Tuesday, April 26, 2005
Hot Topic 1 - Non Financial Reporting
The future of corporate reporting is all about transparency & building public trust—the clear, complete, relevant information about corporate performance that investors and other stakeholders are demanding; However, below are some of my thoughts from an essay i had written analysing the art of non financial reporting over the past 3 years.
Elements Needed for Sustainability Performance Information And Reporting
Obviously due to the differences in the information needs of the stakeholders, the reports are at times never able to satisfy everyone fully, however the introduction of the Global Reporting Initiative has tried to create a framework that meets the needs of many stakeholders (though it is not yet fully satisfactory). As CSR continues to grow and stabilize; it is thus anticipated that like financial reporting; non financial reporting will soon become clear, tangible and consistent due to future developments of CSR like assurance and standardization..
A. Assurance needs for the various stakeholders;
For the primary stakeholders; information linked generally to the performance of the business and future prospects of the business is of high importance; some of the assurance information needed includes Brands and Reputation, Environment, Health and Safety issues, and Human Resources intellectual capital. Stakeholders should also be able to see the risks and opportunities in the business from this reports enabling them to link ethical information with financial information and how to go about growth or change. A CSR Report designed as a tool, not just a press release; and as a radar system, not just a rear view mirror can provide direct business benefits and catalyze further change.
For the secondary and complementary stakeholders; their concern is mostly on how the company’s activities affect the industry or the community as a whole. This group needs information mostly on the Environmental, Social and Economic impact without going into detail to the companies performance but rather the impact and effect integrating the three issues. Companies should however be careful not to do reports which are pressure driven by NGO’s and should highly demonstrate intention. The whole point here is that once trust and transparency is built with the community, the companies reputation is positively increased.
B. Areas Where Information Needs Converge
Even though reporting is primarily targeted for Investors and NGO’s; information should be more “material” for them and at the same time “clear and simple”for other stakeholders. Information on issues like economic, social and environmental effects is the convergence point for all the stakeholder groups because this is the root of TBL reporting; this is the moral point and intention of the company that determines its performance and also shows to the community why they should give the company a social licence to operate; Whenever possible; the reporting company should try to get feedback from all its stakeholder groups by engaging them in debates where they can extract and compare information. In this way it becomes a win-win situation for both the company and its stakeholders; the companys reputation is enhanced, trust ensured with stakeholders; stakeholder needs are met and in the long run a positive impact on society. Companies should be very keep to identify who their key “readers” are and focus most of their energies towards satisfying their needs.
There is also a need to intergrate financial and non financial reporting to help analysts do their job efficiently and also attract a wider audience for the reports giving different types of performances of the company; it is also cheaper for a company as it does not have to write 2 separate reports.
C. Where requirements differ
First of all, the degree of detail of non-financial reporting has been difficult to balance since whereas the investors may find reports tangible and performance indicative; secondary stakeholders tend to find them too long and over complicated to discern. Sometimes the information is also not segmented enough to engage the different stakeholder groups. There are at times conflicting audiences owing to the fact that reporting should be designed for investors but confuses itself by tailoring towards other audiences. There currently exists no clear times of release for these reports though commonly annually. Another issues is the sources of data required for CSR Reporting; currently, much of the data comes from external sources whose rigour is unknown to decision-makers. Authors must move more to closely intergrate information sharing and make connections explicit to their audience. Finally, the question on if the report should be a PR driven one or one that’s more on issues of transparency. At the end of the day the fact that most companies have not yet intergrated CSR as one of their core strategies but still under Marketing and PR strategies; the reports will always be caught in the buzz of what tone to carry.
Why Requirements differ
Tthere is quite a diverse type of stakeholders; each type of stakeholder has his own information and assurance needs for example; an oil company under pressure from environmental NGO’s; the NGO’s performance is judged not by profit but by how they tackle environmental issues and since the corporate world is involved greatly in overall environmental use; the NGO will uniquely want to see performance indicators on emission reduction or energy conservation whereas a retail client will only need information on how his purchase of fuel will affect both his car and the environment that he lives in and a share holder will want to know how the cost of emission reduction will affect the shares in the short or long term. This differences call for an urgent need to move towards dynamic reporting; for example Novo Nordisk has provided intelligent search and sorting mechanisms to enable audiences to quickly find the information they want. Companies like Shell and ING have embraced the need for accessibility and have tackled this by providing hard copy reports that make references for further information on their internet sites.
Summary
All in all; the future of reporting relies not only on the topic of information but on its materiality, accessibility and completeness. Organizations should not be so tied up in formal reporting which may provide an anchor for accountability but not provide the answer. The challenge lies in addressing trust, intention and humility in a consistent manner and this should revolutionise reporting from turning into a new corporate spin and opportunity but rather enhanced relationships and trust.
Elements Needed for Sustainability Performance Information And Reporting
Obviously due to the differences in the information needs of the stakeholders, the reports are at times never able to satisfy everyone fully, however the introduction of the Global Reporting Initiative has tried to create a framework that meets the needs of many stakeholders (though it is not yet fully satisfactory). As CSR continues to grow and stabilize; it is thus anticipated that like financial reporting; non financial reporting will soon become clear, tangible and consistent due to future developments of CSR like assurance and standardization..
A. Assurance needs for the various stakeholders;
For the primary stakeholders; information linked generally to the performance of the business and future prospects of the business is of high importance; some of the assurance information needed includes Brands and Reputation, Environment, Health and Safety issues, and Human Resources intellectual capital. Stakeholders should also be able to see the risks and opportunities in the business from this reports enabling them to link ethical information with financial information and how to go about growth or change. A CSR Report designed as a tool, not just a press release; and as a radar system, not just a rear view mirror can provide direct business benefits and catalyze further change.
For the secondary and complementary stakeholders; their concern is mostly on how the company’s activities affect the industry or the community as a whole. This group needs information mostly on the Environmental, Social and Economic impact without going into detail to the companies performance but rather the impact and effect integrating the three issues. Companies should however be careful not to do reports which are pressure driven by NGO’s and should highly demonstrate intention. The whole point here is that once trust and transparency is built with the community, the companies reputation is positively increased.
B. Areas Where Information Needs Converge
Even though reporting is primarily targeted for Investors and NGO’s; information should be more “material” for them and at the same time “clear and simple”for other stakeholders. Information on issues like economic, social and environmental effects is the convergence point for all the stakeholder groups because this is the root of TBL reporting; this is the moral point and intention of the company that determines its performance and also shows to the community why they should give the company a social licence to operate; Whenever possible; the reporting company should try to get feedback from all its stakeholder groups by engaging them in debates where they can extract and compare information. In this way it becomes a win-win situation for both the company and its stakeholders; the companys reputation is enhanced, trust ensured with stakeholders; stakeholder needs are met and in the long run a positive impact on society. Companies should be very keep to identify who their key “readers” are and focus most of their energies towards satisfying their needs.
There is also a need to intergrate financial and non financial reporting to help analysts do their job efficiently and also attract a wider audience for the reports giving different types of performances of the company; it is also cheaper for a company as it does not have to write 2 separate reports.
C. Where requirements differ
First of all, the degree of detail of non-financial reporting has been difficult to balance since whereas the investors may find reports tangible and performance indicative; secondary stakeholders tend to find them too long and over complicated to discern. Sometimes the information is also not segmented enough to engage the different stakeholder groups. There are at times conflicting audiences owing to the fact that reporting should be designed for investors but confuses itself by tailoring towards other audiences. There currently exists no clear times of release for these reports though commonly annually. Another issues is the sources of data required for CSR Reporting; currently, much of the data comes from external sources whose rigour is unknown to decision-makers. Authors must move more to closely intergrate information sharing and make connections explicit to their audience. Finally, the question on if the report should be a PR driven one or one that’s more on issues of transparency. At the end of the day the fact that most companies have not yet intergrated CSR as one of their core strategies but still under Marketing and PR strategies; the reports will always be caught in the buzz of what tone to carry.
Why Requirements differ
Tthere is quite a diverse type of stakeholders; each type of stakeholder has his own information and assurance needs for example; an oil company under pressure from environmental NGO’s; the NGO’s performance is judged not by profit but by how they tackle environmental issues and since the corporate world is involved greatly in overall environmental use; the NGO will uniquely want to see performance indicators on emission reduction or energy conservation whereas a retail client will only need information on how his purchase of fuel will affect both his car and the environment that he lives in and a share holder will want to know how the cost of emission reduction will affect the shares in the short or long term. This differences call for an urgent need to move towards dynamic reporting; for example Novo Nordisk has provided intelligent search and sorting mechanisms to enable audiences to quickly find the information they want. Companies like Shell and ING have embraced the need for accessibility and have tackled this by providing hard copy reports that make references for further information on their internet sites.
Summary
All in all; the future of reporting relies not only on the topic of information but on its materiality, accessibility and completeness. Organizations should not be so tied up in formal reporting which may provide an anchor for accountability but not provide the answer. The challenge lies in addressing trust, intention and humility in a consistent manner and this should revolutionise reporting from turning into a new corporate spin and opportunity but rather enhanced relationships and trust.
// posted by Emily Waita @ 8:15 AM 
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