in reporting, enhances the company’s trust and engagement with stakeholders on a deeper level than before. By embracing transparency, the company is likely to earn greater respect and credibility from its constituencies.

4.18.2 Extractive Industries Transparency Initiative

The Extractive Industries Transparency Initiative (EITI) is an international organisation that has developed a standard that assesses the levels of transparency in countries’ oil, gas and mineral resources sectors.9

Some countries that are rich in natural resources have underperformed economically against expectations (given the richness of their resources), have a higher incidence of conflict and suffer from poor governance. Those effects are not inevitable and it is hoped that, by encouraging greater transparency in countries rich in resources, some of the potential negative impacts can be mitigated.

Implementing countries improve their investment climate by providing a clear signal to investors and international financial institutions that the government is committed to greater transparency. EITI also assists in strengthening accountability and good governance, as well as promoting greater economic and political stability. This can contribute to the prevention of conflict based on oil, mining and gas resources.

Companies benefit from a level playing field in which all companies are required to disclose the same information. They also benefit from an improved and more stable investment climate in which they can more effectively engage with citizens and civil society.

Twenty-seven countries have become EITI-compliant, and Australia has recently completed its domestic pilot of the EITI, guided by a multi-stakeholder group.

Collapsed - Case study: Democratic Republic of the Congo: shedding light on tax collecting agencies’ practices—greater scrutiny uncovers US$26 million that was unaccounted for

In the Democratic Republic of the Congo (DRC), EITI reports have generated a debate about the accountability of tax collecting agencies.

One of the agencies, DGRAD, was found in the EITI report to be unable to account for US$26 million of royalty payments. The case is under close public scrutiny, and observers expect it to lead to judicial action.

The DRC has found that a key benefit of the EITI is that it can now ensure that the taxes collected by government entities reach the accounts at the Central Bank. Other oversight institutions are also strengthened, such as the Auditor-General’s Office, which is now investigating discrepancies identified in EITI reports and referring cases to the court as necessary.

Footnotes

9 See EITI, https://eiti.org/.

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