Value and limitations of social reporting

Jac Hollingsworth discusses whether social reporting is now essential for businesses.

Social reporting is a way businesses go about accounting for, and formally reporting the social and environmental impacts of firms’ actions to all relevant stakeholders. It measures the performance of a business on various indicators, which take into account how the company treat their workforce and supply chain, as well as the wider community and environment. It may be suggested that it involves extending the accountability of organisations beyond the traditional role of providing a financial account to the owners of capital. This is suggested to be done as companies do have wider responsibilities than simply to make money for their shareholders. In 2000 just 823 businesses were taking an active role in social reporting that number has grown to 4,579 in 2010; suggesting that it is becoming increasingly important.

In fact, it can be argued that social reporting may now be essential for businesses for numerous reasons. Firstly, firms may find that social reporting has allowed them to gain improved public relations and has prevented criticism. Such benefits can be sighted in BAT who chose to begin social reporting in 2001, which has allowed their work in CSR to be clear to those that which to see it and the honesty has forced any criticism away. BAT in their report state how they aim to help educate their employees and are working to address human rights issues in its supply chain. The benefit of the improved public relations is that it is a good way of improving the reputation of your business, and there is less need for spending on promotion as the firm is already benefiting through good publicity.  In addition, social reporting can also mean that the business is now meeting the needs of various stakeholders, and are now implementing a measurement on CSR and increasing the transparency of the firm. This may lead to a greater attraction from customers. A survey found that 74% of customers in the UK said that more information on a company’s social and ethical behaviour would influence their purchasing decision. Therefore, good reporting, in a clear and transparent way, may help to gain the trust and confidence of customers and, potentially, gain new ones. This is likely to result in higher sales revenue and contribute to greater profits for the business and is therefore one reason as to why it may be essential.

A second factor that may be beneficial when social reporting and therefore essential to business is that it can attract, motivate and retain employees and have a number of implications on them.  In fact, a good performance with regard to the treatment of employees including information on pay, pensions and other financial rewards as well as highlighting the opportunities for training and promotion can help to build up a company’s reputation as a good employer. This can often attract hard working, motivated, high skilled workers, which makes recruitment easy and cheap. In addition, employees that are likely to be attracted to the business are more likely to be able to enhance the performance of the business and may be of great benefit to the firm. For example, M&S in their annual report have devoted large parts of it to talking about ‘Plan A’ its attempt of CSR and speak about the achievements it has made. Here it states how they regard employees with such importance, and the report highlights the training and development schemes they have set up along with a section dedicated to rewards and benefits that they offer their best employees. This is clearly working for M&S as they are now able to retain what they believe is an extremely valuable workforce, with almost 50% of staff being employees for over 5 years, and almost 30% being employees for over ten years. This is a clear indication of how M&S are able to retain a loyal workforce, and allows them to have a very small labour turnover, cutting recruitment costs further.

A final factor that supports the argument that social reporting is essential to a business is that it may identify areas where costs can be cut. When conducting an annual report that contains the information of CSR, it can often mean that the leaders of the business have to look to attempt to achieve their objectives or at least be on the way to meeting them as it is visible to stakeholders. This can often help to ensure firstly that compliance with legislation as well as to meet the needs of stakeholders is being done. The benefit will mean that there will be no cost of litigation without negative publicity to follow. This suggests that there if less likely to be a knock-on-effect, in terms of the reputation of the firm and indeed its sales. An example of this is BA in the airline industry, who have been able to comply with the legislation and go that extra mile, with their attempt of CSR, ‘One Destination’. In doing so, they have set themselves targets one of which targets the environment, with the aim of reducing CO₂ emissions (by 50% by 2050), noise (reduce average noise per flight by 15% by 2015) and air quality. In terms of cost reduction, action to minimise the business’s negative impact on the environment could result in less wastage, water and energy use, along with transport and packaging costs. M&S have managed to reduce their wastage throughout the whole business by 35% from 2010 and now on average 94% of waste is recycled. In fact, they have also managed to collect 152 million clothing hangers, with 80% being reused and the rest recycled into new ones.

However, on the other hand, it may be argued that social reporting is not essential for some businesses. Firstly, it may be difficult for a business to produce a social report on their CSR as there is no set format for what should be included and in to what depth it should go into. The lack of standardisation and regulation may therefore make businesses feel like it should not be essential. The main argument in my view that suggests social reporting is not essential is the potential costs that can be involved in constructing one. The devising of objectives, the monitoring of performance and the reporting of results does involve the use of resources and, therefore, a cost to an organisation, indeed an opportunity cost. Often a great deal of time will go into the production of such reporting, never mind the actual process that has to take place before the reporting can even take place. This is also therefore, likely to involve a large amount of employees to monitor and create a report, this again will cost the company large amounts in wages. Another factor is that CSR can often be hard to measure and even quantify. Even when it can be measured, it may be difficult for stakeholders, notably customers to understand what the data means, and whether it is impressive. For example, M&S has reduced storage energy usage from 67.9 KwHhs/sq feet of sales floor in 2006/7 to 54.8 in 2009/10. This is likely to mean very little to consumers and other stakeholders, and despite what is likely to be M&S’s hard work to do so, it may not be applauded by stakeholders who just do not understand the information being provided.

In conclusion, I believe that social reporting may be essential to businesses to some extent. Although, this does depend on how well the company is able to present the report on CSR and how effectively it is being communicated to consumers. By doing so, this is more likely to make potential consumers as well as existing ones more aware of what the firm is doing to be socially responsible and how its aims are not just based on achieving the needs of the shareholders, but are in fact looking to benefit all stakeholders in the business. In addition, the extent to which it is essential to a business may also depend on the industry the company finds itself, and how important CSR is in their sector, along with whether their competitors are producing reports on CSR and into what depth they are doing so. For example, if a competitor is engaging in a great deal of CSR and is then communicating this effectively to the stakeholders, it is far more essential for you as a rival firm to also be engaging in such reporting; in risk of falling behind and losing out. It may also be more essential to some businesses more so than others, for example, a company like M&S who is taking part in lots of CSR is going to find that social reporting is very essential to their business. They may feel that there is a certain obligation and expectation as a ‘Responsible Retailer’ to do so. On the other hand, a firm like Domino’s Pizza may find that social reporting is not essential to their business whatsoever, as they do not even engage in CSR. Despite this, Dominos are still able to compete extremely well in their market as in their specific situation such action is not necessary as consumers do not have that perception of them as a business. This is largely down to the corporate objectives and strategy of the business which does not have such values that it would need to focus on CSR and the reporting of it.