Companies testing a new type of financial reporting that is meant to be clearer and more concise are “greenwashing” their annual reports to give an overly optimistic view of their performance, research suggests.
The research, led by the University of East Anglia (UEA), examined some of the companies in a pilot programme to produce “integrated” reports – combining information on a company’s performance based on environmental, social and governance measures, rather than publishing them separately, as what usually happens now.
An integrated report is supported to give an accurate and balanced view of all aspects of a company’s performance. But the research found that if a company’s financial performance was weak, its integrated report tended to be “significantly longer, less readable and concise, and more optimistic”.
The researchers also found that companies with worse “social performance” provide reports that are “foggier” and disclose less information on their environmental, social and governance issues.
Gaia Melloni, a lecturer in accounting at UEA’s Norwich Business School, said: “Our evidence implies that early adopters of integrated reporting manipulate the content and tone of their reports as an impression management strategy. The lower the performance, the poorer the disclosure.”
More than 80 global companies are testing a version of integrated reporting. The aim is to give investors and shareholders a broader picture of how companies make their money and their prospects in the short, medium and long term.
Supporters of the new approach argue that the way businesses present information in their reports has not kept pace with changes in business, politics and society.
In response to the Richard Howitt, CEO of the International Integrated Reporting Council (IIRC), a group representing regulators, investors, companies, standard setters and accountant, said: "One of the key principles of integrated reporting is conciseness. In an era of increasing demands for transparency, businesses must balance these demands with the need to provide concise, balanced and understandable information.”