HSBC’s Corporate Reporting

HSBC 2

by Carol A Adams

My interest in HSBC’s Corporate Reporting stems from its strongly voiced support for integrated reporting.  Having reviewed their 2012 Sustainability Report and Annual Report and Accounts I was keen to see what progress had been made.

The reporting package for the 2014 year comprises a Strategic Report and an Annual Report and Accounts (almost 500 pages in length) which includes the Strategic Report as required (for financial years ending on or after 30th September 2013) by the UK Companies Act 2006 (as amended in 2013).

The separate Sustainability Report has been dropped and replaced with three pages of (largely qualitative) information in the Strategic Report (plus additional information on employees), the provision of various Communications on Progress to UN bodies and an odd selection of quantified information in a two page Key Facts document.

Connectivity

The 2012 Sustainability and Annual Reports gave quite different impressions of HSBC, the former being something that staff could be proud of and the latter an inevitably somewhat soulless compliance document.  Further the discussion on risks in the annual report lacked analysis of the Environment, Social and Governance (ESG) issues discussed in the Sustainability Report.

The 2014 reports demonstrate some improvement in the connectivity of information perhaps facilitated by the required content of a Strategic Report. But some loose ends remain.  For example, the top and emerging risks identified on page 22 do not discuss the megaforces impacting on global businesses identified by KPMG (2011) or Environmental and Social risks.  The bank does not appear to connect such risks with long term performance.  The contextual issues and challenges mentioned in the report are similarly narrow.

However, on the positive side, the Chairman’s statement links making a positive contribution to society with overall (long term) business success. It would be nice to see this argument developed.

Material issues

It was unclear how material issues had been determined as reflected in the above discussion.

Value creation story

There is an acknowledgement (see page 1) of the importance of delivering long term sustainable value “to all our stakeholders” but HSBC does not take the opportunity to tell a broader value creation story.  For example, it talks about its ability to connect customers around the world being central to the bank’s strategy but does not say how this ‘social and relationship’ capital (to use <IR> terms) creates value for stakeholders and providers of capital.  The same applies to the innovative sustainability initiatives discussed in the report which create value for customers and assist in the maintenance natural capital, but are not part of the overall value creation story told by HSBC.

Somewhat unusually philanthropy is identified in a board subcommittee title. The term philanthropy implies ethical values and also costs to the company and is not obviously linked with value creation. A ‘social investment’ strategy could instead be linked with value creation for HSBC’s providers of finance as well as social good.

Similarly HSBC have not made a clear link between the investments and initiatives concerned with employees and value creation.  In a service sector people (or ‘human capital’ in <IR> terms) are critical to value creation in the broader sense of integrated reporting.

Helping employees see the positive effects of HSBC’s strategy (identified on page 19 as needing attention) would be facilitated by an integrated reporting approach which told readers how HSBC’s efforts to increase ‘social & relationship’ and ‘human capital’ and to avoid reducing ‘natural capital’ creates value for stakeholders in broad (i.e. beyond financial)  terms.  This again refers to the lack of elaboration on broader issues in the value creation story.

The business model

The business model is discussed largely in financial terms without reference to broader (non-financial) capitals.

The inclusion of non-financial measures linked to strategy in Executive scorecards should assist in increasing focus on broader measures of value creation and improving long term performance. However, countering this, the Chief Executive’s review focuses almost entirely on financial performance with only the penultimate paragraph addressing broad value creation.

In conclusion

Overall some progress towards integration has been made, but I would like to see the separate integrated report HSBC once envisioned and a concise statement of how the Bank creates value beyond financial profit. And please bring back the sustainability report.  Refresh it, put it on the web, but bring it back in some form.

Corporate reports tell readers a lot about an organisation –in terms of what they say, what they don’t say and how they say it.

References

KPMG (2011) Expecting the unexpected

 

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