Responsible reporting in Ukraine

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PwC’s Laura Garbenciute explores how far Ukrainian businesses are embracing corporate responsibility reporting and the limits of voluntary frameworks

The Ukrainian economy has gone through major changes over the last few years, with GDP growth of over 7% in 2006 and 2007 followed by a 15% contraction in 2009.

For most Ukrainian businesses, the priority has been managing growth and dealing with the effects of the economic crisis. Nevertheless, some businesses have allocated time and resources to prepare their first sustainability reports.

This follows the trend over the last ten years or so set by businesses in Western Europe and elsewhere to put additional focus on their responsibility to society. According to the 2009 Sustainability Yearbook, there is a clear indication of a positive relationship between sustainability and financial performance. The book is based on a study of 367 companies in 57 sectors and adds that  there is credible evidence that adhering to sustainability does not adversely affect other corporate aims, such as maximising shareholder profit.  

Sustainability reporting is not a heavily regulated area, although some regulation has been introduced. In South Africa, companies listed on the Johannesburg Stock Exchange have to produce an integrated report of financial data and sustainability. In Denmark the largest private and state companies must include information on corporate responsibility in their annual financial report. And in the UK public companies are required to report on social and environmental matters.

In practice, many businesses voluntarily prepare annual reports that cover sustainability. In Ukraine, the two frameworks used most often are the Global Reporting Initiative (GRI) and United Nations Global Compact (UNGC) reporting.

Set up in 1997, the GRI is an independent body. Businesses apply GRI voluntarily to present a picture of their economic, environmental and social performance. GRI allows organisations to prepare reports by choosing the application levels (A, B or C), and prioritising those topics that represent best the company and its messages. The highest level reports require the organisation to report against all indicators, and the highest ratings require external assurance.

Five Ukrainian businesses have prepared sustainability reports on the basis of the GRI Guidelines over the last three years – they are listed in the box below.

Countries with which Ukraine has close trading ties have a limited number of businesses reporting under the GRI: the Russian Federation (four), Turkey (two) and Poland (six).

The Ukrainian companies that prepared GRI reports are large ones. Some commented that it took at least six months to compile the data and prepare the report. The limited application of GRI by businesses in Ukraine and other countries may be due to the fact that the guidelines are long and cumbersome for application by smaller organisations.

The GRI works in cooperation with the United Nations Global Compact (UNGC), an initiative based on a principle-based framework to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. Companies may voluntarily register with the UNGC and start regularly reporting. However, the UNGC does not certify that these companies have fulfilled these principles, and does not have the monitoring tools to hold these companies accountable.

Ukrainian businesses and organisations are actively registered and reporting under the UNGC. The Ukraine UNGC network was recognised as one of the top three performers at a recent UNGC event in New York.

Since 2005, over 140 Ukrainian organisations have registered with the UNGC network - 60% are businesses, 20% local NGOs, and the remaining 20% academic associations and other. Currently, 9% of these organisations do not submit a regular report.

Ukrainian UNGC reporting statistics compare well with the statistics of the countries that are key Ukrainian trading partners, as shown in the table below.

One more voluntary standard is likely to become important for sustainability reporting. In May 2010, the ISO 26000 on social responsibility was approved. Like GRI, the ISO 26000 is a guidance standard, not intended for certification. Its use will be voluntary and it is scheduled for publication by the end of 2010.

Currently in Ukraine there is no regulatory requirement to provide the sustainability reports. The Advisory Council on the Development of National Social Responsibility Concept of Business in Ukraine launched its draft of the National Concept on CSR of business in Ukraine. However, it is unlikely that in the near future a formal legislation will be in place in Ukraine for sustainability reporting.

There is some scepticism about sustainability reporting that is not regulated. Any organisation can apply the GRI, UNGC or other frameworks, and publish a sustainability report – including those reports that might be prepared solely for marketing purposes. One might question the sincerity of some sustainability reports – especially those prepared by businesses involved in activity perceived as harmful, or those that end up losing their value as a result of poor management.

Voluntary standards and freedom to choose the reporting criteria allow companies to include positive information only in their sustainability reports, and avoid the topics which show negative trends or which are considered too sensitive. For example, one of the biggest problems that Ukrainian businesses face is corruption. However, there is little or no information in Ukrainian sustainability reports as what measures companies are taking to address this.

Until regulatory compliance requirements on sustainability reporting come into effect, the best way to overcome the perception that corporate responsibility programs and sustainability reporting are only compiled for marketing purposes is for Ukrainian businesses to start reporting on areas of improvement, and continue this reporting on a regular basis in order to establish a track record of the company’s willingness and ability to continually improve.

Laura Garbenciute is a director with PwC Ukraine

Responsible reporters:

Ukraine companies producing sustainability reports under GRI guidelines

  • DTEK – electric power industry. The report covered the year 2007 and was based on the Global Reporting Initiative (GRI) guidelines and the Accountability 1000 Assurance Standard (AA1000AS). The report was assessed by an independent accounting firm against the GRI G3 Guidelines and companies’ internal reporting policies.
  • Metinvest – metals and mining industry. The report covered the year 2008 and was based on the GRI guidelines with self-declared assessment C.
  • SCM – industrial group that controls DTEK, Metinvest and entities in other industries. Reports covered the years 2007, 2008 and 2009. The 2007 report was assessed by an independent accounting firm against the GRI G3 guidelines and companies’ internal reporting policies. The 2008-2009 report had a self-declared assessment C.
  • Obolon – beer production. The reports covered the years 2007, 2008 and 2009 and had self-declared assessment B.
  • Nadra bank, which is currently under the National Bank of Ukraine’s temporary administration, had reports for the years 2007 and 2008 and a self-declared assessment B.

 

Country comparisons:

Organisations signed up to the UN’s network for sustainable policies 

  Ukraine China Germany Poland The Russian Federation Turkey
Total number of organisations registered with the UN’s Global Compact network

145

100

182

83

47

200

Businesses – as % of total

60%

80%

76%

80%

50%

70%

Local NGOs – as % of total

20%

5%

8%

6%

1%

14%

Other – as % of total

20%

15%

16%

14%

49%

16%

Non-reporting organisations

13

26

19

22

8

42

Non-reporting organisations as % of total

9%

26%

10%

27%

17%

21%

Source: www.unglobalcompact.org/