Evolution of the annual report

aksaroya —  8 October 2012 — Leave a comment

By James Bonner, independent sustainability consultant

The annual report has, for a long time, been the most important single piece of published communication of an organisation’s activities and financial performance – providing a comprehensive account and assessment of an entity’s operations throughout the preceding year. Traditionally, with a focus on financial performance and the interests of shareholders, other non-financial information and issues relevant to wider stakeholders have been overshadowed in annual reports.

However, CR (Corporate Responsibility) reporting is becoming increasingly common for businesses. The KPMG International Survey of Corporate Responsibility Reporting 2011  finds that ‘ninety-five percent of the 250 largest companies in the world (G250 companies) now report on their corporate responsibility activities’, and furthermore highlights consistently growing trends in CR reporting from the top 100 companies in the 34 countries surveyed. This is reflective of the increasing importance being placed on reporting of non-financial and sustainability issues relevant to wider stakeholders.

While the notion of producing a corporate responsibility report has become common practice for many organisations, there has, more recently, been increasing debate on how such reporting might/should be considered as part of the wider disclosure of organisational activity. A growing understanding and appreciation of the material importance and relevance of wider sustainability issues presents a semi-rhetorical question: if sustainability issues are so significant, and recognised as integral to the core business activities of organisations, shouldn’t they, therefore, be included within the ‘main’ annual reports – rather than as stand-alone/autonomous commentaries?

In as much, the evolution of the concept and practice of ‘integrated reporting’, which, according to the KPMG report ‘at its simplest… reflects the growing practice of including key CR information in a separate section in the corporate financial reporting process’, is aiming to address this fundamental question. In fact, the KPMG survey highlights that certain businesses are, to some extent, already incorporating CR information into their annual reports:

‘27% of G250 and 20% of N100 [the top 100 firms in each of the 34 countries surveyed in the study] companies include some form of CR reporting in their annual report; 18% of G250 and 11% of N100 companies include a chapter addressing CR issues, but without the quality and measurable data of a report’.

However, the report does draw attention to the fact that the majority of such examples only include CR content in separate chapters of their annual reporting and that true ‘integration’ within, and throughout, annual reporting frameworks remains limited. Nonetheless, there are indications and trends suggesting that greater assimilation of CR and traditional financial information within annual reporting procedures is forthcoming. The G250 group surveyed by KPMG cited that the key driver for integrated reporting is a motivation to link CR to core business, and the overarching perception that ‘if CR is to truly be integrated into the business strategy it must therefore be an integral component of annual reporting as well.’

It could be that as the concept of, and interest in, integrated reporting gathers pace and attention, supported by the recent formation of the International Integrated Reporting Committee (IIRC), it will become a major driver in a fundamental evolution of the annual report- and, in the words of the KPMG report, ‘should now be a Board-level consideration for companies around the world.’

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