RR41 - Environmental, Employee and Ethical Reporting in Europe
Adams, Hill and Roberts, 1995
Executive summary
The ACCA published the first international review of social and employee information disclosures in 1990 [Roberts, 1990]. Since then, there have been a number of significant changes in this area, the biggest of them being the remarkable growth of interest in environmental reporting.
The present report examines the disclosure of social information in the annual reports and accounts of 150 of the largest European companies. The specific areas for analysis were identified through a number of steps: the initial list of topics was drawn from the available social disclosure literature; this list was then amended in the light of what the companies reported, so that the final selection covers all of the items reported by more than a handful of the surveyed companies and reflects the relative amount of information actually disclosed by companies. Three main areas of disclosure are discussed: environmental, employee, and ethical information.
Environmental Disclosure
Environmental matters are of relevance to all companies, as all companies impact upon the environment in some way or other. It is therefore disappointing to find that while a significant majority report some information, 23% report nothing at all. Although there is an expected industry specific pattern to the disclosures, there is also a country specific pattern, with, for example, German companies being far more likely to provide information than are French companies, irrespective of the industries they operate in. This can be explained in terms of companies responding to the perceived interests, needs or demands of their report readers. The fact that many companies report upon such items as CFCs, greenhouse gasses, packaging and glass recycling, all areas that have been highlighted in the popular press, lends weight to this explanation.
While the number of companies reporting information has increased significantly, the quality of reporting is very low. Indeed, there do not appear to be many real attempts to inform the public in an unbiased, full and helpful way. The interested reader needs quantitative and financial information to be able to gain an overview of the impact of all of the company . This information must also be placed in context; how does it compare to last year, or to industry norms or to best practice elsewhere? How does it relate to plans for the future? In contrast to this, the typical company provides purely discursive information, describing only some of its activities in some sectors (often only for domestic operations), with no information on external benchmarks or plans of action.
Employee-related Disclosure
The survey found that disclosures about employee-related matters were often substantial. Many aspects, be they policies, descriptions of activities or results were widely covered. However, there were also more sensitive areas such as trade union issues where infor-mation was generally lacking. Differences in the pattern of disclosure between countries and companies were also often apparent. In particular, a number of German companies stood out for the quantity, depth and quality of their employee related disclosures.
Overall, the most comprehensive information was found in those areas where quantitative or financial information were readily available, such as employee numbers and payroll costs. While there appears to be general willingness on companies' behalf to report employee information, there is a great deal of scope for progress towards the disclosure of a wider range of information. In particular, there was often found to be relatively little information of a more quantified nature, as well as there being a clear need for more comparable measurements across companies and countries.
Ethical Disclosure
The number of companies disclosing at least some information appears to be fairly high, but the quality of most of these disclosures is low. Probably the most important information required by a reader trying to gain a picture of the ethical stance of a company is information on: investment policies, ethical business practices, community involvement activities, and charitable activities. The companies surveyed tended to give little or nothing in these areas and when information was provided, it was typically very brief, discursive and illustrative. The most popular non-mandatory disclosure was found to be customer relations information. While this is an important area, it has a narrow focus. Indeed, it can be argued that while customer relations undoubtedly has an ethical aspect, the reason for disclosure is probably linked to financial or profit, rather than ethical, considerations.
The Way Forward
If a narrow economic perspective is taken it might be felt that a company's sole responsibility is to its shareholders and that there is little need for social disclosures. In this context, the current level of reporting may be seen as fairly high. However, an alternative, and increasingly common, way to look at companies and company performance is to take a social perspective. It would then be argued that companies only continue to exist because they are permitted to by society as a whole. In return, they should be expected to act in a socially responsible manner.
While there are no clear definitions of what actions society considers desirable or even necessary, there is at least general agreement that companies should act in an ethically acceptable manner, minimise any adverse impact on the environment and behave as responsible employers. If it is generally agreed that these are desirable if not essential characteristics of a company, then a case can be made for the reporting of information about corporate activities in these areas.
The survey findings revealed that in very many cases the best examples of disclosures came from the German companies and that, on average, the German sample tended to disclose more environmental and more employee related information than did companies from the other countries. The UK sample tended to disclose considerably less information than did the German sample, however, the UK sample was not the poorest one in terms of the incidence of relevant disclosures with, in particular, less French, Dutch and Swiss companies dis-closing information on environmental or ethical matters.
Very many of the differences in the amount, type and quality of information disclosed cannot be readily explained by differences in the companies concerned. It can therefore be argued that if at least some companies have made a decision to disclose social information then it must clearly be feasible to report such information. There would appear to be a clear benefit to society as a whole in knowing far more about the environmental, employee and ethical activities of most companies and corporate analysis of the costs and benefits of disclosure is likely to either ignore or misprice many of the benefits of disclosure. This leads to the conclusion that this is an area that is overdue for legislation requiring the disclosure of additional information.
While there is clearly a great deal of scope for improvement in the quantity and quality of disclosures any legislation or standards need to be very carefully drawn-up. As can be seen from the types of disclosures currently made, being mainly discursive good citizenship statements, if legislation is not very carefully drafted it will result in an increase in the quantity but not the quality of disclosures. Perhaps the main conclusion that can be drawn from this study is the need for regulators to move beyond simply considering financial disclosures and to adopt new types of measures. For example, clear cases can be made for requiring companies to report on such environmental matters as the numbers of times they have failed to meet legal emission standards, or in the employee area, the numbers of serious accidents occurring. Such types of information are likely to be of importance to both shareholders and other users and while not fitting into the traditional financial statement they still meet many of the desirable characteristics for reporting purposes, namely they are objective, measurable and verifiable.