Corporate social responsibility reports have become so bloated that even the World Wildlife Fund doesn’t want to read many of them anymore, says Oliver Greenfield, head of sustainable business and markets at the nonprofit organisation. To recapture the interest of stakeholders such as the WWF in CSR, Greenfield has a draconian proposal: get rid of them. Rather than slogging through these standalone tomes of CSR-friendly data every year, he reckons stakeholders would benefit would benefit more if CSR data were incorporated into audited financial reports.
Greenfield’s proposal is being met with more and more corporate proponents. In recent years, there has been a spike in companies around the world integrating CSR and annual financial reports, according to research by CorporateRegister.com, an online CSR reporting repository. It found that 93 such reports were prepared in 2007, up from 48 in 2006 and eight in 2005. Accounting for 14% of the total in 2007, European companies such as Roche, BC Hydro and Umicore have been taking the lead, according to the survey’s co-author, Iain McGhee.
That still leaves plenty of companies that haven’t abandoned their standalone CSR reports. Mindful of the dangers to their reputations if there were a public backlash, environmentally sensitive industries for their part now rely greatly on their annual CSR reports to disclose the environmental and social factors affecting the performance of their companies. Others find CSR reports an important channel for attracting socially responsible investors, not to mention meeting regulatory requirements for particular sectors.
But there’s room for improvement, and now that CSR reports are reaching a level of sophistication unimaginable even a few years ago, reporting experts are encouraging companies to take a fresh look at their reports to improve the information they’re sending out to stakeholders.
Much of the direction this work takes is dictated by a company’s line of business. “Companies need to decide what data is material to their sector,” says Nick Coad, head of environmental strategy at National Express Group, a £2.6 billion (€3.6 billion) UK public transport company that’s been publishing paper-based annual CSR reports since 2002. “As a public transport company, we need to say to investors, ‘Yes, our strategy is going to be a carbon-increasing one, but our fuel efficiency numbers are what you should be looking at.’”
Careful What You Wish For
Coad confesses that when he joined the company six years ago, he was as guilty as others in believing CSR reports needed bulking up to be credible. “The more, the better,” he recalls thinking, and the company’s CSR reports increased year after year, to more than 40 pages, roughly the same size as a selection of similar reports published by listed UK companies studied by Black Sun, a corporate-reporting consultancy.
But last year, National Express overhauled its report, stripping out pages and pages of graphs and data. The simplified report was less than half the length of previous reports. The latest report focused on the company’s long-term goals, while directing readers to its website to find traditional CSR data. “Broad CSR reports drown out useful numbers,” asserts Coad. “They don’t encourage people to think about what is really material to the company’s strategy.”
Though the actual CSR report is now more concise, the company says it’s able to draw attention to more detailed information online. such as explaining cost savings from environmental policies or how fuel efficiency measurement alerted management to cost discrepancies between different regions.
Disseminating different types of CSR information via financial accounts and the internet has worked well at National Grid, a £11.4 billion electricity and gas company. “We know that good reporting will drive value,” says Steve Noonan, National Grid’s group financial controller. He adds that accurate, comprehensive CSR reporting can bring a level of transparency that’s appreciated by regulators and customers alike.
Since 2001, it has included CSR in its annual review, but such elements contained in its most recent review are only those directly related to the company’s financial performance, including fines related to environmental damage and reduction of greenhouse gases against government targets. The rest — including investment in local communities and human rights — is published online.
“Things that are not material to the business shouldn’t be included in annual reviews and accounts,” says Ian Gearing, corporate responsibility manager. “But regulators and customers are still going to be interested in the other CSR data that is not included.”
Beyond making better use of annual reports and the web, National Grid has also recently begun publishing “dilemma reports” or “one-offs.” These are sector-specific reports published in response to a recent event, such as the impact of rapidly increasing fuel prices or supply chain issues. One-offs are good for targeting specific stakeholders, says Gearing. “We recently published a new strategy document, which revealed that because of a merger we did, we needed to change from business-as-usual if we were to meet the government’s climate change targets.”
One-offs are also used at National Express. “Creating one-off special reports demonstrates to stakeholders that you are responding quickly to topical issues, and allows [stakeholders] to review and challenge your ideas,” says Coad.
Looking after the Future
Companies say that even if they were in favour of publishing CSR information in their financial reporting, the real difficulty may be deciding which CSR-related information will be materially important to the business in the future. What will be the CSR information that will need to become part of “a long-term value-creation strategy?” asks Thomas Scheiwiller, global sustainability team leader of PricewaterhouseCoopers in Zurich.
Whether or not a company chooses to keep standalone CSR reports, Greenfield of the WWF warns that mandatory emissions-related reporting and sector-specific CSR regulations will continue to grow and inevitably find their way into financial reports. But on behalf of inundated stakeholders, his plea remains the same: Less is more.
John Zhu is senior staff writer at CFO Europe.