1.8.2 Annual reporting - transparency of corporate conduct

One of the central themes of CSR is transparency. This concerns the transparency of corporate conduct and the transparency of product characteristics, in particular in which manner the product has been produced.

On the subject of corporate information, it is notable that financial information has been increasingly supplemented with non-financial' or ' extra-financial' information on CSR themes. Since the end of the last decade, civil society and legislators have pressured companies to report on extra-financial information.1 Voluntary disclosure tools such as the GRI Guidelines, the carbon disclosure project and the water footprint tool have been developed in this period. While the first sustainability reports at the beginning of this decade (2000-2010) were merely published by companies to engage with their stakeholders on a voluntary basis, by 2010 certain European jurisdictions have imposed on large companies or state companies an obligation to publish a full sustainability report.2 Sustainability reporting is slowly moving away from private regulatory regimes towards public regulation.

On a more limited scale of disclosure, the EU Modernisation Directive 2003/51/EC prescribes that large companies are to provide in their annual reports extra-financial information relevant to the company's performance. They are to report on "non-financial key performance indicators, among others environmental and employee matters" relating to their worldwide business activities. Chapter 4 will discuss the legislative history of this Directive and provide an overview of the status of implementation in the EU Member States.

In chapter 4, the Netherlands is taken as a case study for a discussion on other existing extra-financial reporting requirements and the relevant legal consequences of the implementation of the Modernisation Directive. Attention is also paid to the Dutch Council for Annual Accounting that has issued a guideline and a practical tool on how to include CSR aspects in annual reports. It proclaims that defining concrete ambitions will help to measure the results.3 For illustrative purposes, this chapter ends with a quick scan of the annual reports of twenty-five large Dutch companies to demonstrate the application of the new rule in practice.

Above and beyond annual reports and sustainability reports, transparency concerning corporate practices has also been increasingly provided by companies on their websites. These websites nowadays generally contain a statement on CSR and some nice examples of CSR projects or strategies. Updates are frequently provided. Some academics contend that from an investor perspective, sustainability reports have ' zero' value because the information is too superficial and outdated.4 They recommend to primarily disseminate corporate sustainability information through daily updates of company websites. Desk research and interviews, conducted by the author in the course of 2009, confirm this view and confirm that sustainability rating agencies which prepare advice on extra-financial information for institutional investors, generally use both, i.e. sustainability reports and website contents.5

Preparing and publishing a sustainability report appears to be an effective CSR tool. The process of collecting the information for compiling the report aids the company in gaining an insight into the actual CSR performance throughout the company. The report can connect the employees by clearly establishing the CSR direction whilst providing concrete information on projects and explaining the changes that have been implemented. Furthermore, the publication of a sustainability report can assist the company in maintaining the relations with its external stakeholders, including investors.