Differing Accents

Firms stateside, in Europe offer varied approaches to publishing their citizenship updates

By Iain McGhee

As in Europe, substantive reporting on non-financial issues emerged in the U.S. in the late 1980s. Early adopters were those industry sectors, such as oil and gas, chemical and utilities, already experiencing pressure from both regulators and activists. The first reports were typically "single-issue," most commonly focusing on environmental issues. Since the mid-1990s, reports have increasingly evolved into covering a variety of issues: including environmental but also social, community, ethics, and human rights. From the beginnings of reports with purely an environmental focus, the trend today is CSR and sustainability reporting.

CorporateRegister.com has been tracking the global development of environmental and CSR reporting since 1990. The data tell us that European and U.S. companies are responsible for 70 percent of all corporate non-financial reports produced.

CSR reporting in both Europe and the U.S. shares the same roots and evolved in a similar fashion. However, a more detailed analysis indicates that the European CSR reporting story has been somewhat different from that in the U.S. A recent CorporateRegister.com study of the top 100 companies in the U.S. and Europe (based on the Financial Times Global 500) reveals some interesting disparities.

The most obvious question is: How many of the top 100 report in each region? As of October 2007, in Europe 95 of the top 100 companies had produced a corporate non-financial report during the previous two years. This figure drops to just 73 for the leading U.S. companies. Looking at it in another way, the combined market value of the non-reporting companies in the U.S. is $1.42 trillion, compared with about $300 billion in Europe. If one accepts that a CSR report can be a useful transparency tool––a window into a company––that’s a lot of U.S. companies with the shutters still down.

Of course, there’s more to this story. One needs to look at indicators of reporting quality, not just at who’s reporting. CSR reporting exists in various forms, but in the past few years there is an emerging consensus on certain best-practice attributes:

  • External report assurance is an interesting indicator. Regardless of your feelings about the value of external report assurance, its application by a reporting company signifies a commitment of financial and intellectual resources to the reporting process. Of the 95 European reporters mentioned above, 72 percent included an external assurance statement in their latest report, compared with just 9 percent of the 73 U.S. reporters.
  • GRI uptake (Global Reporting Initiative G2/G3 sustainability reporting guidelines) is another indicator of progressive reporting: 75 percent of European reporters and 40 percent of U.S. reporters in our sample use GRI guidelines.
  • Page length (admittedly a rudimentary measure): the data make a clear point. The average length of European reports is 92 pages compared with 47 in the U.S.

There are some obvious conclusions to be drawn. Using the largest companies in each region as a proxy, fewer U.S. companies are reporting, and to a lesser ‘quality’ than those in Europe. There are still six companies in the U.S. top 100 whose only corporate non-financial reporting is an annual philanthropy report (there are no such reports in the European top 100 – generally it’s a U.S. phenomenon). CorporateRegister.com recognises and tracks philanthropy reports, but we’d argue that although community investment is valuable, it will never be a central pillar in the ever-elusive business case argument. The Economist has referred to philanthropy as "pernicious CSR": giving away shareholder money. Winning over the critics will take a more intelligent approach to CSR (identifying risks and opportunities), so why are we still seeing leading U.S. companies restricting their reporting in this way?

However, it’s easy to be too critical. Anecdotally we’d point out that U.S. reporting is characterized by large variations in quality.

As a final thought, we regularly check what our 20,000 CorporateRegister.com users are looking at on our site. Looking at one week’s data recently, we noticed something interesting. It’s always good to know what the investor/analysts are looking at, and during that week, of all the U.S. reports viewed by this stakeholder group, more than 70 percent were viewed by U.S. investor/analysts and only 10 percent by their European counterparts. Looking at it from the other direction, 65 percent of the investor/analysts looking at European reports were European with only 15 percent from the U.S. Based on this very informal study, why aren’t European analysts reading U.S. reports? Can it be for the reasons identified above? Conversely, why do fewer U.S. analysts read European reports? Is the U.S. socially responsible investing scene less sophisticated than its European equivalent? Perhaps both regions have reporting that’s fit for purpose, but the evidence would certainly suggest that as far as CSR reporting is concerned, at times they are two very different creatures.

Iain McGhee joined U.K.-based CorporateRegister.com in 2003. As Director of Services, he helps develop and promote the company’s CSR-related services.

Posted December 17, 2007 in Reporting