Regulatory Wave Shapes Corporate Social Responsibility, AI Tools Validate Ethical Claims
Corporate Social Responsibility (CSR) has transformed financial reporting, requiring companies to assess their social and environmental impacts alongside economic profits. In January 2023, the European Union introduced the Corporate Sustainability Reporting Directive, mandating large companies to disclose the effects of their business on people and the environment. The United States and the International Sustainability Standards Board are also developing stricter regulatory frameworks for climate-related financial disclosure. This surge in regulations has created a regulatory wave, according to Sylvain Guyoton, director of evaluations and methods at sustainability ratings group EcoVadis.
To verify ethical claims, companies like EcoVadis have emerged, rating over 120,000 companies to date. Tools such as the Higg Index evaluate the sustainability of value chains, considering factors like water usage, carbon emissions, and labor conditions. Worldly, an American firm, has utilized artificial intelligence (AI) to authenticate corporate claims, especially in the apparel and textile industries. By using AI, Worldly can determine the validity of subcontractor-provided information and identify anomalies that could indicate potential human rights violations. More companies are turning to technology, particularly AI, to validate their corporate claims, leading to increased competition in this area.
For Givvable, an Australian company specializing in complex supply chains with numerous subcontractors, leveraging technology is essential to streamline due diligence. Surveys and questionnaires sent to these companies have proven inefficient and ineffective, prompting Givvable to take responsibility for self-assessment away from the companies themselves. Their clients primarily consist of mid-cap to large-cap businesses that have extensive supplier networks. Frances Atkins, co-founder of Givvable, acknowledges the importance of technology in conducting due diligence under such circumstances. French company Tilkal, established in 2019, also employs AI to verify CSR claims. They have developed a blockchain network dedicated to assessing supply chain impact across sectors like textiles, cosmetics, honey, milk, and cocoa.
One of the key challenges faced in CSR verification is the lack of information concerning subcontractors. Many companies remain unaware of the subcontractors’ supply chains, posing a significant risk. Tilkal tackles this issue by collecting data throughout the supply chain and identifying areas of concern or inconsistency. They alert clients about specific points that require further investigation with their subcontractors. However, Matthieu Hug, co-founder of Tilkal, acknowledges that data is often incomplete, especially when dealing with factories and suppliers located far away with varying degrees of emphasis on human rights. Nevertheless, Hug believes that having some information is still better than having none at all.
While these methodologies for measuring CSR can be scrutinized, the introduction of new regulations should partially address the issue of divergent ratings. Guyoton expresses the view that ratings pinpoint risks and guide necessary action, but they do not provide a comprehensive solution. Ultimately, companies must take the initiative and actively contribute to the improvement of their CSR practices.
In conclusion, the evolving regulatory landscape is shaping the field of CSR, prompting companies to evaluate their social and environmental impacts alongside financial performance. This has given rise to firms specializing in verifying ethical claims using tools like AI and blockchain technology. While challenges remain, the increased focus on CSR and the validation of corporate claims is a positive step towards creating a more sustainable business environment.