The case for company-by-company reporting

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You read that right: for a change I said company-by-company, not country-by-country reporting.

One of the organisations involved in campaigning for country-by-country reporting is Revenue Watch, who are significant supporters of the Extractive Industries Transparency Initiative.

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.