Published on: 11 January 2024
The second week of the New Year is the hardest. It takes three weeks to form a habit, or so they say. The first week of high expectations can often be followed by resolution exhaustion. By week 2 the gym equipment starts to look like too much to use, the chocolates you received as presents over Christmas start to look tantalising, and apathy can set in. Part of this is that it is a lonely thing, to commit to something and face yourself in the mirror every day, with no-one to blame but yourself. But individual resolutions are far more achievable when you have an accountability network. It’s a thing. And that’s why, when the world needs more transparency in order to face the huge challenges posed by climate change and global unrest, we cannot attempt to make a difference on our own. We must do it together.
I think that this is actually what is going on with greenwash in probably the majority of cases in the corporate world. Good intentions and goals are set, but with a lack of visible responsibility and ownership, the claims end up as short-lived PR snippets that disappear off into internet archives without achieving what was promised.
Enter Corporate and Supply Chain Transparency. As a transparency evangelist, you’d expect nothing less from me than a heartfelt call to action. But I think the business case cannot be assumed to have been made without being really specific about why it matters.
Corporate transparency of the financial kind leads to better financial performance. It reduces risks and increases the sustainability of the organisation within which transparency is embedded. Financial transparency is only one side of the coin however and the flip side is Non-financial transparency. That of the actions taken, the impacts made, the business decisions on every ESG metric you can think of. We’ve come through so many catchphrases for the corporate version of “Do the Right Thing” but at the end of it all is a simple concept. Transparency leads to greater accountability.
So what does the current research show?
A study on the effects of corporate transparency on firm value and profitability of 162 Korean venture firms showed Corporate transparency is positively associated with firm profitability:
Financial transparency is positively related to firm profitability
Firms with a greater level of governance transparency have a higher firm value
Social transparency is positively associated with firm value and profit
A further 2023 study in Nature showed:
Transparency in ESG criteria leads to better environmental practices, such as reduced carbon emissions and efficient water usage.
Transparency promotes ethical labour practices and diversity in corporate governance, enhancing overall environmental and social responsibility.
With more and more social scientists turning their focus on corporate transparency, the business case will continue to stack up.
So why is there hesitancy? In amongst all of this evidence base for corporate and supply chain transparency, I found a curious paper that seemed to suggest that transparency was bad for profitability and I was compelled to look closer. After a first read, it became clear that the paper had been written from a US shareholder perspective. In short, because corporate executives were paid more in organisations where corporate transparency was embedded, and because CEO turnover was higher, it was deemed to be detrimental to the company’s performance. Read a different way however, it *could* mean that CEOs used to operating under opaque conditions were finding it harder to maximise profits without negatively impacting ESG metrics (which would explain why greenwash continues to plague environmental action and reporting). It could also mean that with transparency, company executives were able to earn what they were worth.
Yes of course from a shareholder perspective, this might mean lower dividends. OR it could mean that staff retention is higher due to fairer pay. Lower dividends that pave the way for a net zero future will be far more sustainable an income.
Ultimately a shift in mindset is needed. Shareholders must accept the responsibility of being stakeholders in the future of this planet. With greater transparency, everything good becomes possible…
So what does this all mean? It means that as good corporate citizens, I call upon all of you who share these values to become transparency pioneers in your organisations. Set your intention this month to embark upon a journey towards the level of transparency we need to rebuild a fairer, safer world. It’s a simple pledge and should be a no-brainer. Your own individual commitment can help to create a corporate responsibility that transcends annual reports and compliance statements.
I think it would only take three months to three financial quarters to make a corporate habit. Don’t you think it’s worth finding out?
You can sign up to pledge to being a corporate transparency pioneer on tiscreport.org.
Jaya Chakrabarti MBE
CEO TISCreport t/a Semantrica LTD
