By Carol Adams
As non-financial reporting increases in volume and importance to a range of stakeholders, it becomes an important part of any Corporate Reporting course. Approx. 260 MSc Finance and MSc Accounting students at Durham University Business School were asked to review the non-financial reporting of three banks, HSBC, RBS Group and Standard Bank Group and decide which they’d prefer to work for and which they would invest in for the long term based only on (recent) non-financial reports. The purpose of the exercise was to familiarise them with the contents of non-financial reports (including Strategic Reviews and Integrated Reports), develop their skills in critiquing them and get them to think about what information is important. Their views send a signal about the direction in which non-financial is unfolding and, in particular, the influence of integrated thinking on perceptions.
How the three banks report
The three banks HSBC, RBS and the Standard Bank Group have quite different non-financial reporting.
HSBC (4th largest bank in the world) was an early supporter of integrated reporting. Although it has never produced a report referred to as an integrated report its reporting now follows the IR Framework quite closely. In separate annual and sustainability reports for the year ended 31st December 2012 HSBC (arguably) failed to demonstrate integrated thinking and were (arguably) a long way from what was considered best practice in integrated reporting. But for the year ended 31st December 2014 HSBC changed its reporting package and produced a separate Strategic Report (now mandatory in the UK) and an Annual Report and Accounts. It stopped preparing a separate sustainability report, instead placing some sustainability information on its website. HSBC continued this approach to reporting for the year ended 31st December 2015.
The RBS Group (20th largest bank in the world) also produces a Strategic Report under the UK Companies Act. It has published a separate Sustainability Report from 2009 onwards and previously a Corporate Responsibility Report.
Standard Bank Group
The Standard Bank Group (SBG) which operates in 20 African countries has produced an integrated report since around 2010 as required by the South African King III Code together with a number of other specific reports.
Preparation and Questions
During a seminar students then considered the following questions in groups of approx. four:
- What are the reasons for the increase in non-financial reporting such as integrated reporting and sustainability reporting?
- You have job offers from each of these banks. Like many potential employees you decide to review the non-financial reporting of each bank as part of your decision making process. Based solely on this non-financial reporting, which of the three banks would you chose to work for? Why?
- You have been given a significant lump sum to invest in shares for your retirement with a condition that you invest all of it in one of these three banks. As part of your decision making process you review the non-financial reporting of each bank. Based solely on your review of the non-financial reporting which bank would you select to invest in. Why?
How the students answered
The responses across the two degrees on which the Corporate Reporting course is compulsory are summarised below.
Reasons for increases in non-financial reporting
- Investors seeking additional information to inform their investment decisions
- Increase in intangible assets as a proportion of company value
- Increasing significance of environmental, social and governance risks and opportunities
- Development of frameworks, increased Stock Exchange requirements, increased regulation
- Increasing demand for broader accountability by stakeholders
- Desire to attract the best staff
Which job offer would you accept?
Job satisfaction through working with a bank whose values are aligned with the job seeker was critical. This included having a focus addressing customer needs and social and environmental issues so that the prospective employee could feel proud of the bank they worked for. Other factors considered were: the training available; gender diversity at senior levels and promotion opportunities for women; rewarding positive behaviours (HSBC); and, the work culture.
Not surprisingly, students used the reports to form a judgement about the reputation of each bank. SBG’s focus on innovation, commitment to the African region and the way the report addressed broader stakeholders were attractive. Its extensive human capital reporting and coverage of how employees create value for shareholders were also noted. Its position on HIV and Aids got a mention, the point being, that addressing social and environmental issues was considered important for pride in the bank they worked for and job satisfaction.
Overall, scoring based on the rankings by 52 groups of students, found the Standard Bank Group and HSBC equally favoured as the bank to work for with HSBC having a distinct advantage with this predominantly female Chinese student cohort due to its links with China. RBS trailed some way behind and was judged to provide less information than the other banks about opportunities for graduates with SBG having the most.
My comment: HSBC’s report is considerably better than its previous somewhat disjointed non-financial reports which gave the impression of a bank with a number of personalities. Its section on ‘who we are’ and ‘our role in society’ on page 4 speaks to the concerns of Gen Y. It reports a broad range of interesting non-financial indicators (page 5). Its values (pages 34-35) and social and environmental engagement and actions (page 36) appeal to prospective employees. But its gender diversity record (page 38) is poor. SBG put considerable effort (and space) into their human capital reporting (pages 58 – 63), including how their people contribute to value creation and discussing how they develop and reward their people.
Which bank would you invest in?
Information considered by students in deciding which bank to buy shares in included; a statement of how the organisation creates value and a description of its business model; risk management and governance processes; strategy and progress in achieving it; information about investment across the six capitals, such as investing in technology and people. RBS’s focus on customers was thought to be important for the bank’s long term success and SBG were praised for their focus on long term value creation and approach to it and transparency with respect to risks of investments. Scoring based on the ranking of banks showed that the Standard Bank Group was preferred, followed by HSBC and RBS.
My comment: HSBC clearly identifies its distinctive advantages, including the advantages of its international network (pages 14-15 & 46). RBS demonstrates less integrated thinking than the other two banks and its coverage of non-financial indicators is not as extensive. Although, like HSBC, it is required to prepare a Strategic Report, with many similarities to an integrated report, it has not had the long commitment to moving towards integrated reporting and integrated thinking that HSBC has. On the plus side, RBS has an experienced board (pages 38-40), but discussion of performance up front (pages 2-3) is mainly on financial performance, thus not providing investors with key non-financial performance data (see page 4). The SBG report demonstrates a sound materiality process (page 4) with a strategy responding to material issues (pages 22 – 23). It reports on the six capitals (page 5) and how they contribute to value creation (pages 12 and 13).
Credibility of non-financial reporting
It is interesting to note that the ranking across 52 groups of students corresponded to the experience the banks have had with integrated reporting. However, non-financial reports need to be viewed with a degree of sceptism. Descriptions of processes (for example, in relation to materiality), quantified data, reporting of targets and performance against targets, reporting on governance processes and non-financial assurance add to the credibility of the data.
 Some video and written material of senior executives at HSBC speaking in support of integrated reporting is linked from https://drcaroladams.net/the-banking-sector-and-integrated-reporting-focus-on-hsbc/
 Required by the UK Companies Act. The Financial Reporting Council has provided guidance on the content of a Strategic Report at https://www.frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/Guidance-on-the-Strategic-Report.pdf
 See https://drcaroladams.net/hsbcs-corporate-reporting/ for a review of its 2014 reports.
 A review of its 2013 Sustainability Review is available at https://drcaroladams.net/rbs-sustainability-review-2013-building-trust-integrated-thinking/
 See https://drcaroladams.net/changing-the-way-business-is-done-south-african-integrated-reports/ for a review of SBG’s 2013 integrated report.