How to... write the perfect CSR report

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In the first of an exclusive three-part series on CSR and sustainability reporting, BusinessGreen.com analyses the dos and don'ts of successful CSR reports

By Jonathan Ballantine

11 Mar 2009

In the early days of CSR reporting, most non-financial reports were either exclusively environmental in focus or dealt only with philanthropy. Today, however, CSR reports are seen as increasingly strategic documents that should offer a balanced, objective and reasonable assessment of almost every aspect of a firm's non-financial performance. The challenge for CSR and sustainability executives is how to achieve this when reporting best practices are constantly evolving.

As Richard Ellis, group head of corporate social responsibility at Alliance Boots, observes: "CSR accounting has been in existence for 10 years and is still in its infancy; business accounting has been going for 190 years."

Whereas conventions are established and understood in business accounting, they are still being debated in the world of CSR. But while CSR reports might be almost 200 years younger than financial reports, they have in their short history shown steady progress and look set to be on the road to best practice.

So why are companies reporting? What should they report on? What guidelines should they follow? And what should their finished reports look like?

There are clear benefits for organisations that undertake quality CSR reporting: it allows them to demonstrate their interest in the environment, their employees and communities; it builds trust and promotes transparency; and solicits feedback on their performance from a growing number of stakeholders.

Paul Burke of Acona, an independent consultancy that advises clients on reporting, argues that firms also face pressure from peers and investors to deliver annual CSR reports.

"CR reporting is now an expectation of business and large organisations really have no choice," he observes.

There is growing evidence to support Burke's assessment given the steady increase in the number of organisations reporting each year, and the growing scrutiny from various investor groups placed upon those firms that fail to provide information on their environmental performance.

Marks & Spencer, a keen advocate of sustainable business through its Plan A initiative, is an advocate of the benefits that accrue from CSR reporting.

"Reports act as a databank of information that feed the needs of a diverse audience," remarks Rowland Hill, CR manager at Marks & Spencer. "They also provide us with a management tool for internal measurement to track year-on-year progress."

One of the main challenges of CR reporting is determining what issues to report on and what issues to exclude, as well as prioritising those issues that are included.

Jack Cunningham, head of group corporate responsibility and environment at ITV advises that as a rule, organisations should try to focus on tangible metrics, and provide "a description of material issues, governance and performance measurement".

It is this issue of "materiality" that is the Holy Grail of non-financial reporting. As Noel Morrin, senior vice president of sustainability and green construction at SkanskaAB puts it: "Materiality is key – avoid the fluff."

The role of the intended audience or stakeholder is also crucial in deciding what to include, because the shape of a company's report is (or should be) largely driven by stakeholders' demands. One of the best ways to check the right information is included is to ask recipients of the report whether they feel anything is missing.

A recent study by KPMG & Readers' Choice entitled Count Me In asked readers of CSR reports exactly this question and found that the one single topic they believe is most likely to be left out is information on the company's failures.

"Stakeholders are looking for commitment from companies to improve – or to cause the least harm as possible – the societal conditions they work in," observes Wim Bartels, global head of KPMG's sustainability services, and author of the Count Me In study. "They understand very well that this will not be without hurdles or failures. Not including these in a report has the risk of impairing the credibility of the report."

It is apparent that if reporting organisations are to build trust and transparency, they must strike a balance between disclosing both good and bad performance. Unfortunately many firms still find it difficult to effectively highlight when they have been in the wrong.

"Even when organisations acknowledge the bad in their reports, it is usually accompanied by a lengthy explanation or rationale that fails to address the root cause or is overly defensive," comments Acona's Burke.

While there are clear benefits to asking for feedback on completed reports, relatively few firms engage effectively with their intended audience. In preparation for this feature, a survey was conducted with CSR professionals from more than 40 reporting organisations, which found that while companies regard missing data as one of the biggest risks CSR reports face, very few fully engage their audience in the reporting process. Optimising the stakeholder dialogue process would help reporting organisations identify the core issues which are deemed to be material.

Once firms have decided what information they are going to include in their reports, standards and sector framework mechanisms can help improve the content and quality of reports.

According to the Count Me In study, 90 per cent of readers see reporting standards as important for building trust, with the G3 GRI Guidelines being seen as the most relevant followed by sector-based reporting frameworks.

"GRI is a useful starting point but for our sector – Construction & Development – it is far too complex in terms of the KPIs [key performance indicators]," comments Morrin, adding that all firms should seek to use reporting standards where they are available. "Where globally agreed sector frameworks exist. companies are behoven to report accordingly."

Deciding upon which framework to adopt depends on your business type, stakeholder profile and objectives for reporting. Multinational reporting organisations may well be suited to the overarching GRI as they need to cater for the needs of a diverse and complex stakeholder group, while smaller organisations may be more suited to sector-based frameworks.

For Britannia Building Society's Mark Kelsall, the GRI Guidelines are simply too lengthy to be of much use.

"GRI is complex and we don't believe it's appropriate for our operations," he says. "We use different standards for different elements of our CSR reporting, such as Defra for environment and LBG for communit

This magpie approach to standards may ensure that the end report suits your organisation, but it can also make it harder for firms to compare their CSR performance against that of their peers. It was the desire to overcome benchmark performance against companies from different sectors that prompted British Airways (BA) to adopted a standardised CR framework.

"We have adopted Business in the Community’s (BITC) CR framework covering the four pillars of environment, community, marketplace and workplace to focus our activities and utilise a generic framework for benchmarking success," comments Amy Banks, CR Manager at BA.

Style is in the eye of the beholder

Once you have decided what to include and which reporting standards to adhere to the final component of a successful CSR report is selecting the right format.

While sustainability reporting began with hard copy reports alone, in more recent years, organisations have combined hard copy with web-based information, while some are now experimenting with reporting solely on the web, often using interactive, searchable formats. However, while this seems a sensible approach for many reporters, it seems certain reader groups may be uncomfortable with the more modern forms.

CSR experts generally maintain that "content is king" for all forms of reporting, but there is also a perception that producing hard-copy reports can demonstrate further commitment.

"Content has to be right but having the confidence to produce it in hard copy 'real-life' format is still regarded as an additional proof of commitment," argues Hill.

However, it is a view that is is refuted by Burke who insists that "provided the content is right and organised appropriately, with the needs of the target audience in mind, then it doesn't matter which format [it is presented in]."

At the same time, there is also a trend – although perhaps more in Europe than the UK – towards integrating non-financial reporting with the annual report. The upside of this is that it demonstrates top-level commitment to the subject of CR and provides stakeholders with a complete picture of how the business is operating. However, there are drawbacks which need to be understood. First, the two reporting processes are not truly aligned, with CSR data usually lagging three months behind financial data; and, second, not all stakeholders have the same requirements.

Every organisation must take into account the issues and challenges most relevant to its own industry and unique business practice and align this with the expectations of their stakeholders before communicating policies and behaviors. The key question is how well do they know their audience.