CSR: Coping with OFR

The Operating and Financial Review will make CSR statements compulsory. Mary Cowlett reports.

For many companies, promoting their corporate and social responsibility (CSR) tenets has at best been informal, and at worst non-existent, with firms eulogising their strategies or playing them down as they see fit.

This is all about to change however, with a new mandatory corporate reporting regime, the Operating and Financial Review (OFR), coming into force this month. Applicable to financial years starting on or after 1 April 2005, the rules require quoted firms to report the social, community and environmental issues that impact them.

The regulations compel companies to put corporate responsibility centre-stage in the boardroom. For PROs however, the questions are whether companies will truly welcome this opportunity and how they will engage key stakeholders in such CSR issues.

In an ideal scenario, OFR should transform dull annual reports into engaging publications packed with accessible analysis of future business trends. It demands firms look at non-financial performance indicators in terms of current and forward prospects.

'For most companies, CSR has operated and been managed at the margins,' explains Nicky Amos, CSR director of Corporate Culture and former head of CSR at The Body Shop. 'In future, investors will want to know what the leadership is doing about CSR.'

But the alternative is that PROs fail to put it on the map as bosses fear the corporate governance implications.

According to Trade and Industry Secretary Patricia Hewitt, the new rules will 'help investors make better-informed decisions and encourage an open dialogue between shareholders.' But MORI's 'Captains of Industry', survey, commissioned by Edelman, suggests the jury is still out.

Divided opinions

The study, which took views from 100 CEOs, MDs, chairmen and other senior Board directors from 1,000 top British companies, shows business leaders are evenly divided on whether the OFR will be useful to stakeholders.

Likewise, opinion seems split on whether non-financial reporting will improve companies' risk management. This is despite them recognising the increasing importance of non-financial performance to investors. This won't make the job of PROs coping with the OFR any easier.

'Those who are not convinced of the value of non-financial reporting have probably had CSR policies in existence for a while and may be exhibiting best practice already or have learned from the mistakes of others, such as Enron or Nike,' says Stuart Smith, joint chief executive of Edelman London. Others are concerned that providing a legal framework will stifle some of the CSR reporting that already takes place on a voluntary basis.

'Firms where the board is half-hearted about the value of non-financial reporting may look at squaring the relationship between their broader existing CSR reporting and the new legal requirements for a narrower scope, and simply provide an OFR report,' says Mark Line, founding director of CSR Network.

Vodafone, which produces an annual Group and UK CSR Report, is predicting little change. 'Due to our US listing - which means that we already have additional reporting requirements under US accounting principles - the undertaking of a report will only have marginal impact,' says deputy head of media relations Ben Padovan.

BP however, whose latest sustainability report is due out on 11 April, has yet to decide how to balance its legal and voluntary obligations.

'What we have not yet resolved is the format of how we present information and how far there should be a convergence between our sustainability and OFR reporting,' says David Bickerton, head of external relations.

Rigorous exam

The energy giant has been preparing for the OFR since January 2004, when it put a working party together. BP's ethics and environmental assurance committee has undertaken a rigorous examination to test non-financial data.

According to Bickerton, a key challenge has been addressing the definition of 'materiality'. 'In areas such as climate change, our impact on society and our impact as a responsible operator - managing things such as emissions - some things are material for BP as a group,' he says. 'However, we also have to think about the degree of materiality in individual country reporting, around projects such as the new Baku-Tbilisi-Ceyhan oil pipeline from Azerbaijan through Georgia and Turkey.'

This legal nature of the OFR means PROs are going to have to fight their corner to become involved. 'If the main approach for companies is to avoid risk, then the lawyers and accountants will get to the table first and the communications side of things will be a second-string issue', says Martin Le Jeune, head of CSR at Fishburn Hedges.

Indeed, while the Department for Trade and Industry has produced a number of publications on preparing and interpreting the new requirements, when questioned it said it 'would not be issuing separate guidance or standards on language and communication' in relation to OFR reports. Le Jeune says: 'PROs must explain the link between the public reputation of companies and financial performance, and that this legislation is a way to communicate with stakeholders about a range of issues.'

This view is echoed by Amos. 'OFR means companies must think how they communicate publicly with more authenticity, taking PR back to the basics of integrity and transparency.'

For many listed companies, this could open doors to reasoned discussion of uncomfortable issues, such as the risks and rationale of working in politically unstable regions, climate change and renewable resources.

But there is a further role for PROs in using the material for an OFR-based report. This is how to communicate more effectively beyond the investment community with audiences such as NGOs, suppliers, employees and customers.

'It's a question of how to get added value. Firms will miss a trick if they turn their report into a PDF file,' says Solitaire Townsend, managing director of specialist CSR communications company Futerra and member of the CIPR CSR Network committee.

'We should be thinking of innovative ways to get this information out there and I'm looking forward to seeing reports that are truly embedded within companies' communications.'

With the first official OFR reports not due until at least April 2006, the new legislation is likely to drive an evolution rather than a revolution in CSR. But for those listed firms who could find themselves lacking, the clock is ticking.

CASE STUDY: EDF ENERGY

EDF Energy, owner of the newly merged London Electricity and Seeboard Group of companies, expects its French parent company EDF to be listed in Paris and possibly London by the end of the year. As such, the utility provider already takes its corporate responsibility (CR) and reporting standards well beyond that required by the minimum standards of the OFR.

'As a provider of electricity, we're stitched into the fabric of society and we can either embrace that responsibility or lump it. It's a no-brainer,' says comms director Gareth Wynn.

The firm's executive committee is the steering group for its CR strategy using policies as a tool to improve the business. In practice, it means EDF Energy approaches issues such as health and safety as an indicator of effective and efficient business management, practices and company culture.

Initiatives include mentoring and providing work experience for children from local schools, while the company has invested £200 million in reducing sulphur emissions - a trigger for acid rain - from its coal-fired power stations.

Most impressively, the firm recently took an industry lead on fuel poverty, with 62,000 customers who spend 10 per cent or more of their net income on energy, now on a set reduced tariff until at least 2006.'It's a risk as it means we're carrying a cost that our competitors are not. But it is an important issue and our policy helps define the sort of company we are,' says Wynn.

HOW TO HANDLE THE OFR

1 Don't panic - an OFR report may seem complex but can be exciting

2 Get into the conversation now - companies are already planning their OFRs

3 Search for buried treasure - the OFR process should identify important stories for your company

4 Make it work for you - an OFR report should be a dynamic and engaging document, not dry

5 Remember the web - OFRs will be published online, think about building a great user experience

Source CIPR.

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