Importance of CSR reporting in today’s era
The main purpose of the assessment is to review the reporting framework for Woolworths Ltd which has a successful operations in the retail sector. The assessment would be focusing on the CSR reporting framework and identify whether the business follows the elements of Integrated Reporting. In a manner, companion would be made between the CSR reporting framework and Integrated Reporting framework and conclude which process adds more value to the reporting process. Further the assessment would be covering the five types of capital covered in Integrated Reporting and assess whether Woolworths ltd follows the same or not. Further the assessment would be covering arguments as to why Integrated reporting framework is more suitable and further include recommendations for the senior management of the company.
In this modern era, lot of emphasis is given to social contributions which a company’s makes towards the society and further importance is given to the value which such companies add. It is for such a reason that CSR reporting has become mandatory in some countries so that the users can assess the performance of the company not only based on its financial performance but also on its social contributions (Integrated Reporting | Deloitte UK 2022). CSR reports are also prepared on an annual basis by the companies which highlights the main contributions which the business makes towards the wellbeing of the people and also states the future plans of the company. Alternatively there have been companies which have adopted the integrated reporting process wherein both financial information and social contribution information are presented. The integrated reporting framework incorporates both financial performance and social activities in a single report and this enhances the convenience for the users.
In this context legitimacy theory can be applied which can provide better clarity regarding the relevance of both CSR reporting and Integrated reporting framework. As per Legitimacy theory, a social contract exists between business and society, wherein the businesses are expected to contribute towards the needs of the society. The businesses are expected to uphold a positive image in the society through its contributions so that it can legitimize the overall operations of the company. In addition to this, the board of directors also needs to demonstrate to the society that the business is not just looking for profits but is also considering the interest of the community. On the basis of the theory, it can be ascertained that both Integrated Reporting and CSR Reporting are quite similar and both approaches can help the management improve on sustainability as well. Some of the main differences which can be identified are appropriately listed below:
- One of the main difference which can be identified is the composition of information which the reports cover. For instance, CSR reporting contains the social activities and contributions of the business mainly while in the case of integrated reports, financial and operation based information are also covered (Consulting 2013).
- In addition to this, CSR reporting also covers aspect of sustainability and is much wider for the users. In the case of integrated reports, information are presented in a more concise manner and only those information which are relevant for the investors are included.
- In the case of CSR reporting. Activities of the business are highlighted long with the future course of action which the business is looking to undertake. For an integrated reporting priority are sets and such information are disclosed to the public so that a level of transparency can be maintained.
Integrated Reporting has grown in prominence over the years which shows that the stakeholders are also interested in social contribution made by the business. Integrated Reporting framework considers different types of capital which are used in a business and assessed how the same creates value for the business. All businesses utilizes some form of capital and these forms the basic building blocks for the business model of the company. In integrated reporting terms, there are 6 types of capital which may be used businesses for creating value for the customers.
Applying legitimacy theory
For a further clarity, a breakdown of different capitals are presented in a diagram provided below:
In the case of Woolworths ltd, the senior management of the company has formulated a business, model which is based on sustainability practices. Further the board of directors have established different committees so as to ensure that rules and guidelines are strictly followed. The recent CSR report for the company shows that the business has infused his efforts for maximum results as yearly investments are made towards community development programs. The diagram shows that there are 6 types of capital and the diagram shows that layers in which the capitals ate bifurcated. In relation to this, proper explanation is provided below:
- Financial Capital: The financial capital usually refers to the pool of funds which is available to the management and such funds comprises of both equity and debt capital. The financial capital is utilized by the management to manage the day to day expenses of the company and ensure that operations never gets halted. In the case of Woolworths ltd, the annual report for 2021 shows that the management maintains both equity and debt capital in its capital structure and maintain a proper proportion so that any urgent obligation can be met effectively(Integratedreporting.org. 2022).
- Manufactured Capital: This is a form of capital which is human made such assets might also cover tools and equipment which has been implemented. Further manufactured capital are at their final stage in terms of value creation. In some companies, manufactured capital which is their products are sold and thereby are quite successful as well. In the case of Woolworths ltd, the core operations of the business is related retailing and therefore manufacturing capital is not much applicable(Simnett and Huggins 2015).
- Intellectual Capital: it was quite recently that the importance of intellectual capital become important in the market. The intellectual capital covers all the intangible assets which the companies possess as it is an important determinant for taking decision and is tied to the future growth of the company. In the case of Woolworths ltd, the business intends to make an innovative space so that strategies are developed for generating competitive advantage in future period.
- Human Capital: This type of capital basically gives idea regarding the workforce which is employed and the skills, diversity and overall culture of the business. It is to be noted that the responsibility of the management is to ensure that proper training plans are in place so that skills are developed and retained. For instance, the business of Woolworths ltd is one of the leading employers in the country of Australia and thereby provides ample opportunity for the employee to grow and develop.
- Social and Relationship Capital: Social capital refers to the relationship which has been developed between the company and its employees or suppliers or banks. The social relationship which is maintained by the business often can save companies from crisis situations. Further social and relationship capital interprets the contributions of the business towards the society(Melloni 2015). The CSR report for Woolworths ltd shows that management has engaged in several community development programs and has ensured that a level of effectiveness and efficiency is maintained in the operations.
- Natural Capital: This is a type of capital which is directly taken from the environment by businesses to use as resource for production. The concept of natural capital specifies that even natural resources have a costs for which the business needs to be accountable. The business of Woolworths are very much aware of its environment and makes most efforts for ensuring that the environment is not affected in any manner.
In case of integrated reporting process both financial information and social contribution information are presented. The integrated reporting framework incorporates both financial performance and social activities in a single report and this enhances the convenience for the users. The business of Woolworths ltd follow the traditional financial reporting process and issues a different report so that the people are made aware of the other social contributions which the company undertakes. Further the management of the company is quite focuses on enhancing the product value which is provided to the customers (de Villiers and Sharma 2020). In addition to this, the business follows a full disclosure framework which assures that accurate and relevant information would be incorporated so that a level of accountability can be achieved in the reporting process. The arguments which can be presented before the management of Woolworths ltd for adopting Integrated Reporting process are listed below in details:
- Integrated Reporting is a modern development which incorporates both financial and no-financial information in a concise manner in one report so that it enhances the overall convenience of the users. Further integrated reporting includes only those information which are relevant and can be used by investors for taking their own decisions. It can be considered as an upgrade from the traditional accounting statements to a modern version where proper information can be presented and the reporting framework for the companies can be made more attractive(Rinaldi, Unerman and De Villiers, 2018). Therefore, in an overall basis, it can be said that integrated reporting can improving the reporting structure for the company and thereby applicable for long term operations.
- One of the main reasons why integrated reporting should be adopted by a business is because it enhances the simplicity in the reporting framework of the business and ensures that the reports are prepared in a clear and concise manner. Further in an integrated reporting system information regarding the financial performance as well social contributions can be placed together which also helps in computing the environmental costs and ensures that accurate comparisons can be undertaken. In addition to this, the reporting costs for the business is also reduced which is an added advantage for the business and can help the business to enhance its own efficiency.
- Integrated Reporting can improve the internal efficiency of the business and ensure that accurate and relevant information are incorporated in the reports for the sake of the users. Further the integrated reporting framework would help the management to link the non-financial performance of the business directly to the main operations of the company. For the business of Woolworths which has a large scale of operations, integrated reporting framework would help in linking the activities and get proper idea regarding the overall performance of the business. It is on the basis of the same that the management can take decisions regarding how to improve the performance of the company further in future.
The integrated reporting framework is still in its development phase as new aspects are being added and updated so that a level of transparency is maintained. It is to be noted that many companies have already adopted integrated reporting framework due to its simplicity and other advantages. There have been some developments in the IR framework which are prominent for the future and thereby are assessed. One of the developments is the detailed investigation which has been undertaken by the IIRC which deals with the extent to which investors and analysts value non-financial information, the ways they use it and the benefits they see from integrated reporting (Massingham, Massingham and Dumay 2018). The findings of the investigation would surely bring about some changes in the reporting framework. Further it is expected that the overall effectiveness of the reporting process would improve.
One other major development which has taken place in IR framework which is related to reporting for climate changes. The report identifies that the businesses would be accountable for the losses due to climate changes and accordingly suggested counter measures which can reverse the situation. In an overall basis, it can be said that the Integrated reporting framework is the future and can help the businesses to achieve a level of accountability in its operations.
Reference
Consulting, C. (2013) Integrated vs. CSR Reporting | Clarkston Consulting, Clarkston Consulting. Available at:
https://clarkstonconsulting.com/insights/integrated-vs-csr-reporting/ (Accessed: 28 April 2022).
de Villiers, C. and Sharma, U., 2020. A critical reflection on the future of financial, intellectual capital, sustainability and integrated reporting. Critical Perspectives on Accounting, 70, p.101999.
Integrated Reporting | Deloitte UK (2022). Available at:
https://www2.deloitte.com/uk/en/pages/audit/articles/integrated-reporting.html (Accessed: 28 April 2022).
Integratedreporting.org. (2022) Available at:
https://www.integratedreporting.org/wp-content/uploads/2013/03/IR-Background-Paper-Capitals.pdf (Accessed: 28 April 2022).
Massingham, R., Massingham, P.R. and Dumay, J., 2018. Improving integrated reporting: a new learning and growth perspective for the balanced scorecard. Journal of Intellectual Capital.
Melloni, G., 2015. Intellectual capital disclosure in integrated reporting: an impression management analysis. Journal of Intellectual Capital.
Rinaldi, L., Unerman, J. and De Villiers, C., 2018. Evaluating the integrated reporting journey: insights, gaps and agendas for future research. Accounting, Auditing & Accountability Journal.
Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal.
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