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Defining the reporting objectives

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Purpose and format

What is the overall purpose of the report and what are you trying to achieve?

You may wish to stimulate the management process, to communicate achievements or to improve reputation.

Which issues do you want to report on?

You should choose a report type based on the most relevant issues for you. Broad types include corporate social responsibility, environmental reporting, sustainable development reporting or health, safety and environment. Companies tend to report on issues for which they have a sound knowledge and the necessary expertise. New issues take a longer time to be reported upon as no standardized parameters or indicators exist to gauge performance and no data gathering system is in place.

Companies should report on the activities that interest their key stakeholders. For example, many companies started to develop environmental reports in the early 90s when they thought that their most important stakeholders were not fully aware of environmental activities. Since then, stakeholders have increasingly demanded that companies practice social responsibility. Subsequently, more companies are developing social reports and sustainable development reports. The financial community has also pressured companies to report on how they manage risks and create shareholder value, which will probably result in a greater integration of sustainable development information into annual reports.

How elaborate should the report be?

You need to decide what your ambitions are from producing a short and simple publication to a sophisticated stand-alone report. Ambition levels influence the report’s entire development and production as well as the resources needed. Yet, in some cases, as the project develops, the end result may be different from the original intent.

How will the report be published?

You may choose to publish the sustainable development report as a stand-alone report or to integrate it into the annual financial report. Producing a single report encompassing economic, environmental and social considerations may demonstrate that all three areas are considered holistically by the management. On the other hand, integrating a summary of your sustainable development report in the annual financial report may justify the importance that management attaches to sustainability issues.

Can you use experience from other reporting processes?

Annual financial reports have been published for decades. Some countries also have a tradition of social reporting, and many companies have been reporting internally or externally on environmental achievements within their ISO 14000 systems or EMAS certification. Companies should look at existing data gathering, information systems and reporting processes that can be used to save extra effort. Data collected by the company for other reporting processes (i.e. annual, quarterly or monthly publications) may support the sustainable development reporting process.

Target groups and stakeholders

One of the differences between a sustainable development report and another report is the important role played by stakeholders. They are often interested in different aspects of the business, and may have conflicting agendas. Although stakeholder dialogues are important, they do not determine the report’s content. The most important source of content is drawn from the company itself, based on its business objectives and principles.

Who is the audience?

You need to analyze the position of your company in relation to various stakeholders and target groups in order to select the key ones. The structure and the content of the report should reflect such decisions.

Not all stakeholder groups and information needs can be fulfilled in one single report. The cost of information would then be too high for the company and the content of the report too general for different stakeholder groups.

A stakeholder matrix can help a company to determine which other stakeholder groups, in addition to its own employees, are the most relevant for its reporting efforts.

                  Stakeholder matrix
C. Keep satiesfied D. Focus efforts
A. Respond to requests B. Keep informed
Level of
Level of interest

Stakeholders can be identified and categorized in a matrix along two axes: their level of influence versus level of interest. The stakeholder groups that appear in box ‘D’ (stakeholders who exert a high level of influence and have a high level of interest) should be the main target of the company’s reporting efforts.

There is a broad universe of stakeholders, including direct and indirect stakeholders, who are influenced by or influence the company.

Direct stakeholders include shareholders and employees, often considered to be a company’s most important asset. Indirect stakeholders include all the individuals and organizations within the company’s sphere of influence, such as customers, suppliers, NGOs, capital markets, financial analysts, government agencies, local communities, etc.

Should stakeholders participate in the reporting process?

Although still a marginal practice in most companies, there is value in engaging stakeholders in the process of evolving a report, rather than just validating or seeking feedback on the end product. Making stakeholders aware of the questions asked (and resulting information gathered) at each stage of the process, may help to raise their understanding as well as fulfill the reporter’s transparency efforts. The stakeholder’s voice may also be important when it comes to deciding upon the type of report to be published.

What is the right format for reporting?

This varies according to the audience. Some stakeholders want a traditional printed report, which is the most common practice. However, companies are experimenting with alternative formats including CD-ROMs and the Internet. A CD-ROM can present very large amounts of information in an attractive way. The Internet enables a business to reach a broader audience in an interactive, faster and cost-effective way. It may also allow for some elements of real-time reporting. Yet, the report’s online version should not be too “heavy” or include too many multimedia features, since this limits the browsing speed and so becomes more irritating than stimulating for the web visitor. Most companies have noted more hits on their websites and increased electronic feedback after using the Internet to communicate additional sustainable development information and data. NGO forums and dialogues, with local communities and even employees, can further supplement reporting efforts. Using various reporting formats and channels thus allows a company to reach out to its target audiences in different ways.

Reporting guidelines and accounting principles

To develop reliable and credible sustainable development reports, companies must establish their own reporting and accounting principles. This is a necessary step, because there is no generally accepted international organization that develops standards for the content and structure of a sustainable development report (as is the case in the accounting arena with the International Accounting Standards Board (IASB) for instance).

Such a lack of standards presents a challenge for companies that must create accountable and transparent sustainable development reports. Companies must therefore make their reports clear on what they assess and how they measure and account specific indicators. The intention is to help the user understand how information has been collected, aggregated, calculated and disclosed.

Companies can manage this clarity by defining their reporting boundaries, deciding upon the reporting guidelines to follow, and choosing the accounting principles to follow when disclosing sustainable development information and data.

What is the reporting business entity? What are the reporting boundaries?

You may choose to report on company sites only or to include other companies in which you have a majority participation. You may even decide to include your suppliers and customers. Current practice is almost exclusively to stay within the boundaries of the reporting organization but, in the future, the reporting scope may well expand to include significant parts of the value chain. This will represent a new challenge in terms of reporting on the upstream and downstream issues and impacts (suppliers, customers and products or services). It will also require a great deal of background research to ensure that you are not reporting on your upstream or downstream value chain in a misleading or illegal manner.

Which reporting guidelines/codes of conduct should you follow?

Guidelines are helpful when considering the structure and content of a sustainable development report. The current practice in companies is to either fully follow or half align with some of the following recognized reporting guidelines:

  • Global Reporting Initiative: Sustainability Reporting Guidelines
  • OECD: Guidelines for Multinational Enterprises
  • OECD: Principles of Corporate Governance
  • United Nations: The Global Compact

Companies that have developed their own reporting guidelines tend to half align with established guidelines. Specialized industries also like to use reporting guidelines that are adapted to their specific environment. The banking industry, for example, has developed reporting guidelines for its own sector.

Companies often use guidelines to gain ideas and suggestions about what information to disclose. When a company is developing its first sustainable development report, it might not be possible to report on all relevant sustainable development issues. It will therefore need to plan how it envisages to develop its sustainable development report in the near future.

A plan can outline different report themes for the first, second and third years. Such a plan can also detail the internal resources, infrastructure, data, and development needed. Updated every year, this plan guides the development of sustainable development reporting in the company.

The sustainable development report should state which specific guidelines it follows or does not follow and why. For example, the company may state that it has not followed certain guidelines because they are irrelevant to its specific industry. Alternately, some guidelines might not be followed due to a lack of available information or resources within the company.

What sustainable development information should you report?

Guidelines give directions as to what to report. Yet, it is up to each individual company to select the information and data most relevant to its circumstances and operations. Furthermore, some parameters might be considered as confidential and not to be communicated externally. A good balance should be struck between what information the company is willing or able to provide and what stakeholders want to know. The information stakeholders demand may be categorized into what is their ‘right to know’, what they ‘need to know’ and what is ‘interesting to know’.

What accounting principles should you follow when disclosing information and data?

Principles must support transparency and ensure the relevance and reliability of the reported information and data. In order to develop a clear and credible report, companies should develop their accounting principles, based on recommendations from appropriate institutions, and follow them when collecting, aggregating and disclosing their sustainable development information. Yet, not all sustainability data can be collected and/or collated according to accountancy protocols. This is particularly true for reporting on intangible assets. The report should also indicate if the company has chosen not to use any accounting principles.

The importance of disclosing accounting principles should not be underestimated. Accounting principles are one of the few tools that increase the validity of the reports while at the same time making it possible for the reader to understand: (a) which parts of the company are included in the report; (b) the terms and definitions used and their exact meaning; (c) the calculation principles and coefficients; (d) any changes in the report’s calculation principles and coefficients.

To develop their own accounting principles, companies generally use the underlying assumptions and qualitative characteristics developed by the International Accounting Standards Board (IASB). These are contained in the IASB’s conceptual framework, Framework for the preparation and presentation of financial statements.

This framework has been used by the European Federation of Accountants (Fédération des Experts Comptables Européens - FEE) in their paper, Toward a generally accepted framework for environmental reporting, and discussion on “underlying assumptions” and “qualitative characteristics” with regards to environmental reporting.

The framework has also been used by the Global Reporting Initiative (GRI) for developing their reporting principles and practices in their 2000 Sustainability Reporting Guidelines on Economic, Environmental and Social Performance.

The European Environmental Reporting Awards (EERA) also highly value the IASB’s framework. By following the IASB standards (version 2002), companies achieve 50% of the required points to be recipients of the EERA awards.

Framework for the preparation and presentation of financial statements

Underlying assumptions Qualitative characteristics
The entity assumption Relevance Completeness
The accruals basis of accounting Reliability Prudence
The ‘going concern’ assumption Clarity Comparability
The concept of materiality Neutrality Timeliness
IASB Conceptual Framework. The above table is to be presented in the format of a box

Based on the “underlying assumptions” and the “qualitative characteristics”, each company has to develop its own accounting principles that are compatible with how the company generally measures, compiles and discloses data. Newcomers usually follow fairly simple accounting principles while experienced companies gradually adopt more sophisticated accounting principles.

Companies should start developing their accounting principles as they decide upon the objectives of the report because these rules will influence the next two steps within the process: the planning and the construction of the report.