Telling it like it is

Corporate responsibility (CSR) reporting is a relatively new phenomenon.

It has evolved out of health and safety and environmental reporting, and currently attempts to bring the full spectrum of a company's social and environmental performance into one annual publication. A small number of companies are taking this one step further and are producing triple bottom line reports that integrate financial, social and environmental performance into a single publication. This recognises that all three areas of responsibility are contributory and interdependent factors, which are fundamental to good business management and company success.

As yet no publicly-listed UK company has opted to integrate its annual financial report with its social and environmental reporting. However, given the new company law that requires companies to produce an annual Operating and Financial Review informing shareholders of all risks material to their business, greater integration of financial, social and environmental reporting will not be long in coming.

It is important to remember that reporting on the broad spectrum of corporate responsibilities is still in its infancy and, though definitely approaching a new stage of maturity, still has some work to do in gaining credibility.

But with whom? Other than those of us who are in the business of producing corporate responsibility reports, who actually reads them? What function do they have? What approach is necessary to build credibility with any given audience?

The function of the report

Firstly, it is worthwhile highlighting the internal function that the reporting process has. In basic terms, the report, the final output of the reporting process, is a management tool that forces companies to manage, monitor and measure performance in order for the report to be populated with relevant information. It is an effective management tool, since it signposts gaps and discrepancies, implying that appropriate management of an area of business is not in place.

Companies typically use one of three techniques when reporting on an area of their business they are failing to manage appropriately. The first technique is to acknowledge the issue and make a statement on the strategy being implemented to address it. The second is to ignore the issue within the report altogether. The third is to create a pseudo report by stringing some words together to emphasise the importance of the issue and then highlighting any ad hoc examples that help to imply performance management is in place.

Of the three options, it is the third that does most to undermine the credibility of corporate responsibility reports, since pseudo reporting in the style of a public relations response rather than a description of an embedded practice does not satisfy. If this approach is coupled with a design that is perceived as covering up for lack of performance rather than communicating the reality, you have a big credibility issue.

As an aid to spotting gaps in corporate responsibility reporting, there are reporting frameworks and guidelines in abundance (produced, among others, by the Global Reporting Initiative, Business in the Community, and the Association of British Insurers). These enable careful readers of corporate responsibility reports to spot where the gaps are, as much as to read about the actual reported performance.

This kind of analysis is the reason why many companies are producing ever-denser reports year after year, fearful of the consequences of non-compliance. And while these dense reports do serve a purpose if they are populated with substantiated statements and assured by third parties (since they make very detailed information available to all), they can at the same time fail to communicate effectively to the less expert readers whom companies also wish to address. Gaining credibility with a diverse audience base has to be achieved through a variety of different means.

Table 1 shows the range of possible audiences for a company's CSR report, an indication of core reasons for reading it and suggested techniques for making the reporting directed at each audience more credible. It highlights how meeting everyone's needs in a single document is a complex task, particularly since some reporting techniques may need to take different forms to be understandable by all. For example, environmental performance data is a specialist area, which may need to be made tangible through the use of relative terms.

Information and communication

Companies would benefit by asking themselves what they really want to achieve with their report and therefore which group it is an absolute priority to address. Even if audiences cannot be rationalised (usually because the report is the sole piece of CSR communication a company produces), the process of prioritising different audiences will at least help to develop a structure for the report and an understanding of what information segments and communication elements have to be included.

Information segments are essentially the pieces that make up the reporting narrative (data, case studies, position and policy statements, for example).

Communication elements are the strands that draw the narrative together (headline statements, copy writing style, creative design) to make it a coherent and compelling piece of communication.

Negotiating the balance between information segments and communication elements is the key to getting the overall tone of a CSR report right.

If the communication elements are given too much emphasis it can be taken as an indicator of a corporate report without substance - of corporate marketing attempting to build a company's reputation without having the legitimate basis for doing so.

Fear of this accusation leads some companies to producing very stripped down reports, made up only of performance information, with the hope that it will gain them credibility with informed audiences and opinion formers.

A purely data-driven report is certainly one route to go down. However, companies should give careful consideration to the need to produce consistent brand communication. A CSR opinion former is a consumer too and, knowingly or not, will look for consistent experience of a company.

As time goes on, companies are increasingly recognising the business opportunities corporate responsibility represents and, whereas promoting the company or its products on an ethical basis was once perceived as a cynical PR trick - and therefore something to be avoided by companies who wanted their CSR stance to be perceived as credible - those companies that have a solid CSR strategy in place are now much more openly reporting on the growth opportunities in managing corporate responsibilities. So there is no need for companies to avoid corporate marketing altogether.

In fact, the confident promotion of the more commercial benefits of a CSR strategy can help to connect CSR to the business in the reader's mind, as it is one way in which an embedded strategy can be demonstrated.

Inevitably it is those companies that have a solid and clear CSR strategy in place that will find CSR reporting and communication easier. If a clear strategy exists, connections can be drawn between CSR strategy, the overall business strategy, the corporate brand and core company values, which in combination provide the context for understanding the choices a company has made in its management of corporate responsibilities.

Another significant part of the task of producing a report that meets the expectations of a defined readership is to ask stakeholders what they want. This goes beyond researching stakeholders' opinions of the report itself, to engaging them in the issues and asking them to provide a response to company performance. Incorporating this feedback within a CSR report is a method a number of companies use (with varying levels of success) to communicate their close involvement with stakeholders.

Building stakeholder engagement into the reporting process requires a clear assessment of where and why it fits in. Essentially it is a driver for continuous improvement and so sits between the actions a company takes and the management of corporate reputation - a virtuous circle of feedback and response (see diagram 1).

Reporting on stakeholder engagement requires companies to be clear on their definition of each stakeholder group, as clear definitions help to signpost the different areas of responsibility that are material to a business. Similarly, companies should make sure they report on the engagement techniques used, in addition to presenting results, to give the findings credibility.

Changing behaviour

For some companies, an additional stage is starting to be integrated into the circular process of action, feedback, report, and reputation management; that of 'changing behaviour'. In this situation a CSR report moves beyond reporting, to informing and motivating, communicating with stakeholders about the contribution they can make to a company's CSR performance.

This commitment to changing behaviour moves a company beyond a largely responsive system of CSR management and communication, to a strong leadership position within the field of corporate responsibility, since it is using its influence to instigate positive change.

A primary audience for this form of communication within CSR reports is company employees, who can look to reports for an explanation of CSR strategy and performance, together with information on how it relates to their area of the business.

This development is an exciting prospect for CSR communications, though the communication task it implies does raise the question of whether a single annual publication is able to carry the simultaneous burden of meeting different stakeholder expectations of reporting, informing less expert stakeholder groups of the issues that are relevant to them and motivating individuals to enhance the role they play in improving performance on specific corporate responsibilities.

In reality, an integrated programme of CSR communication, of which a company's CSR report is one significant part, is required if a company is to meet all of its communication aims, and gain and maintain credibility.

And building this programme of communication ultimately comes back down to defining audiences, establishing their needs, and prioritising what can and must be achieved in meeting their expectations, in addition to fulfiling the company's own reporting objectives.

There is no absolute checklist for those companies which are concerned with ticking all of the credibility boxes. Reporting against frameworks goes a long way to communicate commitment and competency, and those frameworks are incredibly useful tools for companies to start determining what responsibilities they should be concerned with.

It is the companies who have their own stance on corporate responsibility, where it operates as part and parcel of the business above and beyond compliance, whose credibility is greatest. This means producing a CSR report and other supporting communications in a way that combines substance and design and reinforces the relationship between corporate responsibilities, business strategy and brand.

- Katriina Cooper is a consultant with Corporate Edge, Tel: 020 7855 5888, www.corporateedge.com REPORTS AND INFORMATION

On-line CSR reports and other information can be obtained from CSR Europe in partnership with CorporateRegister.com

CSR Europe is a business-driven membership network. Its mission is to help companies combine profitability and sustainability by making corporate social responsibility a cornerstone of the way they operate, and it represents a major European reference point on corporate social responsibility strategies and practices for companies. CorporateRegister.com is a comprehensive free database of corporate non-financial reports (for example, environment, social, community, sustainability and CSR reports) and for financial reports with substantive relevant sections. CorporateRegister.com claims to be the world's largest online directory of these reports, with 5,000 hard copy profiles and over 5,500 PDFs representing around 2,500 companies from over 70 countries.

EUROPEAN STANDARD

European organisations conducting corporate sustainability and responsibility research (CSRR) have joined in producing a European standard, CSRR-QS1.0(R) to improve quality management systems, to stimulate transparency, to facilitate assurance processes and to form a basis for further verification procedures.

The standard is currently at the pilot stage but, should be rolled out to all partners in the first quarter of 2006.

The quality principles of the standard, known as 'the ten commitments' are:

1 INDEPENDENT SOURCES
Assess/rate companies using more than company-provided information, such as independently collected data, regulatory sources, and information from stakeholders and relevant NGOs
2 GLOBAL ACTIVITIES
Ensure that assessments/ratings cover more than the corporate headquarters and include the relevant global impacts and operations of the quoted company
3 BEYOND COMPLIANCE
Use a research methodology which allows the identification of best practices or performance 'beyond compliance' with minimum legal standards
4 SOCIAL AND ENVIRONMENTAL
Include criteria/indicators covering both environmental and social areas
5 BALANCE
Ensure a balanced approach to corporate assessment/ratings by:
- balancing quantitative and qualitative indicators
- balancing management oriented (such as policy and management systems) indicators and performance indicators
- balancing reference to past and current performance, such as whether the company's performance is improving or deteriorating
- balancing social and environmental indicators
6 RELEVANCE/MATERIALITY
Ensure that the assessments/ratings capture issues material to or relevant for the sustainability and responsibility of that company, by including issues of relevance to stakeholders, and sectoral or geographical or company size considerations, or by ensuring that risks or impacts relevant to that company have been taken into account
7 CONSISTENCY AND COMPARABILITY
Ensure that the criteria and methodology are applied equally to comparable companies and would make sense if used to compare companies globally
8 STAKEHOLDER INVOLVEMENT
Actively include inputs and information, wherever possible, from relevant stakeholders or interested parties, in the research process or in reaching assessment conclusions
9 UP-TO-DATE
Ensure assessments of companies are not significantly out-of-date, and that new information is incorporated or new assessments conducted at reasonable intervals
10 TRANSPARENCY
Be transparent about the methodology (the range of criteria used, the involvement of stakeholders, and the coverage) and seek to avoid or at least make transparent 'black box' approaches where it is unclear how the assessment/rating result is achieved.