You're reading: Business Sense: Companies catching on to corporate responsibility

Volodymyr Vorobey of CSR Ukraine Community makes the case for supporting non-financial company reporting to the public.

With Ukrainian businesses maturing and becoming bigger players on a global scale, companies are increasingly aware of the need to manage their non-financial risks. A growing number of Ukrainian companies are starting to manage their corporate social responsibility in a systematic way, addressing issues material to their business. Ukrainian business is following the path that Western (in particular Western European) companies walked just less than ten years ago.

It is a fragile process worth supporting.

The acronym CSR entered the vocabulary of Ukrainian companies some five years ago, either passed down from Western-based headquarters, or brought in locally out of a desire to look like decent corporations by the standards of civilized society. The United Nations Global Compact network in Ukraine – which promotes good corporate ethics – played (and is playing) a pivotal role in raising awareness.

Philanthropic activities were a start, but the notion of social responsibility is migrating closer to the board, away from the corporate public relations departments. Ukrainian corporate social responsibility is, in general, maturing as Ukrainian business matures.

CSR Ukraine Community – a non-profit organization that promotes the issue in Ukraine – has recently conducted a study of the non-financial reporting in Ukraine, commissioned by the Ukrainian network of United Nations Global Compact. This first-ever study supplied some good insights into the Ukrainian scene. The ideal report contains information on the issues material for the corporate business, enumerated targets that the company set itself and the progress made to achieve such targets.

Eliminating wasteful industrial practices, shrinking often bloated workforces, establishing partnerships with nongovernmental organizations, increasing salaries, implementing innovation systems, converting to renewable energy, educating consumers, working in partnership with local authorities, extending markets, and tackling corruption can take years, if not decades. No one expects miracles, but effort is what counts. The ability to manage a long-term strategy defines how well a company can manage its own non-financial risks.

The Global Reporting Initiative, a de facto global standard in reporting this issues, provides a useful framework of coroporate responsibility issues that companies could address and report on.

To date, 38 Ukrainian companies have published 55 non-financial reports. There are only seven Global Reporting Initiative-based reports prepared by five companies. Three are owned by System Capital Management, the holding company of Rinat Akhmetov, Ukraine’s richest man: energy holding DTEK, steel group Metinvest and System Capital Management itself. The others are Nadra Bank and brewery Obolon.

The first corporate social responsibility report in Ukraine was prepared and published by Akmetov’s group in 2005. It was essentially a collection of responsible business practices. However, System Capital Management’s next reports (2007, 2008-2009) included specific indicators, both for the holding and for the individual companies.

Nadra Bank was the first Ukrainian bank to publish Global Reporting Initiative-compliant reports. However, the case of Nadra Bank requires a thorough review, as it faced a number of challenges last year, including near-bankruptcy, protests by disgruntled clients and widespread allegations of corruption. Hopefully, the bank will address these issues for the period in question.

Considering the short history of corporate social responsibility reporting in Ukraine, companies are disclosing information on their non-financial performance cautiously. Health and safety, human capital development, environmental protection, philanthropy and local community development are the issues most commonly disclosed in the reports. Description of one-off initiatives and projects prevail, often not linked to material issues for the reporting companies.

It is notable that the majority of companies that issue non-financial reports have Ukrainian capital and work only on the Ukrainian market. No large multinational company has produced a report for its Ukrainian operations, though many have a large presence in the country with significant financial and non-financial impact.

Still, only 10 percent of the top 100 Ukrainian companies issue non-financial reports, compared with 80 percent in developed countries. Many large Ukrainian companies with a significant impact on the economy show no signs of any tangible social responsbility.

While working on the study, the CSR Ukraine Community surveyed managers. Our findings showed that non-financial reporting in Ukraine will continue its growth. The number of non-financial indicators covered will grow, the scope of corporate social responsibility reports will extend and companies will upgrade to Global Reporting Initiative-compliant reports.

Yet the future of corporate social responsbility reporting depends on the ability of the Ukrainian non-governmental organizations, media, consumers, academia, think-tanks, trade unions and the state to demand from business a proactive role in finding solutions to the country’s problems. Capital providers, e.g. international financial institutions and international financial markets are becoming the drivers behind the growth of corporate social responsibility in Ukraine, too.

Information on the material non-financial issues for and verifiable CSR performance of companies in Ukraine is increasingly finding its way to investors’ screens.
There are multiple processes in action in respect to CSR strategies and reporting in Ukraine. Tailored strategy and a clear reporting to the stakeholders would be the best corporate reaction, both multinational and national companies alike.

Volodymyr Vorobey is a partner at CSR Ukraine Community, established in 2008 to promote and advance corporate social responsibility in Ukraine. He can be reached at [email protected]