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by Guy Morgan, Center Research Associate
June 2007
Only a few years ago many were already talking about the future obsolescence of stand-alone non-financial or social reports. At that time, talk centered on how social and environmental performance measures would soon be integrated with traditional financial metrics in one seamless annual report.
Such a future made perfect sense to corporate citizenship pundits everywhere and was seen as a means to help the process of legitimization of good corporate citizenship practice as critical to long-term business success.
Having one report to chart a company’s financial, social and environmental performance seemed to be a logical next step for the field. Perhaps this was too aspirational.
The reality is that for many companies this integrated reporting future has not yet come to pass.
There are a few exceptions, with Novo Nordisk being one of the most notable companies to have produced a fully integrated financial and non-financial annual corporate report. Indeed, the company’s latest report, split into two sections, places an emphasis on shareholders while recognizing the importance of various stakeholder groups to its long-term value.
As a consequence of its integrated reporting efforts, Novo Nordisk has received kudos in the corporate citizenship community for putting a stake in the ground regarding innovative reporting practice and for trying to raise the importance of non-financial metrics in assessing the ultimate value of the company. The company recently ranked tenth in the SustainAbility Global Reporters 2006 Survey of Corporate Sustainability Reporting.
Perhaps of greater interest and concern for the corporate citizenship field is whether Novo Nordisk has received kudos from the mainstream investor community for its efforts.
Indeed, the extent to which all or some of the typical non-financial metrics which companies report on are of interest to mainstream investors is still debated.
Certainly we see that more and more environmental, social and governance issues, from policies related to climate change to a company’s working conditions and corporate governance structures, are being factored into assessments of company performance and future value, but this is still not done in a comparable, standardized and useful way from a reporting perspective.
From the point of view of practicality, part of the challenge to integrated financial and non-financial reporting is to ensure that one report does not look like two reports bound together. In addition, companies are finding it hard to find a place for non-strategic corporate giving, certain community engagement efforts and other "soft" social programs in a more strategically focused non-financial report.
To confront new expectations from a plethora of stakeholder groups, companies need to firstly determine what their key social, environmental and financial performance indicators are, then design and operationalize managerial structures to measure the impact of corporate citizenship programs on these performance indicators. Reporting performance against these key performance indicators is a crucial next step to ensure that the mainstream investment community starts to evaluate company performance on these issues in a consistent and comparable manner.
There are certainly questions about the sustainability of non-financial reporting in its current form. Some of the available statistics show a plateauing in the growth rate of social reports. A recent report by the UNEP’s Division of Technology, Industry & Economics noted that the heady take up of a few years ago is not going to be sustained. Indeed, the report predicts that by 2020, only six percent of all transnational corporations will produce a social report. (UNEP Division of Technology, Industry & Economic piece on Trends in non-financial reporting, November, 2006)
The Boston College Center for Corporate Citizenship is starting to work with companies to help them better manage their corporate citizenship strategy. Using benchmarking as a means to understand and evaluate key performance indicators from an internal management perspective and an external operating environment perspective, The Center is available to help its member companies as they put the processes in place to produce integrated financial and non-financial reports. As the pundits start to predict different visions for the future of social reporting, The Center is confident that non-financial reporting, if done in a strategic manner, is here to stay.
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