Corporate reports are required to furnish all stakeholders with financial and non-financial information, which are relevant, faithfully represented and useful for making prudent, reliable, effective and efficient decisions. Companies worldwide are now focusing on how best to integrate their financial and non-financial information, particularly as businesses are experiencing unprecedented environmental and social changes. Hence, the need for every organisation to disclose in their annual reports the various activities that affect the stakeholders. This practice is becoming a very fundamental issue the world over.
Corporate Social Responsibility (CSR) is a form of internal monitoring, management and external communication, which allows organizations of all sizes to meet the growing information needs of internal and external stakeholders. In essence, it conveys information about an organization’s economic, environmental, and social operations, the related impacts it has through its everyday activities; and the consequences of those impacts for the company and others. Stakeholders (investors, government, employees, customers, suppliers, trade associations and environmental groups) are expecting companies to produce reports that will demonstrate financial value , drive innovation and promote learning. Long term business success depends not only on a healthy financial position, but also on vibrant social and environmental performance. CSR is a crucial step towards achieving a sustainable global economy. It enhances corporate accountability, builds trust, creates transparency, drives greater innovation, improves internal management and decision-making processes, reduces compliance costs and gives competitive advantage.
Financial reporting is often criticized for its focus on historic, quantitative and short-term performance, rather than on long-term value creation. Corporate reporting based only on accounting standards allows companies to externalise environmental and social costs due to the fact that financial results are not placed within the context of the greater economy, society or the environment in which the business operates (Terry, 2008). According to Eccles and Krzus (2010),
traditional corporate reports are increasingly less relevant and useful for analysts and investors as they are difficult for even the most sophisticated users to understand. The users of financial information today, need the data that would allow them to assess whether the entity is environmentally, socially and financially responsible. It is expected that businesses should do more than simply turn in financial statements in line with the accounting standards. They are expected to operate in a manner that is socially and ethically responsible as well as minimise negative impacts on the environment. They should also contribute positively to the community where they operate by taking into consideration the varied needs of their stakeholders.
Currently, in most jurisdictions around the world, the minimum requirement is the inclusion of significant non-financial information in company reporting. The Global Reporting Initiative (GRI), launched in 1997, has taken the lead in delineating a global disclosure framework for corporate social responsibility and sustainability. KPMG (2015) shows that the Global Reporting Initiative (GRI) remains the most popular voluntary reporting guideline worldwide, with 60 percent of all CSR reporters in the 45 countries surveyed referencing the GRI. This is roughly stable with the 2013 rate (61 percent). For stand-alone Corporate Responsibility (CR) reports the GRI application rate is at 72 percent (2013: 74 percent). The GRI reports by region for 2015, show GRI application in USA of about 69 percent, whilst Middle East and Africa show lower GRI rates about 50%.
Even in the midst of the IFRS adoption controversies in developing countries, there is a new move towards integrated reporting, a more comprehensive model that encompasses significant elements of traditional reporting and environmental, social and governance reporting within a single presentation (KPMG, 2011); of course, and firms have been put under increasing pressure from a variety of stakeholders to integrate social and environmental considerations into their operations and to ensure higher standards of governance. Only few countries have mandated the use of integrated reporting, but, there have been evidence of voluntary participation worldwide. The largest companies in Denmark are now obliged to report on non-financial information while South
Africa has made significant progress in addressing the challenges of IR by mandating all listed entities to issue annual integrated reports instead of annual financial and sustainability reports.