You read that right: for a change I said company-by-company, not country-by-country reporting.
Since the inception of the EITI, the method of reporting company payments to governments has been one of the most contentious issues, specifically, whether disclosures should be made on a disaggregated, company-by-company basis or in aggregated form.
In a new Revenue Watch report, author Sefton Darby examines the most common arguments for aggregated reporting, details their weaknesses, and presents stronger arguments that civil society groups can use when presenting disaggregated reporting as the preferable alternative.
As he concludes in his report:
The report finds that not only is there little substance to many of the arguments for aggregating details of company payments t0 governments, but that a disaggregated approach shows clear benefits to EITI stakeholders. Disaggregated reporting:
¬? Creates greater transparency of company payments and government revenues.
¬? Mitigates significant risks to companies which, without disaggregated disclosure, are often falsely perceived to be opaque and/or complicit in corrupt activity.
¬? Leads to a better‚Äêinformed market in which all parties are more adequately able to negotiate equitable agreements for the extraction of natural resources.
Disaggregated reporting is becoming the norm in countries implementing the EITI. Almost half of the countries producing EITI reports do so in a disaggregated manner. Companies operating in those countries tend to be neutral on the issue. Only a small number of companies are actively engaged in arguing for aggregated disclosure, and even those companies have accepted disaggregated disclosure in countries where the government has decided to adopt such an approach.
The relevance? Simply this: company by company reporting in the Extractive Industries Transparency Initiative is totally compatible of course with country-by-country reporting ion the same sector: indeed, one supports the other. And it is not causing problems. Indeed, as the report also says:
This report finds that the argument made by some companies – that disaggregated reporting will lead to the disclosure of commercially sensitive data – is largely unfounded. There is no evidence to suggest that any company operating in a country with disaggregated reporting standards has suffered a a result. So long as all companies operating in a country are required to report their payments as part of the EITI process, disaggregation essentially puts all companies on an equal footing. In some cases, it may even help to redress information monopolies used by dominant companies to negotiate uncompetitive deals.
The majority of companies opposed to disaggregated reporting take this stance because they believe that such a process will create short‚Äêterm political risks for them. Their position is based on the false notion that the best way to mitigate risks is not to provide the public with information Instead, by advancing this argument, some companies are actually creating unnecessary suspicion of and hostility to their operations, which constitutes a significant long‚Äêterm risk.
In a similar vein, some companies believe that investors and the financial analysts who inform those investors are either ignorant of how the industry operates and/or do little to recognise the long‚Äêterm benefits of mitigating risks through disaggregated reporting. Because of this, some companies are reluctant to support disaggregated disclosure. While this approach of “risk‚Äêmitigation‚Äêthrough‚Äêignorance” is still questionable, it is clear that a greater effort could be made to encourage investors to reward long‚Äêterm risk mitigation efforts by companies.
The same arguments could be applied to country-by-country reporting.
Information always wins: that’s the message.