iStockphoto/Djordje Korovljevic

In these precarious economic times, there is one raging bull market: a stampede in producing sustainability and corporate responsibility reports. Most of the world's top companies now issue non-financial statements, up from almost zero a decade ago, and soon everyone will. For companies, they are close to being no-risk, no-lose propositions, for they have historically been impression-management documents, not evaluations of actual performance.

Do they offer any real value to stakeholders or are they just propaganda?

Consider this quote from one multinational that has produced award-winning social reports annually since 2001: "We offer an open mind, knowledge of our product and its science, support for balanced regulation, and over a century's experience of operating in diverse cultures." You can almost hear the Mormon Tabernacle Choir in the background.

The author of that statement is a long-time corporate affairs executive for British American Tobacco, the world's second largest tobacco company. BAT, like its brethren in the cancer-stick industry, makes a killer product whose only redeeming value is generating huge profits--something that equally describes international drug cartels.

It's the kind of company NGO activists label as evil. They often dismiss as greenwashing sustainability reports from companies they judge as sinful--tobacco firms, military contractors, nuclear energy producers, and even wine and beer makers. On principle, many NGOs refuse to engage with such companies on the grounds they have no moral right to exist.

With apologies to William Shakespeare, however, I'm here to praise so-called evil companies not to bury them. We have to ask ourselves hard questions: what purpose do these reports serve and do they do their job? And which companies are doing the heavy lifting when it comes to candidly reporting the social impact of their operations?

The first social reports were clearly designed to mitigate risk and polish reputations. That strategy worked for BAT, as it was added to the Dow Jones Sustainability Index within a year of releasing its first report. The DJSI, assembled by Zurich-based asset management company Sustainable Asset Management (SAM), uses a "best in sector" standard to evaluate prospective members. By reasonable measure, BAT's performance within its industry does match the polished presentation of its reports.

The sustainability community is split between "best practice" adherents such as SAM and "sin screen" absolutists, like the designers of the FTSE4Good, which excludes BAT. The latter rewards companies based on an absolute, if arbitrary, ranking of sustainability; the former rewards comparative behaviour and improvement. In effect, they pose different questions: whether we want to feel good or do good.

Absolute standards

It appears we are gradually moving towards the "do good" standard. Partly in reaction to the first generation of social reports, which were long on self-reported anecdotes and short on verifiable and contextually relevant achievements, newer reports are being judged by a higher standard. In the late 1990s, the US based Ceres, the Tellus Institute, and later the United Nations Environment Programme joined forces to launch the Global Reporting Initiative, which established the first harmonised reporting framework.

But mere guidelines, while a good first step, were not enough. Two complementary and sometimes competing verification standards have since evolved: the accounting industry's International Standard on Assurance Engagements (now ISAE 3000) and AccountAbility's AA1000 Assurance Standards, which focuses more narrowly on sustainability.

Another independent monitoring system is in the pipeline. In June, Prakash Sethi, director of the International Center for Corporate Accountability, is rolling out the first in-depth framework for analysing corporate social reports. Modelled loosely on the Generally Accepted Accounting Principles used in financial reports, the Sethi CSR Monitor will compare against one another the social reports of more than 1,200 companies from 23 industries in 43 countries.

Lo and behold! Using these various standards and verification frameworks, the messier industries, from tobacco to mining to oil production, have consistently ranked among the best companies for disclosing what they do, addressing their sustainability footprint and providing independent integrity assurance.

Shouldn't we succour a system that encourages companies with the greatest negative impact on sustainability to improve, and prove that they are improving, rather than mock their efforts outright?

To the critics of messy industries, who refuse to engage "sinful" corporations in dialogue, I say get over it. Cigarettes and alcohol, arms and other military supplies, and oil, coal and nuclear energy--powering our cars, aeroplanes and iPhones--are here to stay. The more pressure companies feel to report and independently verify their business activities, the more likely we are to achieve the social ends the well-meaning so ardently advocate.

Jon Entine is a visiting fellow at the AEI.