Framework Contract for projects relating to Evaluation and Impact Assessment activities of Directorate General for Internal Market and Services

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1 Framework Contract for projects relating to Evaluation and Impact Assessment activities of Directorate General for Internal Market and Services Disclosure of non-financial information by Companies Final report December 011 P O Box 159 Sevenoaks Kent TN14 5WT United Kingdom Tel/fax: +44 (1959) 551 Web site:

2 Draft Final Report - Disclosure of non-financial information by companies Contents SECTION Summary PAGE i 1. Introduction and Background Introduction 1. Background to the Study 1.3 Methodological Approach 1.4 Contents of this report 1 1. Analysis of Reports 4.1 Introduction. Characteristics of the sample of reports.3 Overall report details.4 Preparation of the report.5 Publication.6 Reporting Frameworks.7 Governance and principles.8 Contents of the reports Costs and benefits 3.1 Introduction 3. Costs 3.3 Benefits Conclusions Report Analysis 4. Costs and Benefits 3 3 APPENDICES PAGE A. Company reports analysed 33 B. Overview of Reporting Standards 35 C. Costing template 37 D. Report analysis template 43 E. Overview of Performance Indicators and Standards 46 F. Glossary 49

3 Summary 1. Introduction This study into the disclosure of non-financial information by companies has two key objectives: to provide data and analysis on current non-financial reporting practices; to assess the costs and benefits associated with requiring mandatory disclosure of non-financial information. The study is based on an analysis of published non-financial reports by 71 companies in eight countries - Germany, Denmark, Spain, France, Italy, the Netherlands, Poland and the UK. In terms of sectors, the selected companies include banking and financial services, food and agriculture, textile, consumer goods, extractive and other sectors. 58 of the companies have more than 50 employees and 13 have less than 50 employees. In addition to the analysis of the published reports, the companies in the sample were approached to provide data on their costs and on the benefits of non-financial reports. 3 of the companies provided detailed information. The study was carried out between July and November Background There is an increasing trend for businesses to produce information on social, environmental and sustainable aspects of their operations. The disclosure of such non-financial information usually takes place through Sustainability or Corporate Social Responsibility reports. Although guidelines exist for the production of such reporting, and legal requirements can be found in some countries, their use is often optional. Companies may find it in their interest to disclose voluntarily certain non-financial information, particularly if it is designed as part of a package to improve their credibility and acceptance in key markets, or if it enables them to undertake business more successfully. In sectors dominated by large multinational enterprises, disclosure of such information may be seen as an important business driver. Within the EU, company reporting is covered by the 4th and 7th Company Law Directives. These Directives provide a set of minimum disclosures, supplemented in each Member State by national requirements. The 4th Company Law Directive allows extensive exemptions from disclosures for SMEs. The focus of those Directives is on financial disclosure. But in the context of their annual report companies are required to disclose...where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters 1. With a view to improving the transparency of the non-financial disclosure system and the ways in which enterprises currently release such information, DG Internal Market and Services have sought stakeholders' views on the existing EU regime on non-financial disclosure in a public consultation running from November 010 to January Analysis of reports The main features of the 71 reports analysed as part of the study are shown below. We consider first the general features of the reports, and then their contents 1 4 th Company Law Directive 78/660/EEC art 46(1)

4 Length Final Report - Disclosure of non-financial information by companies Summary Spanning from 4 pages to over 300 pages, there are huge variations in the length of reports. The most typical report length is between 5 and 100 pages (39 reports). The longest reports, usually from larger companies, contain more than 00 pages (9 reports). Most of the long reports come from large companies whereas small companies prepare shorter reports. Availability of contact information Guidelines for non-financial reporting, such as GRI guidelines, suggest that reports should contain a contact point for feedback or suggestions. In a large number of cases there was no information directly available in the report providing names or contact details of individuals in charge of CSR or sustainability matters within the company. In many instances, the report offered a general address for further information. Body responsible for preparation In larger companies it is common practice to have a specific oversight body to take responsibility for the company s work on CSR or sustainability issues. Such a body might be a CSR governance committee or similar, which would be closely involved in determining the contents of non-financial reports. These committees could be identified in 34 of the 71 companies analysed. Report signatories It is general practice for non-financial reports to contain a statement from a senior decision-maker of the organisation, e.g. the CEO, the Chair or similar. The vast majority of the reports we examined provided such a statement (56 reports) and were signed by a senior company representative. External assurance Many organisations enhance the overall integrity and credibility of a CSR report by the use of external assurance in addition to existing internal control procedures. Our research showed that just fewer than half the larger companies obtained some form of external assurance. Very few small companies did so. Report discussion 10 of the 58 large listed companies included their CSR report with their annual financial report and one quarter of large companies discussed the CSR report at their AGM. Very few non-listed companies discussed the report at the AGM. Publication Reports are almost always published on the company website, and sometimes printed (two thirds of cases) or put on the GRI database (9 out of 71). Three quarters of reports are published in English and a third published reports in more than one language Frameworks used Of the 71 companies that were analysed, a large majority made use of some kind of international or national framework for developing their reports (57 companies). In most cases it was the GRI Reporting Framework that was employed (47 firms), although 19 of these also took account of other standards. Report contents governance and principles ii

5 Summary The table below shows that most companies include a statement of objectives and a senior management statement, that about two thirds refer to an external standard but only one third have a feedback mechanism for suggestions Figure 1 Report contents in respect of governance and principles Suggestions feedback mechanism 3 5 Use of external charters Statement of objectives Senior management statement All firms SMEs Large firms Areas of activity covered by reports An analysis of the contents of reports showed that almost all reports covered environmental issues (64 of the 71 reports). Many included sections on labour and employment (57 reports) and the company s engagement with the local community and society generally (55 reports). Only about half the reports considered the economic impact of the company (33 reports) or human rights (33 reports). Details, and an analysis between large and small companies, are shown below. Figure Areas of activity covered by reports Product Responsibility Society and Community Human Rights Labour and employment Environmental Economic Impact All firms SMEs Large firms iii

6 4. Costs of non-financial reporting Summary The study used a template or questionnaire to ask about the current costs of collecting and reporting of non-financial information. We asked for information on the additional cost of non-financial reports over and above existing system costs. The aspects of work to be costed included Drafting the report External assurance Publication Additional data collection costs Annual costs such as training Any other costs. The major costs appear to be the costs of report drafting and much will depend on the complexity of the company. Substantial costs can also be incurred on publication depending on the strategy, and external assurance if used. Other areas of costs are smaller. Cost ranges for larger and smaller companies are summarised in the two tables below. The cost ranges represent the middle half of companies who responded the interquartile range. Using the high and low points of each element, the costs of nonfinancial reporting for large companies is in the range of to and for smaller companies in the range of 8000 to A company seeking to provide a minimal report may be expected to come in at the lower end of the range, and a very small company might well be able to come in below the range shown. Figure 3 Cost range for larger companies ( 000) Figure 4 cost range for smaller companies ( 000) Expressed as a cost per employee, the reporting costs for smaller companies ( 68 to 1) are substantially higher than those for larger companies ( 3 to 13). iv

7 Summary 5. Benefits of non-financial reporting We asked the companies whose reports are analysed to provide information on what they saw as the principal benefits of non-financial reporting. First, companies were asked to indicate in their own words what they saw as the main benefits of nonfinancial reporting. They were then asked a series of prompted statements covering benefits both externally and internally. Finally, companies were asked if they made a quantified assessment of the benefits of non-financial reporting and to provide details of their assessment. Figure 5 below shows the response by large firms and SMEs to prompted statements. The statements which companies thought were very important were It enhances the company s credibility and It improves transparency of reporting. The brand image of products was also important. The statement which attracted least support was the suggestion that non-financial reporting would lead to increased sales. Large firms and SMEs had similar responses to the statements. Details of responses by larger and smaller companies are shown in the charts below Figure 5 Internal benefits for large firms and SMEs Large firms Nº It enhances the company s credibility It enhances our ability to do business It improves the brand image of our products 3 1 It is likely to lead to increased sales 5 It enables us to attract better employees It improves transparency of reporting Very important Important Slightly important Not important v

8 Summary 6 SMEs Nº It enhances the company s credibility It enhances our ability to do business It improves the brand image of our products It is likely to lead to increased sales It enables us to attract better employees Very important Important Slightly important Not important It improves transparency of reporting As far as internal benefits are concerned, identifying and control risks seemed to be important or very important to all companies. Improvement of the internal culture was also thought to be important but a few companies thought that this benefit was only slightly important. Finally, we asked companies whether they had sought to quantify the benefits from non-financial reporting. Of the 0 companies responding, only 3 had tried to quantify the benefits of non-financial reporting. Of those 3, only one had arrived at a financial estimate of the benefits of non-financial reporting. This company had a non-financial reporting cost in the mid range of larger companies ( ) and reported they had identified efficiency savings of 80 million. However, it was not clear that all those benefits could be attributed to the preparation of non financial reports. vi

9 Introduction & Background Introduction This document sets out the final report for the study Disclosure of non-financial information by Companies carried out for DG MARKT under the Framework Contract for projects relating to Evaluation and Impact Assessment activities of Directorate-General for Internal Market and Services. In this section, we set out the objectives and provide a short background of the study followed by an overview of the contents of the final report. The study has two key objectives: to provide data and analysis on current non-financial reporting practices; to assess the costs and benefits associated with requiring mandatory disclosure of nonfinancial information. In respect of the first objective, the study analyses the contents of the non-financial reports produced by a sample of 71 companies. The terms of reference suggested that a representative sample of companies of varied sizes should be selected across different sectors in 8 Member States ( Germany, Denmark, Spain, France, Italy, the Netherlands, Poland and the UK). In terms of sectors, the selected companies include banking and financial services, food and agriculture, textile, consumer goods, extractive and other sectors. In respect of the second objective the study sought to obtain the following data: Costs including internal company changes such as data collection, internal processing and consolidation, staff training/education, development of specific tools or potential third party verification. On the benefits side, positive effects relating to increased transparency, reputation, branding, credibility, ability for both consumers and investors to assess companies' performance and risks should be considered. The use of a calculation method along the lines of the Standard Cost Model adopted by the Commission for the measurement of such costs was required. The report is designed to provide a series of data and other information which the Commission would be able to take into account in a possible impact assessment to be issued in Spring Background to the study There is an increasing trend for businesses to produce information on social, environmental and sustainable aspects of their operations. The disclosure of such non-financial information usually takes place through Sustainability or Corporate Social Responsibility reports. Although guidelines exist for the production of such reporting, and legal requirements can be found in some countries, their use is often optional and the disclosure of non-financial information is mandatory only in limited cases. Companies may find it in their interest to disclose voluntarily certain non-financial information, particularly if it is designed as part of a package to improve their credibility and acceptance in key markets, or if it enables them to undertake business more successfully. In sectors dominated by large multinational enterprises, disclosure of such information may be seen as an important business driver. There are a number of international frameworks providing guidelines for disclosure. Amongst these the most widely used are the Global Reporting Initiative (GRI) applied by some 1,600 Annexes to Impact Assessment Guidelines Chapter 10 Assessing administrative costs imposed by EU legislation. pp

10 Introduction & Background 1 companies worldwide and the UN Global Compact. Other guidelines include the ones provided by the OECD to governments and multinational enterprises and the guidance linked to ISO 600 on social responsibility, among others. All of these guidelines are voluntary and aim to encourage the implementation of best practice. More details of international frameworks are provided in Appendix B. Within the EU, company reporting is covered by the 4th and 7th Company Law Directives. These Directives provide a set of minimum disclosures, supplemented in each Member State by national requirements. The 4th Company Law Directive allows extensive exemptions from disclosures for SMEs. The focus of those Directives is on financial disclosure. But in the context of their annual report companies are required to disclose...where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters 3. There is therefore a statutory requirement for some form of reporting, although clearly the requirements are written in general terms. Current EU initiatives With a view to improving the transparency of the non-financial disclosure system and the ways in which enterprises currently release such information, DG Internal Market and Services have sought stakeholders' views on the existing EU regime on non-financial disclosure in a public consultation running from November 010 to January 011. The consultation obtained responses from a wide range of stakeholders in the Member States who expressed mixed opinions regarding the existing policy. However, a key message was that better disclosure of nonfinancial information is needed in order to increase the number of European enterprises that fully integrate sustainability and responsibility into their core strategies and operations in a more transparent way. As the terms of reference indicate, further initiatives were planned including a Communication in the field in October 011 and an impact assessment in Methodological approach The study has been carried out over a period of four months running from the end of June 011 to November 011. An Inception report was submitted and discussed with the Commission in mid-july 011 to agree on the methodology, the company sample and the key research tools consisting of the report analysis template and the cost-benefit questionnaire. During the fieldwork phase, the analysis of reports from the 71 companies in the sample was carried out by a group of analysts and initial contacts were taken with the companies by telephone and to alert them to the online survey on costs and benefits. The fieldwork was affected to some extent by the holiday period. A short description of the methodology used for selecting companies in the sample and for the analysis of company reports and the assessment of costs and benefits is included at the beginning of the sections dealing with these issues (sections & 3). This study is based on a limited sample of companies. To be able to gross up the results for companies in Europe as a whole, a statistically representative sample would be needed. 1.4 Contents of this report Other than the introduction and background material presented in section 1, the final report contains the following: 3 4 th Company Law Directive 78/660/EEC art 46(1)

11 Introduction & Background 1 - contains the analysis of the selected company reports divided up according to the main issues in the report analysis template. 3 - analysing the results of the online survey on cost-benefits associated with the disclosure of non-financial information. 4 presents a series of conclusions having emerged from the research Appendices A: Company reports in analysis; B: Overview of Reporting Standards; C: Costing template; D: Report analysis template; E: Overview of the Use of Performance Indicators F Glossary 3

12 Analysis of Reports This section contains the results of the analysis of the selected company reports..1 Introduction The first main objective for the current study was to provide data and analysis on current nonfinancial reporting practices based on a sample of reports from a representative group of companies across the EU, covering differing sectors and sizes. Sample selection For the selection of the sample of companies the following considerations were taken into account: the terms of reference requested that the involvement of eight Member States: Germany, Denmark, Spain, France, Italy, the Netherlands, Poland and the UK; a minimum of eight companies in each of these countries should be selected for the sample; the companies should either to be headquartered in Europe or have their principal stock exchange listing in Europe; a variety of different sectors should be covered including banking and financial services, food and agriculture, textile, consumer goods, extractive and other sectors, as proposed in the terms of reference; a mix of small, medium-sized and large companies should be represented. The companies were selected using published surveys of non-financial disclosure reports and also by reviewing lists of companies involved in CSR initiatives such as those published by GRI and UN Global Compact. It proved difficult to identify small and medium-sized companies who reported on their engagement in CSR, sustainability or similar matters in the form of a formal report on nonfinancial issues. Typically, smaller firms would have a dedicated section on their website showcasing their activities, for instance with reference to the various social commitments or adherence to health and safety or environmental standards. After some changes to the initial proposal, a company sample including a total of 71 firms was finally agreed with the Commission. A list of the selected companies is contained in Appendix A. The company reports were analysed using a standard template agreed with the Commission. The template included the following main categories of activity (or reporting): Economic impact; Environment; Labour and employment; Human rights; Society and community; and Product responsibility. The template contained information on qualitative aspects such as the title and size of the report, the relevant contact persons, use of reporting standards or guidance, existence of company statements and external assurance and, for each of the major categories of non-financial reporting above, an analysis of the type of information and indicators provided, followed by an overall assessment of the report. The template can be found in Appendix D. Below we begin by examining the characteristics of the company sample. We then consider the general trends noted within each of the areas that the template covered.. Characteristics of the sample of companies The sample of 71 companies is relatively evenly spread across the 8 member States and different sectors. The table below shows the sample divided up by sector and size of the company. Company analysis by sector A Sectoral analysis of companies by NACE code is shown below. We also show large firms and SMEs separately. 4

13 Analysis of Reports Table.1: Company Sample by Sector and Size Sector (according to NACE) Large firms SMEs B - Mining and quarrying C - Manufacturing D - Electricity, gas, steam and air conditioning supply E - Water supply; sewerage; waste management and remediation activities F - Construction 4 G - Wholesale and retail trade; repair of motor vehicles and motorcycles H - Transporting and storage 0 I - Accommodation and food service activities J - Information and communication 1 1 K - Financial and insurance activities L - Real estate activities 0 N - Administrative and support service activities 0 R - Arts, entertainment and recreation Total Note: SMEs are defined as companies with less than 50 employees for the purposes of the above table, A more detailed table showing the company distribution by country can be found in Appendix A. Company Size In terms of size, the sample spans from very small companies with less than 10 staff to multinationals with more than 100,000 employees. Figure.1: Number of companies by size (number of employees) All firms > <50 5

14 Analysis of Reports As can be observed, only 13 companies in the sample are SMEs, corresponding to about one fifth, whereas there is a total of 58 large companies. These have been divided into three categories, as their size varies significantly: employees, 500-5,000 employees and more than 5,000 employees which was by far the most represented category with 45 firms. In terms of turnover, the difference in size between the companies in the sample were just as stark, with some smaller firms achieving an annual turnover of less than 1 million and several multinationals reaching between 50, ,000 million. For many of the smallest firms, where we did not have access to full annual reports, we were not able to identify their annual turnover..3 Overall report details We begin by examining overall qualitative aspects of the reports, such as the title, their size and the year of publication. Report title A majority of the reports that were analysed either used the title Sustainability Report or a variant including the word sustainable (7 of the 71 reports). All the same, there were also many that employed the title Corporate Social Responsibility/CSR Report or a similar name involving responsibility ( of the 71 reports). In 10 cases, the non-financial information was presented as part of the companies Annual Reports and the report title reflected this with names such as Integrated Annual Report or Economic, Environmental and Social Performance. The remaining reports had titles like Code of Ethics or Conduct, Environmental Report or Performance and Social Report. Length of report Spanning from 4 pages to over 300 pages, there are huge variations in the length of company reports. The table below divides the size of reports into a couple of broad categorises to give an overall impression of report size variation. As can be seen, the most typical report lengths were between 6 and 100 pages (39 reports in total). That said, there were some very long reports in the sample with 9 reports containing more than 00 pages. These were mainly to be found among the very large companies. A cross-tabulation between company size and report length can be found in Figure.4 on the next page. Figure.: Size of the analysed reports >00 pages pages pages 6-50 pages <5 pages n/a Note : the n/a entries refer to reports that only existed in webpages 6

15 Analysis of Reports Only 11 companies in total offered a summary of their reports, with most of these to be found in the UK. Some reports are of such limited length that it would obviously not be useful to provide a summary, but even for some of the longer reports, where a brief overview of the main issues might have been helpful, this was not provided. Length of report compared to company size When examining the relationship between the size of a company and the length of their report, the following situation emerged. Figure.3: Cross-tabulation between company size and report length <50 empl empl empl >5000 empl As might be expected, report length appears to be very much determined by the size of the company in question. The reports of the smallest companies are much shorter with nearly half of these reports being under 5 pages, whereas extensive reports of more than 00 pages are principally found among the largest firms. This group also displays the greatest fluctuations in report size. Year of publication The vast majority of the reports that were analysed concerned the year 010 (53 reports or ¾ of all), and were thus published at some stage in 011. Most reports covered the calendar year, although in some cases where the financial year runs for a different period, notably in the UK (April-March), reports tended to follow this period instead. The remainder mostly concerned 009, although there were a few earlier reports and a couple of cases, mostly the smallest companies, without any information about the period in question. The template also investigated when a company had published its first non-financial report. In about a third of cases, we could not uncover any information on this point, but where the information was available, there was a good spread to be found between companies who had been involved in non-financial reporting for a while, some dating back to the 1990 s, and companies whose first report this was. The figure below illustrates the spread: 7

16 Analysis of Reports Figure.4: Year of first non-financial report s n/a Availability of contact information In a large number of cases there was no information directly available in the report providing names or contact details of individuals in charge of CSR or sustainability matters within the company. In many instances, the report offered a general address for further information, such as corporate.communication@, media.relations@, or in some cases CSR@ or sustainability@. In order to be able to contact the right people within companies to discuss the part of the assignment aimed at examining the costs and benefits of non-financial reporting and invite them to take part in the online survey, it was therefore necessary to scrutinize company websites or contact the switchboards. In a number of such cases, where we were not able to identify a specific name, companies were unwilling to put us through to the relevant department or person, or indeed were reluctant to provide any further help..4 Preparation of the report The analysis template went on to look at the nature of report preparation in further detail, investigating who took responsibility for the report and its development within the company, as well as externally. This part of the template also examined whether there were links between nonfinancial and annual reporting, both in terms of the actual publications produced and in relation to the Annual General Meeting. Body responsible for preparation In larger companies it appears to be normal practice to put in place a specific oversight body to take responsibility for the company s engagement in CSR or sustainability issues, such as a CSR governance committee or similar. Such bodies would typically be closely involved in determining the contents of non-financial reports. The analysis template looked at whether the companies under review had set up this type of body, and if so, specify the nature of it, or indicate where in the company structure the responsibility for the reporting lay. In around half of the companies in the sample (34 of 71), there was either no information available or it was confirmed that a specific body did not exist. These often the smaller companies. Where a specific oversight body did exist, they were typically referred to as either CSR. sustainability or ethics boards, councils or committees (15 cases). For a number of firms the overall responsibility appeared to lay with the senior management board supported by a 8

17 Analysis of Reports specialised department or director in charge of CSR, sustainability, health & safety or environment. Figure.5: Existence of oversight body (CSR Committee or similar) Sustainablity/CSR committee Man. Board+department n/a Report signatories It appears to be general practice for non-financial reports to contain a statement from the most senior decision-maker of the organisation, e.g. the CEO, the Chair or similar. The vast majority of the reports we examined provided such a statement (56 reports or four-fifth of all) signed by a senior company representative as the figure below shows. Figure.6: Is the report signed? Large firms SMEs All firms Yes No However, if we examine only the small and medium-sized companies, the proportion of reports presenting a signed statement drops to less than two-thirds (8 of 13 SMEs). In most cases, it was the Chief Executive Officer (CEO) who signed the report (36 of the 56 signed reports), either on his own or together with another key executive. The Chairman of the Board signed in 5 cases of the 56 signed reports, whereas we found that the Chief Financial Officer signed in only a few cases. The category Other mostly referred to the Managing 9

18 Analysis of Reports Director. In a number of instances, reports were signed by two of the senior decision-makers, which accounts for the higher number of signatories than shown in the previous figure. Figure.7: Who signs the reports Large firms SMEs All firms Chair CEO CFO Other 6 Note: The total amounts to more than the number of signed reports (56) as there were frequently several executives who signed the same report There is not much difference to be spotted in the case of the SMEs, when it comes to the CEO taking responsibility for signing the report. However, the report is less often signed by the Chair. External assurance To enhance the credibility of their non-financial reporting, many companies - especially the larger ones - choose to include an assurance report prepared by an external firm, sometimes the company s auditors. Reporting standards typically recommend such external assurance, either in a limited or a complete form, but they also give companies the choice of carrying out selfdeclaration. The objective of the external assurance would normally be to verify the processes (but not all data) used to compile the information and the indicators provided in the report and to certify that these are in accordance with the chosen standards or criteria. A number of assurances are carried out in accordance with the International Standard on Assurance Engagement (ISAE) The assurance process would usually involve an assessment of the systems, procedures and controls in place for data processing; interviews with staff responsible for compiling and analysing the data and with the various divisions involved in CSR; site visits (if applicable) to assess whether data collection and reporting procedures were adhered to and understood; and finally assessment of the reliability, objectivity, understandability and presentation of the provided information. The nature of the review of non-financial reports varies materially from that carried out on the financial reports. In respect of the financial reports the duties of the auditors are set out in the 4th and 7 th Company Law Directives and in national legislation implementing the Directives. The resulting audit report includes an opinion on whether the financial statements present a true and fair view of the state of affairs of company. There is no equivalent detailed legislative requirement for non-financial data. 10

19 Analysis of Reports Our research showed that more than half of the companies looked at (43 of 71 firms chose not to submit their reports to any external audit or assurance procedures. Some of these went for a self-declaration status, others simply did not adhere to international standards. The remaining firms (8 in total) who did have their reports signed off by external auditors, often used one of the major international audit firms, although a few companies chose other organisations to provide assurance an example is a firm of property consultants. Figure.8: Use of external audit or assurance Large firms SMEs All firms Yes No As the chart illustrates, the picture changes significantly when we look at small and medium-sized businesses. Among the 13 SMEs, there was only one example of a report receiving external assurance. If we isolate the 58 large companies, the rate of external assurance rises to nearly half (7 of 58 companies). Relationship with the financial report Ten of the companies whose reports we analysed had chosen to incorporate their non-financial disclosure in their Annual Reports, corresponding to one seventh of the total. These were typically very large companies as could probably be expected. There were no examples of SMEs including non-financial reporting in their annual reports. Figure.9: CSR Reporting included in annual financial reports Large firms SMEs All firms Yes No 11

20 Analysis of Reports However, the vast majority of companies in the sample (61 firms) preferred to publish their nonfinancial disclosures in a separate report. Inclusion in Annual company meetings Another related issue concerned the question of whether non-financial reports were the subject of discussion at the Annual General Meeting of the companies in question. We checked the agendas or minutes of the Annual General Meetings of the listed companies in the sample that provide such information publicly in order to examine whether there was mention of their non-financial reports in any way. This automatically excluded SMEs and nonlisted companies. Figure.10: Discussed CSR report at AGM Non-listed company No Yes No information The examination showed that only very few companies include any reference to their corporate responsibility or sustainability efforts in the context of their AGM, with as little as 1 companies who appear to have done so (corresponding to about one sixth of the full sample and a quarter of the listed companies (51 in total)..5 Publication We now look at the way in which companies published their non-financial reports. Type of publication As the following figure illustrates, all companies in the sample (except one) made their reports available on the Internet. There were some differences in the way this was done, with most companies providing hyperlinks to a pdf-file of the report, whereas others offered an online brochure-format allowing you to browse through the document by turning the pages. However, a large proportion of the firms we looked at (47 in total) had also chosen to produce a paper version of their publication. Finally, it transpired that 8 companies were registered in the GRI database, corresponding to more than a third of all. 1

21 Analysis of Reports Figure.11: Ways of publishing reports (All companies) Large firms SMEs All firms Paper Internet GRI database 9 Note: the figure includes multiple entries for each company Report Languages In terms of the language used for non-financial reporting, a majority of companies published their reports in English (53 reports or three quarters), as the table below illustrates. Of these, the reports published by UK companies only accounted for around 17%..An interesting finding was that not all companies report in their national language; only 43 of the 71 companies did so. As the total of these two figures illustrates (96), there was a certain degree of overlap with 5 companies who published in two languages (English and their national language). A very small group produced the report in even more languages, but we have not taken account of them here. Figure.1: Report language Large firms SMEs All firms National English Both Note: DE, DK, ES, FR, IT, NL, PL (UK not included) 13

22 Analysis of Reports.6 Reporting Frameworks Many organisations that publish non-financial reports look for outside assistance on how to structure their disclosure of such information. Schemes like the Global Reporting Initiative (GRI) or the UN Global Compact constitute some of the most used frameworks that exist. Framework used A large majority of the 71 companies in the sample made use of some kind of international or national framework for developing their reports (57 firms in total). In most cases (47 firms) it was the GRI Reporting Framework that was employed, either on its own (8 firms) or combined with another framework (19 firms). Nearly all of those using GRI, 43 in total, were large firms. 10 companies used other frameworks only, bringing the total number of firms in the sample using frameworks other than GRI to 9. In most cases this was the UN Global Compact, although some companies made reference to various national frameworks, often related to the environment. It is interesting to note that in the case of SMEs only, the proportion of firms using other frameworks rose to nearly two-thirds (8 out of 13 firms). 14 companies in total did not refer to having used any particular frameworks in drafting their report. The figure below gives an overview of the distribution of responses and contrasts the overall position (full sample) with the position for large firms and SMEs. Figure.13: Frameworks used to draft report Large firms SMEs All firms GRI only Both GRI and other Other only None.7 Governance and Principles In order to illustrate the degree to which information on governance and management principles was released in the reports under review, we investigated the occurrence of a number of different elements, including the following: Senior management statement does the report include a short introduction from the chief executive or chairman explaining the company s main principles regarding CSR, sustainability, etc. and giving a brief overview of the contents; Statement of objectives - does the report clarify the company s goals and objectives for the following period in order to improve their performance; 14

23 Analysis of Reports Use of external charters - is there reference to any charters defining the way in which the company deals with CSR/sustainability/environment, etc.; Feedback mechanisms is there any specification of systems in place to report back to senior management on non-financial issues. The figure below gives an overview of how often each of these components were included in the 71 reports. Figure.14: Report content in the field of governance (positive responses) Suggestions feedback mechanism 3 5 Use of external charters Statement of objectives Senior management statement All firms SMEs Large firms Senior management statement More than three-quarters of companies (54 of the 71 in total) included a statement from senior management in their disclosure reports, as it also transpired earlier in this report (see section.4 Report Signatories ). As this type of reporting is about promoting the company s commitment and principles to the outside world, this is not surprising. However, the proportion of SMEs who included such a statement is quite a bit lower than the overall picture (61% versus 76%). The management statements typically set out the principal values of the company and their main CSR-related commitments, sometimes accompanied by a brief overview of the types of actions that had been accomplished in the field. Developments since the last reporting period were usually highlighted, and the company s compliance with any reporting frameworks would mostly be stated. Statement of objectives Most reports (60 of 71 reports ) stated the objectives to be met in the following reporting period. The proportion of SMEs including such objectives was the same as for all firms. The quality of these objective statements varied.. In many reports, past achievements and future objectives within each of the relevant activity areas were set out in road maps or other table format indicating the goals, the target date, the milestones or actions undertaken and the status or degree of fulfilment. In some cases these tables were linked with measurable performance indicators but this was not always the case. One might expect the largest companies with well defined management and governance structures to be the ones presenting their future objectives in the CSR field in the most comprehensive way, but some of the reports of smaller firms were significantly clearer in setting out their strategy and goals. An example hereof was a small 15

24 Analysis of Reports software company with less than 50 employees, adhering to UN Global Compact, who in spite of limiting their report to 10 pages managed to set out a very clear presentation of their main achievements for 010 and their goals for 011 for each of the policy areas reported on. Examples of objective statements are shown in the table below, grouped under some of the main themes such as customer relations, relations with suppliers and partners, employees, the wider community, the environment, risk avoidance and the firm s work in the CSR field. Examples of objectives used Customer relations Renew brand value; Measure customer satisfaction and loyalty; Develop a range of innovative products to promote financial inclusion for the most disadvantaged groups; Promote listening and dialogue initiatives in order to understand the needs along the customer s entire life cycle. Relations with suppliers/partners Better manage and monitor relations with suppliers and cooperative partners; Create measurable value into daily operations through feedback from structured stakeholder dialogue; Qualify suppliers also on the basis of environmental and social requisites. Employee relations Organise a People Survey of workforce worldwide; Improve employee engagement; Conduct global Talent Management Programme ; Increase the current investment in People Care by 0%; Reduce the number of days absence due to accidents at work by 50% (the long-term target is nil critical accidents). Relations to wider community Put in place Responsible Investment Policy; Sign up to UN Programme of Responsible Investment; step up our efforts to increase the positive impact we have on society; Take continuous steps that add value to all stakeholders in order to realise our vision of creating Favourite Meeting Places; Be a key player in the development of the communities in which our factories are located. Environmental record Prepare CO products lifecycle analyses from production to disposal; Reduce CO emissions over 5 years; Sign up to Greenhouse Accounts; increase efforts regarding animal welfare; Establish an international project team to work on making new buildings energy neutral as of 00; Maximise energy efficiency and minimise CO emissions; Install 10 more solar panels to supply water heaters. Risk avoidance - Combine sound equity and return on capital with a low risk profile of the commercial bank business model. CSR activities - Gradually increase level of CSR reporting within GRI; Add more indicators to our reporting; Aim to have reports verified by independent third party; Establish series of KPI & targets for sustainability; Enhance the measurability and manageability of CSR within our organisation; Implement a CSR performance management approach throughout the group and help Business Units to align while respecting local laws and regulations. Use of external charters The analysis looked at whether companies included a reference to any externally developed economic, environmental and social charters, principles or other initiatives that they subscribe to or endorse. Such charters might include international schemes like Caring for the Climate (UN), BSR ( the Business of a Better World ), Greenhouse Gas Account, Forum for the Future or 16

25 Analysis of Reports national charters, for example those issued by ADEME (the French environment and energy agency). A number of companies also referred to various certification systems, such as ISO on environmental issues, OHSAS on health & safety, or FSC certification (Forest Stewardship Council) which would then equally be included in this part of the template 4. Of the 71 companies in the sample, 48 made reference to using external charters or principles. The proportion of large firms in relation to SMEs was about 4 to 1, corresponding approximately to their respective representation in the full sample 5. Feedback mechanisms Another element to judge how companies in the sample dealt with managing their internal CSR systems was to include a question in the analysis template on whether non-financial reports made reference to any mechanisms or procedures in place to provide feedback to senior management on the various activities to do with corporate responsibility in its different forms. As figure.15 shows, details of feedback mechanisms to report back to senior management were only provided in about one third of reports (5 of the 71 reports), For SME reports, the proportion was even smaller ( out of 13 reports). The fact that reports do not mention specific feedback mechanism does of course not necessarily mean that they do not exist. The existence of internal mechanisms to provide feedback to senior management is very much related to the question dealt with earlier concerning specific oversight bodies. To recapitulate, that analysis showed that companies had put in place specific bodies to manage their CSR work, but that another 15 firms had established structures whereby the management board would be supported by a specialised department or director responsible for CSR, It is likely that these procedures would also involve some kind of feedback mechanism..8 Content of the reports International reporting frameworks typically provide guidance on the basic content that should appear as part of the reporting on non-financial performance, not only in terms of the overall structure of reports but also with regard to the various subject areas to be discussed. In line with the nature of corporate social responsibility, subject areas would usually concern activities related to the environment, employee matters, engagement in society or market-oriented issues related to products and their quality, pricing or sourcing. As described in section.1 the report analysis template included the following main policy areas: Economic impact, Environment, Labour and employment, Human rights, Society and community and Product responsibility. Figure.16 below shows the frequency with which each of the listed policy areas was dealt with by the companies under review. 4 It should be specified that compliance with specific environmental schemes falls outside the scope of this exercise. 5 The results have to be treated with some caution because there was some overlap between the use of reporting standards and external charters 17