Reporting through the OFR

The government wants companies to be more transparent in their reporting through the OFR. Some companies have already gone beyond just compliance.

UNCERTAINTY CLOUDS OFR LAUNCH

Regulations requiring all UK quoted companies to produce an operating and financial review (OFR) came into effect on April 1 amid continued uncertainty over the details.

For reporting years beginning on or after April 1, about 1,300 listed companies must publish a narrative on their performance and prospects. Although this means most companies will not actually be producing an OFR until 2006, the Accounting Standards Board (ASB) has not yet provided guidance on the OFR’s contents following its consultation process that concluded in March.

Human resource experts, such as the Chartered Institute of Personnel and Development, want the ASB to recognise the “key role of human capital in determining organisational performance”. Angela Baron, CIPD adviser, organisation and resourcing, said: “We are alarmed at the failure of the ASB to give proper weight to human capital in its draft standards. If firms are not required to report on it, investors will lack one of the most important sources of information to guide their decisions”.

Adding to the debate, the Financial Times reported April 11 that Denise Kingsmill, the architect of new regulations requiring public companies to disclose more information about their employment practices, denied that the government watered down her recommendations. Kingsmill, the leader of the Accounting for People taskforce, said she supported the government’s view that individual companies were best placed to decide which employment benchmarks were relevant to their own business. Contact Hans Nailor, ASB 020 7492 2300 (http://www.asb.org.uk)

GRI EXPANDS TAILOR-MADE GUIDANCE

The Global Reporting Initiative continues to expand its range of sector-specific guidance with an updated financial services supplement and a new consultation process for the footwear and apparel sector. The financial services guidance provides easier to use environmental performance indicators, tailored to the needs of the sector. A new footwear and apparel supplement is to be developed by a multi-stakeholder group – currently being recruited from companies and report-users including NGOs and trade unions – and will issue a trial supplement for public comment in early 2006. Contact GRI 00 31 20 531 0000 (http://www.globalreporting.org)

Companies that count

Westpac beat the best of British in the Business in the Community’s index of the most socially responsible companies published by The Sunday Times on April 3. The Australian bank, taking part in the survey for the first time, leapt to the top of the rankings, nudging last year’s winner National Grid Transco, into second place. Westpac’s top ranking came after it scored first place last September in the first Australian Corporate Responsibility Index, also established by BITC and the St James Ethics Centre. BITC invited more than 500 companies to take part in the Companies that Count index, described as the benchmark of responsible business practice. By participating in the index, companies are able to assess the extent to which their corporate responsibility strategy is translated into responsible practice throughout the organisation, and especially in managing four key areas – community, environment, marketplace and workplace. Contact Heather Olhausen, BITC 020 7566 8797 (http://www.bitc.org.uk)

BP TALKS OPENLY

BP dismissed 252 employees for unethical behaviour last year, 50% more than in 2003, mainly for theft, fraud and harassment, the oil company said in its 2004 Sustainability Report. BP has a scheme known as OpenTalk where staff can raise ethical issues, often anonymously. BP also gave examples of where it was spending money to help improve communities in which it operates. The company said it planned to spend $500m over the next five years on helping communities develop businesses, education and improving access to energy. BP’s sustainability report did not deal with last month’s fire at a refinery in Texas, which has killed 15 people. Chief executive John Browne said an investigation into the incident was continuing.

Britain’s biggest company said its own operations produced more than 85m tonnes of greenhouse gases last year, up from 83.4m tonnes in 2003, roughly twice that produced by Argentina. But Browne denied that the company’s attempts to cut greenhouse gases had stalled. “We are not struggling, we are absolutely on track,” he told a press conference. Contact BP 020 7496 4076 (http://www.bp.com)

Editorial Comment

Even with the delayed start to the OFR regime, it was perhaps inevitable that the guidance on preparing the review would not be ready in time. Frustrating for practitioners, in reality the outlines are pretty clear already. Barring last minute surprises, next year we should start to see annual reports that are a bit broader in scope and with some more numbers on non-financial performance than before. The test remains what shareholders need to know, in the judgement of directors. That’s why we’ve always argued it is wrong to present this as mandatory social reporting, as some seem to be doing.

One spin-off from the process could be more standardisation in what is reported and, crucially for comparison purposes, how. True benchmarking of social and environmental performance remains elusive, despite the best endeavours of reporting frameworks like GRI’s and indices like BITC’s. Work on GRI’s third generation continues – well worth keeping an eye on developments – though we remain concerned that the focus is too much on creating a standard for a few reporting leaders, rather than a tool to shed light and judge performance among the many.

At the end of a successful third round, BITC faces some tricky questions about the development of its index. Companies and media alike focus on the rankings, but the fact of the matter is only a few points separate the top places (The BITC says the data behind the index is confidential). The real worth of this huge effort should be in the opportunity to learn and improve, not in chasing an elusive high rank. The question is how – a subject we will return to in future editions.

Corporate Citizenship Briefing, issue no: 81 – April, 2005