Opinion: Leader - Reporting on social impact has value

There has been negative comment in the business pages over the past few days about the DTI's Operating and Financial Review, the corporate governance initiative that was elaborated on this week and requires companies to include in their annual reports an account of their impact on society and the environment.

Highlighting the pitfalls of such a prescriptive course of action, one columnist described the 'mass of verbiage' into which the US's attempt at a similar regulatory change has morphed. Indeed, there are risks associated with systems that encourage firms to report on non-financial issues in the same way that they report on the hard data of revenue and profit.

Primarily, the fear ought to be that companies are just trying to avoid nasty legal comeback some way down the line, and are not sincerely internalising the mindset that says they should be aware of their social impact. But this week also saw a timely piece of research that seems to demonstrate the clear financial value of non-financial reporting.

The report, published by IR consultancy Imagination, found a correlation between share price stability and reporting on non-financial matters in a manner that is compliant with the Global Reporting Initiative's (GRI) standards. In short, the 300 members of the Standard & Poor's 1,200 companies that complied with the GRI's way of doing things enjoyed much less share price volatility than the 900 or so that didn't.

The obvious drawback is a point about cause and effect - there is nothing to suggest that reporting in a particular way promotes steady stock. Common sense suggests it is much more simple: companies considered pioneers in this aspect of reputation and risk management tend to be more judiciously run and less susceptible to wild stock market swings.

But to acknowledge as much is not to deny the significance of the steps taken by those that think long-term about how to avoid reputational disasters.

They are trying, albeit in a flawed manner, to impose some order on the way they report their non-financials.

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