In the second of our series on the future of corporate social responsibility, EP looks at the forces that are shaping non-financial reporting
Apart
from France, no country yet places a legal obligation on a company to
report its social and environmental impact. The fact that most of the
FTSE 250 now report on at least one of these areas suggests the demand
from interested parties for information has grown so loud that
companies feel they must respond. The result has been a surge of
social, environmental, sustainability and combined reports – 79 in the
last two years within the FTSE250 alone, according to a joint study by
the Salterbaxter and Context consultancies. A related development is
the rapid growth of a community of specialists who earn their living
from CSR. So where do we go from here?
At present, faith
in reporting is fairly high, but trust very low. The biggest single
challenge facing companies is without doubt the credibility of their
reports, or rather the lack of it. This challenge will have to be met
at some point. For now, most reporters have made a start by developing
the tools and metrics to assess social impact; for environmental
impact, the work was already more advanced. While technical obstacles
remain, it is possible at least to see light at the end of this tunnel,
and the leading companies now have several years of reporting
experience. The challenge for them will be to move beyond disclosure to
concrete improvements in their social and environmental performance:
non-governmental organizations, for whom disclosure is but a step to
improved performance, will track progress closely.
When a
critical mass of companies are established reporters, the leaders may
well support calls for regulation to require reporting by all large
companies, in a bid to create a level playing field on costs. In an
early sign, several unnamed companies privately backed a recent UK
parliamentary bill to promote compulsory non-financial reporting. Like
longer-established environmental reporting, social reporting will be
slow to spread beyond the biggest companies and into the FTSE mid-250.
Making reports more relevant is another big challenge. Few reports give
readers what they want, surveys suggest. Anyone who has glanced at a
social report is aware of the mismatch between what interests the
reader, and what the company is interested in revealing. This goes to
the heart of the issue: is non-financial reporting just PR puff? If it
is in too many instances, reporting is in trouble. But the interests of
the company and some stakeholders will never be fully aligned.
Companies will need to clarify their spheres of responsibility as
reporters, deciding where their responsibilities to society end, and
which constituencies they can work with constructively.
A
single report often has to satisfy very different interests. In the
next phase, social reporters will begin tailoring information to their
key audiences. Investors will receive one set of data, most likely with
reference to the consolidating Global Reporting Initiative, which will
draw in reporting tools such as SA8000 and AA1000; employees another.
The Body Shop, one of the pioneers, has already begun producing
separate reports for different audiences. This is risky – unequal
treatment will alienate some groups – but should tighten the focus of
reports.
Reporting will also become decentralized, to
regional or even factory level. As the work of British American Tobacco
suggests, it may also stratify, with reports for the group and its
subsidiaries and divisions, for specific audiences – creating niche
markets for specialist consultancies. These trends too, carry risks:
BAT is already pulling in its horns, and decentralization is not
necessarily a good thing; corporate irresponsibility is now most
evident at the very top of companies.
All this will cost
money. To convince sceptical boards, reporters will have to show they
can add to, or defend, the value of the business. Reports will
therefore have to be more closely aligned with what most influential
interested parties want, as opposed to what companies think they want:
the future of reporting is closely tied up with how stakeholder
dialogue develops.
Ultimately, companies will realize
that producing information no one wants to read is a waste of time.
Some will no longer produce standalone reports, most likely those with
a CSR report but no CSR strategy. However, the coming requirement to
produce an Operating and Financial Review in the UK will make it hard
for them to stay out of the game entirely, and will accelerate the
convergence of financial and sustainability reporting. The successful
ones will link their reporting to their commercial objectives wherever
possible. This is only likely to happen when other departments pick up
on it, led by investor relations, marketing and communications. Some
companies will never let communications near their CSR activity, but
the CSR practice of others will enhance their communications work;
faceless corporations will find it valuable for expressing personality.
Non-financial reports also express a company’s values. But if reports
lack credibility, they will never do this effectively. We are back to
the question of trust in reporting – a future Analysis topic.
The first article in this series appeared in EP5, issue 6, p9
