Chapter 11 - Test yourself Q&A's - Reporting on non - financial issues, inc. Corporate Responsibility Flashcards
What are some of the major problems with traditional corporate reporting?
Annual reports have become so detailed and extensive that many are totally
inaccessible to the average reader.
Annual reports present the historic performance and activities of the company over the previous financial year.
Annual reports tend to focus on the financial performance of the company excluding information on non-financial matters. Some intangibles are excluded – such as good corporate governance, brand recognition, good reputation and sound risk management. Some costs are excluded – e.g. the environmental costs of using up natural resources that can never be regenerated, and of the impact of carbon emissions on climate change are excluded from financial accounting.
Different reports are prepared for different users, for example, sustainability report and corporate governance report. Each of these reports tries to meet the demands of a particular stakeholder group. These reports are often not connected as they are developed by different departments within the organisation that are not talking to each other. The result is that they end up showing each stakeholder group a different aspect of the organisation.
By focusing on financial reporting only, organisations have been pushed into short-termism as they strive to meet the requirements on a quarterly or six-monthly basis of the markets.
Define narrative reporting.
Narrative reporting describes the additional non-financial information which is included in companies’ annual reports providing a wider, and some would argue a more meaningful, picture of the company’s business, its strategy, and future
prospects.
What parts of an annual report and accounts are examples of narrative reporting?
The chair’s statement;
The directors report;
The directors’ remuneration report;
The corporate governance report;
The strategic report.
What is a safe harbour?
Section 463 of the 2006 Act introduces a new safe harbour in relation to directors’ liability for the directors’ report, the strategic report and the directors’ remuneration report.
Directors are only liable to compensate the company for any loss it suffers as a result of any untrue or misleading statement in, or omission from, one of these reports if the untrue or misleading statement is made deliberately or recklessly, or the omission amounts to dishonest concealment of a material fact.
This safe harbour addresses the concern of directors over liability for negligence when making, for example, forward-looking statements in the reports, in particular, the strategic report. The directors’ liability is limited to the company rather than to third parties.
Give three examples of why a company would choose to voluntarily report on its CSR activities.
reputation of brand
ethical considerations
innovation and learning
employee motivation
risk management or reduction
access to capital/increased shareholder value
economic considerations
strengthened supplier relationships
market position improvement
improved relations with government
cost savings
Why is it important to set CSR targets and link them to executive pay?
To be able to report on their CSR activities organisations need to be able to set non-financial targets and measure their progress against targets.
Using targets as part of the performance criteria in bonus and incentive schemes for senior executives ensures that CSR needs within companies are taken seriously and that targets are actively worked towards.
However, boards in the absence of CSR metrics have retained the right to reduce incentive awards in cases of substantial damage to the company’s business or reputation resulting from an event that has had a negative effect
on the environment, society or the organisation’s long-term sustainability. For example, an oil spill where inadequate precautions tied to the activities of senior executives can be shown.
What is the difference between triple bottom line reporting and integrated reporting?
The difference is that triple bottom line reports describe the organisation’s non-financial performance, both positive and negative, in areas such as the environment, society and governance.
Integrated reports, on the other hand, combine financial and non-financial information and are usually targeted at investors
What are the GRI Standards and why are they important?
The GRI Sustainability Reporting Standards (GRI Standards) were introduced for reports and other materials published on or after 1st July 2018. The GRI Standards are the first and most widely adopted global standards for sustainability reporting.
GRI Standards create a common language for organisations and stakeholders, with which the economic, environmental, and social impacts of organisations can be communicated and understood. They have been designed to enhance the global comparability and quality of information on these impacts, thereby enabling greater transparency and accountability of organisations
Why was the Corporate Reporting Dialogue established?
In June 2014, the Corporate Reporting Dialogue was convened by the International Integrated Reporting Council to create dialogue and alignment between the key sustainability standard setters and framework developers.
The Corporate Reporting Dialogue has already adopted a statement of Common Principles of Materiality, developed a common map of the reporting landscape and taken a common position in support of the Financial Stability Board Task
Force on Climate-related Financial Disclosure. In November 2018, the Corporate Reporting Dialogue announced a project aimed at:
- aligning all current sustainability standards with the TCFD recommendations published in June 2017;
- identifying the similarities and differences between the current standards and frameworks to create even greater alignment, taking into account the different requirements of each set of standards and frameworks; and
- continuing dialogue with financial reporting standard setters towards integrating financial and non-financial reporting
Why do companies have external assurance of their CSR initiatives?
Many organisations are obtaining external assurance for their CSR initiatives and sustainability reports. These assurances provide a measure of credibility as they are performed by third parties
What is an environmental profit & loss account?
An EP&L allows a company to measure in euro value the costs and benefits it generates for the environment, and in turn make more sustainable business decisions.
