Two notable trends have emerged in corporate reporting over the past several years: the rapid rise of annual CSR reports and the rapid decline of annual financial reports. What hasn’t been notable is the number of companies combining the two reports.
Since the SEC’s 2007 notice-and-access model made annual financial reports optional, some companies stopped producing them. Most large companies, however, continued producing reports as a recruitment tool, for use as a corporate review and in the interest of brand building.
But as the economy declined, companies in general scrambled to cut budgets, including the annual financial report.
At the same time, companies were coming under closer scrutiny and faced more skepticism after the financial meltdown. In the United States public and private companies responded by stepping up their efforts in CSR reporting. This has been great for people interested in understanding a company’s corporate social responsibility efforts, but it hasn’t replaced the annual financial reports relied upon by financial stakeholders.
Enter the European model. In some parts of Europe CSR reporting has become mandatory for public companies and, at the same time, investors have come to want and expect greater accountability. The majority of companies there responded by creating annual integrated financial and CSR reports.
Novo Nordisk, a global health company with headquarters in Denmark, is a leader in integrating its sustainability and financial activities into one annual report. In its latest annual report, Novo Nordisk said this about its method of reporting:
One of the most visible manifestations of our commitment to the Triple Bottom Line Management is our integrated reporting. Since 2004, we have reported on financial, social and environmental performance in one combined report. Our annual reporting includes both non-financial and financial statements which provide detail on our efforts to have a net positive impact on society by reducing environmental impacts, increasing quality of life through better healthcare treatment, as well as providing an attractive return on investment for shareholders.
The company says its integrated reporting format was introduced to enhance its financial valuation and to explore the relationship between financial and non-financial performance, giving the reports an internal and external dimension. Specifically, Novo Nordisk says, this integrated model of reporting was done to increase accountability to all stakeholders – those with a direct financial stake in the company performance and those without – and to increase internal accountability for achieving performance objectives.
In the United States, meanwhile, annual financial reporting is in short supply. At the same time, CSR reporting is all over the map. Some companies are making solid progress in reporting but some perceive their reports as extensions of their marketing efforts. Many companies fail to present a balanced picture and want to report only on the good deeds. Today’s investors and consumers require a high level of transparency, so anything less can do more harm than good to corporate reputation.
If CSR reporting is integrated into financial reporting, it moves it out of the realm of marketing and back into its rightful place as solid, straightforward, honest reporting on accomplishments and mistakes. More companies should adopt this method because it forces them to approach all of their reporting from a more holistic point of view.
Combining financial and CSR reporting into one report allows for telling the whole story – how good corporate citizenship can live at the core of a brand, as a key part of its business model – and how strong financial performance enables companies to better address the important challenges of our time.