Do blue chips’ green reports show their true colours?

Source: The Independent, 24 February 2006

In 1987, the World Commission on Environment and Development first spelled out the common goal of sustainable development. Almost two decades later, The Independent on Sunday has found that nearly a fifth of the UK’s top public companies are still failing to deliver comprehensive reports detailing the economic, environmental and social impact of their business.
This week, the Association of Chartered Certified Accountants (ACCA) will hand out awards to companies that have produced glossy and informative corporate social responsibility (CSR) reports. But some FTSE 100 businesses are being accused of providing disclosures just a few pages long.

According to data from, which has an archive of more than 10,000 corporate non-financial reports, 12 companies in the FTSE 100 had, by the start of this month, produced a document running to less than six pages. The longest report over the past 12 months was filed by the mining group BHP Billiton in September, coming in at 380 pages.

Size, of course, isn’t everything. Some companies with considerably fewer sustainability issues than a mining company can provide enough data in a brief report. The news agency Reuters is cited as an example. On the other hand, a company whose business has a big environmental or social impact may say comparatively little in a lot more than six pages.

One study that attempts to analyse the usefulness of these reports comes from corporate communications consultancy Salterbaxter. Its "Directions 5" looks at disclosures prepared by FTSE 100 companies last year. The consultancy’s panel of judges found that 14 of these offered too little substantive information and performance data to be considered legitimate CRS reports.

The companies highlighted by Salterbaxter are Wolseley, Alliance UniChem, Carnival, Enterprise Inns, InterContinental Hotels, William Hill, Antofagasta, Sage, 3i, Amvescap, Man Group, Compass, Hays and Wm Morrison. Eight of these also appear again on the list of 12 FTSE 100 companies that produced short reports. So, all in all, consultants are saying 18 FTSE 100 companies "could do better".

Most of these businesses are quick to defend their efforts to date, although plenty of them – including the healthcare group Alliance UniChem, Intercontinental Hotels, hedge fund manager Man Group, venture capital firm 3i and supermarket chain Morrisons – can be expected to say considerably more about CSR as we enter the spring reporting season.

A spokesman for the Sage accounting software group said: "We are reviewing our CSR strategy this year, and our approach to reporting will be part of this review."

For an investor, a CSR report provides the opportunity to evaluate sustainability standards, exposure to risk (for example, of clashing with a regulator ray non-governmental organisation such as Friends of the Earth or Amnesty International), mitigation of risk and business opportunities (say, demand for sustainable goods). This task is easier where companies follow standard guidelines, such as those set out by the Global Reporting Initiative (GRI).

One reason for investors’ growing interest in the reports is the rise of socially responsible investment (SRI). At Friends Provident, which has a total of pounds 2.1bn invested in ethically screened funds and 14 full-time SRI researchers, group chief executive Keith Satchell points out: "These funds specifically look at companies’ social and environmental performance – and lack of disclosure, or poor reporting, is often a key factor in making the decision about whether we are willing to invest."

Mr Satchell’s comments are echoed by fund managers at Henderson Global Investors and Jupiter Asset Management, which are among a large number of City institutions now paying extra attention to CSR issues.

The creation of more SRI-friendly indices, such as FTSE-4Good, has also helped to raise awareness. However, nine out of Salterbaxter’s 14 poor performers are listed on FTSE-4Good, and readily use their inclusion when defending their SRI reports.

But these companies may not always be able to count on their inclusion. FTSE4Good initially set the bar relatively low and listing requirements are lifted each year. If a company’s CSR procedures do not keep up, it will be removed from the index. That fate has befallen around 100 companies so far.

The impact of investor influence is evident among the 14 companies identified by Salterbaxter. Several reported that investors had raised questions about sustainability, prompting action to improve their practices. One company admitted that an investor group had threatened to vote against the annual report if positive steps were not taken.

The story is different at Hays, the specialist recruitment group. Its finance director, John Martin, cannot recall ever being asked about sustainability by an institutional investor at a shareholder meeting.

Mr Martin says he would prefer to follow a strategy of action rather than words, anyway: "The social impact of our business is very positive, and environmental impact is as modest as possible. I would question the desirability of reporting in an excessive way if your impact is low."

Whether or not pressure is exerted on companies to improve on their CSR reporting, the Salterbaxter 14 largely appear to welcome the idea of a more proactive approach.

"Since my arrival [last October], we have been looking at all areas of best-practice reporting and governance," says Richard Pennycook, group finance director at Morrisons. "It is our intention to move, over a sensible period, to a position where we display the governance one would expect of a FTSE company. This will be laid out in more detail in our annual report, to be published in April."

But some remain resistant. The cruise line Carnival, fund manager Amvescap and Hays all hold they see no requirement to improve their CSR reporting.

Picking out 14 companies does not exonerate the other 86 in the FTSE 100. It is common to hear both investors and NGOs levelling criticism at the standard of CSR reporting as a whole. In fact, many NGOs regard most such reports as "greenwash" or environmental spin.

Dr Raj Thamotheram, senior adviser, SRI at the Universities Superanuation Scheme, says: "CSR reports are of little direct use in mainstream investment decisions, and most mainstream investors do not read them. They are too long, too anecdotal, too focused on happy stories, etc."

Two possible antidotes to ineffective CSR reporting are an adherence to strict guidelines when drawing up reports and (closely related) a strong message from government that disclosure is not voluntary.

Experts at Henderson are among those calling for more companies to draw up reports using the GRI standard (the UK Government calls this the "gold standard"), and then have them verified by an independent auditor under the AA1000AS guidelines. According to data from, the reports of only 21FTSE100 companies currently comply with the GRI guidelines, while just 26 comply with the AA1000AS standard.

Friends of the Earth lays the blame for corporate UK’s laissez faire attitude to reporting at the Government’s door. Symptomatic of its mixed message on business ethics was it’s abandonment in November last year of plans for listed companies to be required to publish Operating and Financial Reviews. The U-turn was widely criticized by investors and NGOs, and even by business organisations, which complained of the waste of time and money in preparing for the new regulations.

"There has been a spectacular lack of leadership on CSR from the Government, creating a massive confusion in the corporate sector as a result," says Craig Bennett, head of the corporate accountability campaign at Friends of the Earth.

With a significant number of the FTSE 100 still failing to satisfy on CSR reporting, and green wash accusations against many others, are we really getting the information we deserve?