The Development Of Reporting Practices In Csr Oriented Firms Accounting Essay



The European Commission designated 2005 as the year of corporate social responsibility. Since then, actions are taken to drive European businesses into a more balanced approach to economic, environmental and social aspects of their operations. In the same year, the implementation of the Accounts Modernisation Directive (Article 46 of the fourth directive) enforced the requirement to inform stakeholders on sustainability performance (FEE, 2008) and opened the way for the incorporation of Corporate Social Responsibility (CSR) information into annual reports.

Figure Stakeholder Communications in CSR-oriented firms (source: Ernst & Young)CSR is defined by the European Commission as "the integration by companies of social and environmental concerns in their business operations and in the interaction with their stakeholders on a voluntary basis" (European Commission, 2003). Hence, companies are expected to interact with and ensure the benefits of increasingly diverse stakeholders (Baker, 2003), as presented in the relevant figure. Part of this interaction includes the disclosure of the outcomes of their CSR activities. It has to be clarified that implementing CSR initiatives is one thing, while reporting is another.

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This study focuses on the latter, by examining the following issues: What are the recent developments on corporate reporting practices with a focus on European CSR oriented firms? What the future of reporting looks like? What do the current developments and trends signify in terms of managerial implications for modern businesses?

Social Accounting and Triple Bottom Line Reporting

The notion of stakeholder value is continuously broadened and expands beyond the financial performance of a firm. Nowadays, businesses are also accountable for their environmental and social impacts on the society. Before we proceed with the study, it is worth looking into two notions that are tightly connected to CSR and corporate accountability.

Social accounting is a fundamental concept for CSR, aiming at identifying and communicating the social and environmental impacts of a business' core activities. It deals with corporate accountability to external stakeholders and examines the required Key Performance Indicators (KPI's) and reporting practices (Blowfield & Murray, 2008). It is considered to be "a valuated expression of CSR", which signifies its importance (Blanco & Souto, 2009). Social accounting is defined as "the systematic procedure for registering, measuring and communicating the effect of an organisation's activity on its stakeholders, financial and non-financial, in terms of economics, the environment, business culture and the conception of governance" (Blanco & Souto, 2009).


Figure Triple Bottom Line (source: University of Maryland)

According to the above, the essence of CSR, People-Planet-Profit, should be reflected on corporate reporting. Triple Bottom Line (TBL) introduces the social and environmental aspects into the performance measurement of an organisation (Blanco & Souto, 2009). While social accounting sets the framework of a firm's accountability, TBL reporting is the means of communicating an organization's social responsibility, by integrating economic, environmental and social values (Blanco & Souto, 2009). It also links to the idea that sustainability policies must have a measurable impact (European Commission, 2004). As we will see in the following chapter, an effort is being made to develop standards and guidelines to measure the social and environmental performance of a firm in a fairly objective way (Norman & MacDonald 2004).

Recent Developments on Reporting Practices

Sustainability Reporting Standards and Guidelines

Table CSR Reporting Standards (Danko et al. 2008)

CSR Reporting Standards

Global Reporting Initiative Guidelines

SA 8000 - Social Accountability International

AA 1000 - International AccountAbility

ISO 14000 - Environmental Management Standards

Connected Reporting Framework - Accounting for Sustainability

Communication on Progress supported - UN Global Compact

EMAS - European CommissionIt goes without saying that the increasing importance of CSR has greatly influenced the reporting practices of modern businesses. Over the last years, a broad range of reporting guidelines has been developed in order to help the incorporation of social and environmental information into corporate reporting. Approximately 100 different CSR standards can be distinguished based on their geographical, sectoral and workforce coverage (CSR Europe). Some of those are listed in the table below. As it can be seen, in contrast to financial reporting there are no generally accepted standards for social accounting.

The divergent standards came as a result of the so far voluntary and unregulated character of CSR reporting (Blanco & Souto, 2009). This proliferation of standards and guidelines makes it difficult to evaluate, compare and assess the reported information. Consequently, the value of the disclosed sustainability information is seriously degraded by the lack of commonly accepted reporting regulation (FEE, 2008).

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However, the Global Reporting Initiative (GRI) has launched the most significant sustainability reporting guidelines in an international level, sponsored by the UN (ConsultNET). At the moment, most of the large, CSR-oriented organisations tend to align their reports to the GRI guidelines (ConsultNET). It should also be mentioned that this trend is supported in a national level by governments, whose influence is crucial on corporate reporting issues. The current situation at a European level is examined below.

European Guidance on Non-Financial Reporting

Non-financial reporting in Europe was initiated in 2005 with the implementation of the Modernisation Directive (Article 46 of the Fourth Directive, 2003). The European law sets the following requirements:

"To the extent necessary for an understanding of the company's development, performance or position, the analysis [in the annual review] shall include both financial and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters" (European Commission, 2003).

Hence, since 2005 reporting is expanded beyond the financial aspects of a business for all large companies, public or not (FEE, 2008). This is in accordance with the above mentioned GRI standards and the management commentary Guidance of the IASB (FEE, 2010), according to which all public companies in the EU are required to report since 2005.

The European Commission's view on reporting practices is also stated in the Communication of 2006: "social and environmental reporting is highly desirable, and it can best be achieved by encouraging business voluntarily to share fully what CSR activities have implemented". It is worth highlighting that CSR reporting is once again set more on voluntary bases and less on legislative requirements.

A survey conducted by the FEE (2008) has revealed that twenty-one of the European countries have adopted the modernisation directive, while some of them have implemented supplementary legislation and guidance. Even though reporting in EU remains voluntary, the reporting requirements vary among its members (Tschopp, 2005).

European Firm Case Studies

For the purposes of this study, it is considered useful to examine how the reporting of European CSR oriented firms evolved through the last years, by looking into specific examples from different industrial segments and countries. In general, the companies to adopt CSR reporting are those with large potential environmental impact. However, lately corporate reporting of a wide range of industrial sectors expands and integrates environmental, social and economic information (Danko et al., 2008). Two cases are presented hereafter, which are considered to representative.


The case of DANONE clearly demonstrates the development of the reporting practices over the last five years. In 2005 the published annual review was focussed on business and market performance. Although some environmental, safety and employee issues were discussed in a separate statement, financial and non-financial performance indicators were not integrated. However, since 2006 the company has been publishing an annual Economic and Social report, as well as a sustainability report, which for the first time include social and environmental as well as economic performance indicators. Danone.jpg

Figure DANONE Annual Report 2009 Every year the amount of CSR related information being disclosed is increased. DANONE's Economic and Social Report of 2009 extensively discusses the impacts of the company on the society and the local communities. The idea of intertwined business growth and social progress is reflected in the report. Moreover, actions against issues such as the responsible utilisation of resources, carbon emission reduction and offsetting, and the respective outcomes are being communicated to the public. Equal importance is given to the disclosure of corporate governance information, employee issues, HR policies and labour relations.

Although the amount of published corporate information has considerably increased, it is obvious that integrated TBL reporting is still under development. Throughout the years a consistent framework is not utilized and the reported information is not coherent. Though, a broad, well-structured system of performance indicators that fully complies with the GRI guidelines is presented in DANONE's sustainability reports. In this case, a more consistent way of reporting is adopted which makes the understanding of the disclosed information easier and enhances comparability. Overall, the company is moving from the narrative description of CSR policies to a more structured disclosure of solid CSR information, based on an effort to measure and quantify sustainability performance.

BT Group plc

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BT is another good example of a European CSR oriented firm to illustrate the developments that are taking place in the field of corporate reporting. Five years ago, the published annual report was mostly focussed on financial reporting. Although the commitment to sustainability was stated several times, CSR was seen as a source of competitive advantage and a way to add shareholder value. It provided a narrative description of CSR policies, plans and the areas that the activities were focussed on. Still, the actual results of the company's CSR policies were not disclosed and non-financial KPI's were not included in the annual report.BT1.jpg

Figure BT Social and Environmental report 2008However, as the concept of social responsibility gained significant importance over the last years, gradually more CSR related information was disclosed in the annual reports. In 2009, sustainability aspects were presented in almost every part of the report. A system of non-financial KPI's was also presented in order to measure the progress towards specific CSR goals. The company reported on the results of community involvement, environmental protection and other CSR activities.

It is worth mentioning that although the company has traditionally been using non-financial performance indicators, these were presented in the Social and Environmental reports but not integrated with corporate financial reporting until recently. Finally, there is an obvious trend towards quantifying and measuring the performance and impacts of CSR initiatives. More tangible information is disclosed, yet, there is no consistency in the structure and the nature of reported information in the annual reports.


The study revealed that the most common ways of reporting are through corporate annual reports or separate sustainability reports. Although companies select what kind of sustainability information is useful to be included in the annual report (FEE, 2008), the way social and environmental information are reported is clearly influenced by the existence of a sustainability report.

In most cases companies report beyond what is required by law (Blanco & Souto, 2009). However, as the reporting practices are currently being developed, it is not yet clear what non-financial information should be disclosed in order to achieve a fair image of the performance and the position of the company. Hence, considerable differences exist in the content of annual reports (FEE, 2008). These are also due to various national legislative requirements and particularities of different business sectors.

To sum up, by examining the reporting practices of a number of CSR oriented firms (Unilever, BP, Nestle, Royal Dutch - Shell) and as the above examples illustrated, three significant trends can be identified.

Firstly, there is an effort to measure and report the progress and the results of CSR activities. Modern companies are not just limited to statements of commitment to CSR and description of their policies.

Secondly, there is a clear trend towards a more structured and coherent way of communicating corporate CSR results.

Thirdly, although some efforts to measure CSR pre-existed and were mostly communicated through sustainability reports, the implementation of the Modernisation Directive opened the way for integrated reporting of sustainability and financial information. Integrated reporting seems to become more important over time.

A look into the future

As mentioned above, there are some evident trends in the field of corporate reporting that outline its future. In terms of regulation, although the probability of legally imposed social reporting seems distanced (Tschopp, 2005), according to Blanco & Souto (2009), enforcement of reporting is the next big step in the field of CSR, while standardization of reports is coming in the near future. At the moment there is an ongoing debate on whether EU should move on a more regulated approach to CSR reporting for public companies (FEE, 2010). The first step towards this direction would be moving from principle-based regulation to setting specific KPI requirements (European Commission, 2010).reporting types.jpg

Figure Types of Reporting (FEE, 2008)Besides, the demand for sustainability information from both internal and external stakeholders is expected to increase (Ballou et al, 2006). This, along with the upcoming pressure from socially responsible investment funds and the influence of stock exchange rating systems, like the FTSE For Good, are expected to drive future developments (Ballou et al, 2006). The pressure from the markets will be passed on through the supply chains (European Commission, 2010).

Therefore, it is expected that integrated TBL reporting, either in the form of Annual Financial Reports or voluntary Sustainability Reports, is the future of corporate disclosure. Companies will inevitably move towards the perspective of sustainability in their reporting, by measuring and publicly disclosing this information to satisfy the increasing needs of stakeholders (Ballou et al, 2006).

Managerial implications

The reporting process has a significant impact on business decisions and activities (Blanco & Souto, 2009). Hence, having looked into the recent developments and future trends of corporate reporting, the study now focuses on their significance in terms of challenges and opportunities from a managerial point of view.


The developments identified impose a series of managerial challenges. Considering the constantly increasing importance of social accounting, entrepreneurial strategies must account for environmental and social values (Blanco & Souto, 2009). CSR is gradually becoming part of the business decision making process (Danko et al., 2008) through adding a new dimension on investment appraisal, budgeting and strategic planning (Blanco & Souto, 2009). However, integrating sustainability practices into traditional business processes is by itself challenging (Hockerts, 2008).

The current situation requires the establishment of new performance management systems and complicated balanced scorecards. A major challenge that companies will face is quantifying their sustainability goals and measuring their performance against specific targets (Hockerts, 2008). This requires the development of new KPI's and their incorporation into business control systems. Though, this is considered a difficult task which often meets considerable organisational resistance (Hockerts, 2008). Therefore, another issue that will have to be addressed is how to achieve employee commitment to CSR.

Dealing with more than the traditional audience of annual reports is another source of potential problems. To stand up to the increasing requirements of the various stakeholders, companies will have to establish new management systems (Rubbens et al, 2002). These might also include changes in the governance structure, as in the case of BT which created the Corporate Responsibility Steering Group. Finally, due to the lack of regulation companies must be cautious not to use reporting as a marketing tool (Tschopp, 2005).


The opportunities that arise from the developments in corporate reporting practices are twofold, External and Internal, according to the "classical" and "transformational" view of reporting respectively (Rubbens et al, 2002).


By informing the public on non-financial issues and changing perceptions through integrated corporate reporting, companies can alter the behaviour of external stakeholders. Although measuring this change is difficult, it can have substantial impacts on the business. Companies have the opportunity to improve their image, strengthen their brands and thus build valuable intangible assets (Danko et al., 2008). Firms that have adopted integrated reporting practices have substantially benefited. It is argued that forming sustainability reports helps identify early sources of trouble and opportunities, mostly related to reputation and brand management (ConsultNET).

Modern companies have now the ability to gain significant competitive advantages by advancing their communication with the stakeholders. Integrated reporting could function as a motive for companies to engage in dialogue with and receive the feedback of an increased number of stakeholders (Rubbens et al, 2002). It is crucial for maintaining customer loyalty and having a positive interaction with the communities (Rubbens et al, 2002). Further, it has been proved to facilitate fund raising (Danko et al., 2008).


Internally, the identified developments create opportunities for change and organizational transformation (Rubbens et al, 2002). Although these trends alone cannot drive changes to business behaviour and performance, they can influence corporate decision making and strategy by initiating internal debate on business practices (Rubbens et al, 2002). Besides, sustainability reporting gives a long term perspective to business strategy (FEE, 2010).

Reporting on non-financial aspects can provide a better understanding of the business, while a more structured approach to corporate disclosure can set the bases for effective performance measurement against specific goals (Hockerts, 2008). Furthermore, coherent and integrated reporting practices can promote internal learning and lead to identification and implementation of best practices.

Examples of companies that benefited from such opportunities exist in the bibliography. Decision making and performance management in DANONE have been improved as a result of sustainability reporting. Benefits for organisational learning are reported in the case of Nike (Rubbens et al, 2002).


Although we live in a world where maximum profit is the ultimate measure of success, the development of reporting practices reveals that this is not the way of the future. Investors and consumers increasingly require sustainability along with financial information. The number of companies adopting the TBL reporting throughout the last years comes to verify the above fact.

Having researched the subject on both theoretical and empirical level, we derive the following conclusions. CSR and social accounting is not a temporary trend. Although an immediate will for further regulating integrated reporting does not exist, we believe that social accounting will be a challenging issue for European companies in the near future. In this context, new forms of accounting will have to be developed in order to effectively elaborate and communicate non-financial information.

However, the developments reported in this study generate opportunities for improving monitoring and performance across organisations. Although TBL reporting is at its very early stages, by adapting to the developments companies can identify weaknesses timely, improve communication with their stakeholders and receive constructing feedback. Finally, competitive advantages can be achieved through better interaction with the communities, which comprise the source of customers and employees.