Financial reporting and corporate social responsibility

1
Financial reporting and corporate social
responsibility
Roger Adams, Executive DirectorTechnical, ACCA
and GRI Board Member
The Institute of Public Relations 17
June 2003
2
Overview

• Conventional financial reporting boundaries
• Long-standing CSR type issues in corporate
  disclosures
• Environmental disclosure issues
• New reporting initiatives including corporate
  governance
• CSR reporting activity levels
• The mandatory operating and financial review
  statement
• The Global Reporting Initiative and integrated
  reporting

3
Conventional financial reporting boundaries

• Investor focussed
• Consolidated at group level based on control
  concept
• Financial issues only
• Each of these constraints has implications for
  what is reported
• - needs of other stakeholders largely ignored
• - accounts still susceptible to manipulation
• - accounts ignore non-financial issues of all
  sorts

4
Long-standing CSR type issues in UK corporate
disclosure

• disclosure of charitable (and political)
  donations
• reporting on policies and practices with respect
  to disabled employees
• disclosure of significant environmental
  liabilities - actual or contingent - and
  provisions
• voluntary non-financial disclosures are
  infrequent
• equal opportunities legislation does not
  require any disclosures other than this (nor will
  the new OFR)

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Environmental issues - 1

• recognition and disclosure of environmental
  liabilities and provisions
• - recognised when standard accounting criteria
  met
• - separate disclosure where material
• disclosure of revenue related environmental
  expenses - only when exceptional in size
• recognition and disclosure of environmental
  assets?
• - recognised when standard accounting criteria
  met
• - separate disclosure extremely rare

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Environmental issues 2

• disclosure of environmental impacts, policies,
  performance, targets etc
• - not required in the UK, some voluntary
  disclosure in annual report and accounts package
• new French legislation is currently most
  extensive in EU if not the world
• social / CSR issues mostly voluntary thus rarely
  disclosed
• growing reporting activity outside annual report
  and accounts package

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Recent reporting initiatives

• UK Turnbull requirements
• UK ABI SRI annual report disclosure guidelines
• 2003/4 mandatory OFR reporting requirements
• UK NGO led CORE group lobbying for mandatory CSR
  reporting

• French social and environmental disclosure
  regulations from 2002 for annual report and
  accounts
• EC CSR strategy CSR reporting guidelines by 2004
• GRI sustainability reporting guidelines revised
  2002 headlined at World Summit and included in
  King 2 South Africa as a listing requirement

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How many are reporting? (Next Step Consulting May
2003)

• FTSE 100 (FTSE 350)
• 72 issue stand alone reports (110)
• 18 provide short ARA disclosures (37)
• 4 do not report (42)
• - report in development (3)
• 2 report via parent company (3)
• 4 no information (155)

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The mandatory operating and financial review - 1

• an OFR expands on the information which is
  contained in the annual financial statements and
  thereby helps members to make an informed
  assessment of the companys operations, its
  financial position and its future business
  strategies and prospects.
• the directors must consider whether the
  inclusion of information about the companys
• - employment policies
• - environmental policies
• - social and community policies
• is necessary in order to achieve the review
  objective.

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The mandatory operating and financial review - 2

• directors will base their disclosure decisions
  upon the materiality of the issues
• materiality will be dependent on financial and
  /or strategic relevance to members
  decision-making needs
• directors may need to assess what is relevant to
  other stakeholders in arriving at their
  disclosure determination
• the DTI materiality working group believes that
  the new requirements will impact beneficially on
  CSR-related management control systems

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What are the GRI guidelines?

• Non-mandatory guidelines for sustainability
  reporting
• reporting principles
• transparency, inclusivity, sustainability
  context,
• completeness, relevance, neutrality,
  comparability,
• accuracy, clarity, timeliness, auditability
• report content
• economic, environmental and social indicators
  core
• and additional

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The GRI Family of Documents
The Guidelines foundation document upon which all
other GRI documents are based
Technical protocols each protocol addresses a
specific set of indicators, providing technical
guidance on their measurement
The Guidelines
Energy Child labour
Sector supplements additional guidance for
specific sectors, addressing issues pertinent to
those industries
Issue supplements issue-specific supplements to
provide additional models for organising the
information
Automotive Financial Tourism Mining
Diversity Productivity HIV/AIDS
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GRI Reporters - a Sampling
American Home Products ATT Baxter Biffa Waste
Services Ltd. Body Shop International Bristol-Mye
rs Squibb British Airways BT Cable
Wireless Carillion Danone Electrolux ESAB Ford
Motor Company Fuji Xerox General Motors
Henkel Interface
ITT/Flygt Johnson Johnson Kirin
Brewing KLM Konica Landcare Research
Matsushita Motorola NEC Nissan Nokia Novo
Nordisk Procter Gamble Renfe Ricoh Royal
Sun Alliance Royal Philips Electronics Saint-Goba
in
SAS SASOL Scandiflex Shell Severn Trent
SITA South African Breweries Suncor
Energy Sunoco Swedish Meats Thames Water
TransAlta TXU Europe VanCity Savings Credit
Union Vauxhall Motors Ltd VAW Aluminium Waste
Recycling Group
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Conclusions - the OFR and the GRI

• are not equivalent though they may be
  complementary
• OFR disclosures are likely to be largely
  narrative and high level
• the environmental / social content of the OFR
  may initially be management determined rather
  than stakeholder driven
• issues of comparability of disclosure seem
  likely to arise as both relevance and materiality
  will be subjectively / internally determined
  this needs to be monitored

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Conclusion - the OFR and the GRI - 2

• the OFR audience will be the financial community
  as opposed to GRIs wider stakeholder circle. The
  OFR will therefore not be a substitute for GRI
• the responsibilities of the different assurance
  providers need to be carefully mapped out and
  agreed
• the level of CSR reporting seems certain to
  increase - but wider scope mandatory reporting is
  some time away - at least in the UK - the OFR
  opens the door to possibility of integration and
  convergence in the future

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