Richard Karmel: Is the separate corporate responsibility report dead?

Mazars’ Richard Karmel qualified in 1992 as a Chartered Accountant. He is now responsible for the firm’s award winning social performance and human rights reporting line.

Richard has particular expertise of companies in the mining and oil and gas sectors and has clients with operations throughout Africa, Asia and America.

Are stand-alone Corporate Responsibility reports outdated?

Over the past two decades, a number of multi-national companies have prepared stand-alone Corporate Responsibility/Sustainability/Corporate Social Responsibility reports (let’s refer to them all as ‘CR reports’).

The motives for doing so have been wide. Ranging from a willingness to report compliance with environmental legislation to a demonstration of the company’s philanthropic activities to promotion of the positive impacts on society that the company is having.

Corporate Social Responsibility in business has long term effects

Over the past decade business academics and more enlightened business leaders have recognised that emphasising CSR (corporate social responsibility) does not only result in the company being portrayed in a good light, but that it is also good for the longer term sustainability of the business.

As Goldman Sachs put it in one of their studies, they can’t quite correlate improved business performance to any one KPI within the ESG (environment, social and governance) framework, but they noticed that, on average, management at most companies who take reporting on ESG seriously, financially outperformed those who don’t by 18%.

How to report on Corporate Social Responsibility

In order to report properly, CSR takes on a whole new meaning. It doesn’t just become a ‘nice to have’, an ‘add-on’ or a ‘side-show’ to the business; it becomes intimately entwined with the wider business strategy.  To demonstrate this publicly, several multi-national companies are reporting their respect for CSR within the front-end, non-financial information of their annual reports and, even then, not necessarily as a stand-alone report.

The result of the entwined form of reporting is threefold:

  1. The company will be producing only one report for all stakeholders, rather than several reports for different stakeholders
  2. It will improve corporate transparency through more aligned disclosure which will lead to a fairer and more balanced form of reporting
  3. It demonstrates that the company is taking sustainability seriously by embedding it within the longer term business strategy of the company

As Robert Eccles and Michael Krzus suggest in their book, One Report, doing away with a separate CR report by referring to these issues within the front-end of the annual report is not the solution (there are more complex issues on corporate behaviour which need to be addressed). However, it will demonstrate to all stakeholders that the company understands the risks, as well as the opportunities of environmental and social issues, and how the company is set up to face the challenges that both pose.

Managing a business is about understanding the trade-offs that arise from decision-making.  With multiple stakeholders, it is inevitable that at least one group of stakeholders is going to feel hard done-by from all decisions taken by management.

More often than not, it is society, communities and civil society that aren’t publicly recognised in reporting.  By acknowledging that these groups exist and are as important as any other stakeholder in the business, management would demonstrate that their decision making has taken place taking all stakeholders into account rather than just a few.

Don’t risk omitting stakeholders from reports

However, preparing just one integrated report doesn’t have to be the answer.  It is certainly true that a company can be fully committed to embedding its CSR strategy within its wider strategy without having to combine all reports.

A company can also be fully committed to transparent disclosure without referring to sustainability.  For example, it could be transparent only on the financials for the benefit of only one group of stakeholders – the shareholders.

However, in today’s age of social media and instant communication available to many, if a company tries to omit any one particular stakeholder with whom it is communicating, it should do so in the full knowledge of the reputational risks that it is running.

The benefits of a single report

In conclusion, if the company was to prepare a single report, there are at least four clear benefits:

  1. It deepens engagement with all stakeholders leading to greater trust
  2. Consequently it reduces the reputational risks
  3. It provides greater clarity about whom the company is interacting (this plays well to the ‘social relationship’ capital within Integrated Reporting)
  4. It should give confidence to all that better decisions are being taken within the company as all issues are being taken into account

All in all, whilst the separate corporate responsibility report is not dead, and the quantity of such reports may well increase in the short-term as many companies start their journey on understanding the importance of embedding CSR into their wider business strategy, I would anticipate, and hope, that we will be seeing more concise and balanced non-financial reports in annual reports.

These will cover they key areas of a company’s strategy including how it approaches and respects CSR.

Richard Karmel

Richard.karmel@mazars.co.uk

Mazars LLP