A closer look at the best (Barclays & CRH) and worst (Thai Bev & P&G) reporting on CSR
At a time of food riots and oil at $120 a barrel, the annual report ought to be the place where companies demonstrate their understanding of how to make money in a tumultuous world. Yet many ignore social and environmental constraints, or think charitable donations are all that matter.
Banks fail to talk about the perils of excessive personal indebtedness or financial meltdown. Brewers ignore the role of alcohol in road deaths. Consumer goods companies cite developing and emerging markets as their future, but fail to mention that much of the world subsists on not much more than a dollar a day.
This year’s crop of annual reports hardly inspires confidence that our great global corporations really understand the complex world in which they are doing business. As fears of recession mount and the costs of energy and raw materials rise inexorably, too many still see social and environmental issues as marginal at best.
For some firms, far from being a risk, social responsibility and sustainability can be mainstream opportunities for business growth: mobile companies bringing the benefits of telephony to continents where hard wires are impractical; pharmaceutical companies serving countries where disease still stalks the land; construction companies housing the 1 bn people the UN says still lack adequate homes. Here are some examples of reporting on offer this year.
Two of the best
UK bank Barclays’ 2007 annual report gives a strong presentation of where the bank makes its money today and how its commercial strategy is evolving. Management of risk is well set out, so investors can clearly see future prospects.
For Barclays, social and environmental issues are addressed as ‘corporate sustainability’, which makes the point powerfully that banking is central to every prosperous society, facilitating enterprise and helping create jobs and wealth.
The firm demonstrates its understanding that this will be sustained only if customers’ needs are met. It acknowledges a need for a responsible approach to lending, for example, and effective management of human capital, environmental risks and community responsibility. The bank backs up its integrated thinking in the annual report with a detailed website, should investors and other stakeholders want to take a closer look.
Irish buildings materials group CRH uses graphics very powerfully in its 2007 report to present a clear and simple picture: the products it produces, the uses they have in society, and the four main social responsibility issues that arise. For CRH, these priorities are: effective corporate governance, the health and safety of staff, stewardship of the environment, and a wide range of social and community impacts around its sites.
Along with many other companies, CRH now produces a companion CSR report entitled ‘Sustainable performance and growth’, neatly making the point that investors’ future returns depend on management of social and environmental impacts as business issues, not a soft add-on.
Two of the worst
Thai Beverage is a firm with big ambitions to expand its beer market internationally and diversify into spirits. But its 2007 annual report does not demonstrate management’s awareness of the social impacts of its products, nor of the threat to growth if those impacts are not correctly managed.
At a time when the World Health Organization has dubbed alcohol ‘the new tobacco’, this does a disservice to investors looking for enhanced returns as the company expands into highly sensitive western markets. Likewise, water for a brewer is a vital ingredient in production, but the risk from increasingly vulnerable supplies is not spelled out.
The report does discuss some activity surrounding human capital management and community contributions. It seems Thai Beverage appreciates its social responsibilities, but the annual report does not show integrated thinking and a strategic approach to these issues.
Procter & Gamble (P&G), the consumer products company, describes itself on page one as ‘a company designed for long-term sustainable growth’, which is a promising start. It follows up with a strong story about its billion-dollar brands, the ‘core strengths’ identified as essential and the discipline of its management. It even points out developing markets and lower income consumers as ‘strategic focus areas’.
All the more disappointing, then, that sustainability issues are relegated to one page at the back of the report. Many of P&G’s products rely on water both in manufacture and consumer use, and it is an increasingly precious and expensive commodity, but is P&G concerned? What are the prospects for emerging markets in an increasingly polarized global economy? How will rising energy costs and the impact of carbon emissions on the climate affect commercial, never mind environmental, sustainability? Investors are none the wiser.
