Meaningful communications are challenged by compliance-driven annual reports
By CEO and communications advisor Lars Sandstrøm, Corporate Relations
The largest Danish companies have submitted their first annual report fully complying with the Corporate Sustainability Reporting Directive (CSRD). These reports are quite comprehensive, data-driven and technical when it comes to the integrated sustainability statement. But two questions must be asked: Do the current annual reports communicate in a meaningful way, and do they drive action?
My assessment of around 50 Danish large (primarily listed) companies’ annual report is clear: They are playing by the book and have launched reports that are very true to the prescription defined by the European Sustainability Reporting Standards (ESRS). Danish companies are best-in-class – at least when it comes to compliance.
Beyond compliance
However, when it comes to sustainability there is potentially a big difference between reporting for compliance and communicating in a meaningful way – and even between being compliant and conducting real, impactful and business-oriented action.
One could fear that time and resources have been spent on administrative burdens and less on pursuing business opportunities related to the implementation of innovative and sustainable solutions. This is of course also the evaluation coming from EU, and the reason for the Omnibus Regulation packages presented the 26 February 2025. The purpose of this is obviously to reduce bureaucracy and administrative burdens.
A potential for meaningful communication
As a communications advisor, I am primarily concerned that annual reports are getting too complex and too technical for the average reader to comprehend. That is not the spirit of the new regulations. By contrast, with the integration of sustainability in the annual report, you are (potentially) broadening the audience of the report from a group of primarily financial institutions, analysts, investors and regulators to a group also including organizations, partners, employees and even customers and consumers.
It remains to be seen whether companies are able to communicate in a relevant and meaningful way to this broader target audience, or whether the potential for good and effective communication are drowning in the sea of bureaucracy, rules and regulations – or whether the new Omnibus package will be a push in another direction.
Guidelines for inspiration
In this article, I am providing 10 guidelines to improving the communication of value creation in the integrated annual report. These guidelines are not changing the concept, form and structure of a typical annual report. On the contrary, I am presenting best practice examples of elements that are already present in some annual reports from Danish companies. As such, it is my hope that these guidelines and examples will provide ideas and inspiration to other companies in their efforts to improve corporate reporting going forward.
Guideline #1
Create a concise equity story
– the reason to invest and do business with your company
You could say that all a company communicate is part of the common equity story. You could even say that the equity story – like a brand image – is co-created by all internal and external stakeholders. However, many companies are also directing readers’ attention to an official equity story in the annual report.
This equity story can be directed towards potential investors with a headline like: Why invest in our company? But some are presenting a broader equity story communicating why different stakeholders should choose to have relations with the company. In this way the equity story is taking form of a corporate story.
There are differences in the building blocks of the equity story. Some have a financial focus with technical arguments for an investment, while others have a more holistic focus including elements like culture, working conditions, products and services, sustainability measures, management, ethics, and image. Elements that are typically directed towards customers, partners, political decision makers and employees.
The tone-of-voice, format and topics covered are very much dependent on the purpose of the story and the stakeholders you want to approach.
Nilfisk presents the equity story in a brief and appealing way with a focus on relevant reasons to invest in the company.
Guideline #2
Make an appealing executive letter to describe performance, progress and plans
With the integrated annual report increasing in number of pages and complexity, the executive letter should take a more prominent and important position in the report. Many readers may only read the letter and skim the rest of the report. This makes it a case with a need for special attention.
In many annual reports the letter is co-written by the chairman of the Board and the CEO. This is a way to demonstrate that top management is following and agreeing on a common and coordinated strategic course for the company. Two letters are not recommendable, as the messages tend to overlap or signal that the Board and executive management have two different takes on the company results and progress. One common letter signals alignment.
The letter should be neutral but personal. The current figures should be presented and explained, and the expectations for the future should be communicated in light of historic experiences, market trends and business risks. However, the letter should leave room for analytic assessment and evaluation.
The letter should not be emotional. But it should demonstrate a human touch in recognizing the efforts of employees and partners, in describing the role of purpose, values and culture, and by communicating how the company is handling its impact on environment, people and society.
The CEO and Chair of ISS are describing the results and value creation achieved in 2024 but also use the letter to explain the transformation of the company and business.
Guideline #3
Illustrate the business model to clarify the foundation for value creation
– now and in the future
The communication about business model has taken a more and more prominent role in corporate reporting in recent years. This is not only related to the need for compliance, but to the readers it also serves as a shortcut to understanding how the company creates value and how it is positioning itself in the value chain.
The business model typically describes the resources/input that companies are relying on, the operations (the core business) that defines the unique offering, and the value creation/output or impact that is the result of the business operations. Often some kind of value or supply chain is included in the model as well as the purpose.
It is a clear trend that the business model visualization as well as description has been improved for many companies in recent years. But the content of the business model has also changed for companies who see a need to include a stronger focus on impacts, risks and opportunities related to a focus on ESG topics. In this way, the business model is moving from a shareholder to a stakeholder perspective and presents a balanced and holistic perspective on the value creation of the business.
ALK’s business model is illustrated in a simple and easy-to-understand way showing both the internal processes, the resources used, and the results created in 2024.
Guideline #4
Explain the company’s position and role in relation to current trends in industry, market and society
It’s relevant for companies to describe how they are responding to trends in society, market, and industry to be able to meet customers’ and consumers’ demands – and to be able to develop a unique position and brand image.
There are many ways to describe trends. Some describe business opportunities in the light of general megatrends, some describe external and internal trends affecting their business in both positive and negative ways, and some describe specific industry and market trends, their impact on business strategy and operations and how the company responds to these trends and impacts.
Reflecting on trends is a way to demonstrate that the business model. strategy and position of the company are aligned with the current development in technology, markets and regulations, and that the company’s products and services are relevant now as well as in years to come. Companies analyzing and understanding the implications of trends are also the ones that are able to respond and to be innovative in order to maintain or further develop a unique market position.
NKT is describing markets and megatrends, and how these trends are expected to impact on the power cable market in the short-, medium- and long-term perspective.
Guideline #5
Illustrate and explain the position and significance of material topics as part of the value chain
An illustration of the value chain can serve several purposes. It should illustrate the services, products or solutions that the company is providing as a part of a larger B2B value chain – or in a direct relation with customers or consumers. The value chain should include the resources provided upstream, the company’s operations and the positive and negative impacts related to its downstream activities.
The value chain could be a linear process, but it could also illustrate as a circular process including regenerative processes with a focus on recycling.
Some value chains are very specific in their design and explanation on the specific processes carried out in different parts of the value chain. This is insightful. However, it is also recommended to illustrate if these processes – and the included stakeholder relations – are connected to specific material topics (defined by a double materiality assessment (DMA)). Illustrating and mapping your value chain is an integrated part of the DMA process that not only forces you to discuss how relations and processes should be presented externally. It also serves as an internal tool for discussing how the company operates, if impacts and risks could be reduced, and if changes could be made to reap more benefits from the company’s role and position in the value chain.
FLSmidth determines the location of the impacts, risks and opportunities in the value chain. This makes the focus on all parts of the value chain very illustrative.
Guideline #6
Communicate progress in meeting ESG-targets in an easy-to-overview way
Target-setting and –communication is an essential discipline within corporate reporting. It is a part of being compliant with the CSRD/ESRS, and it is a way for companies to demonstrate that they are ambitious and serious in their efforts to meet important ESG goals.
Most large companies have defined and are reporting clear targets for the ESG strategy and are reporting on results and improvements on a year-to-year basis. Often these results are not only internal but are also concerning material parts of the supply chain. And when it comes to greenhouse (GHG) emissions, targets are increasingly science-based to ensure transparency and comparability, and to ensure companies are heading in the direction towards living up to the 2015 Paris Agreement. However, it is not always clear how far companies have come on their way to meet these targets, when these targets were defined (baseline), and whether companies have reset targets in the process (often known as target-washing). Illustrations/ info-graphics including targets and progress will enhance readers’ understanding and evaluation of companies’ ESG measures.
Rockwool illustrates its goals and progress on eight ESG performance indicators/highlights in very simple and decodable way.
Guideline #7
Disclose the salience and engagement of stakeholders
Stakeholder analysis, engagement and mapping is a strengthened discipline in many companies. This is not the least due to the CSRD, which includes a number of provisions that are designed to improve stakeholder engagement.
For example, companies are required to disclose information about how they have consulted stakeholders in regard to the double materiality assessment and in relation to the due diligence processes that must be described in the sustainability statement. This will help to ensure that companies are taking into account the needs and concerns of their stakeholders when they make decisions about sustainability measures. There are several ways to illustrate and describe the salience and engagement of stakeholders. However, it is essential that this overview brings an adequate image of the salience of the stakeholders and the nature of the relations and dialogue between the company representatives and defines stakeholders. Also, the outcomes of engagement and dialogue should be part of the overview of stakeholder relations.
A.P. Møller-Maersk describes the key stakeholders in a brief and relevant way. It is stated how the company engages with them and how this input is used to strengthen business relations and operations.
Guideline #8
Explain the due diligence processes related to ESG – and the outcome
If you are to comply with CSRD, it is mandatory to describe the due diligence processes related to ESG – and with the Corporate Sustainability Due Diligence Directive (CSDDD) you must expect a more intensified focus on due diligence processes and topics from regulators, authorities, investors and customers.
Companies are increasingly aware of their position and responsibility in the supply chain. To manage your supply chain is not just about delivery safety, quality and costs, it is also about ensuring that your suppliers comply with national and international rules and standards for human rights, privacy, use of data, trade, anti-corruption, diversity and inclusion, labor rights and payment, etc.
More and more companies are therefore taking a systematic approach to describing how they manage suppliers, conduct due diligence processes, and make sure they do business with companies that live up to high standards, both operationally and in regard to ethics and responsibility.
However, companies need to go further by not only focusing on upstream and their own operations, but also on their downstream operations. Due diligence must cover the full value chain, and corporate reporting should also focus on how companies’ products and services are marketed, sold, used, thrown away or recycled.
Ørsted describes the due diligence processes related to sustainability. Also, there is reference to due diligence elements included in different parts of the report.
Guideline #9
Communicate the value of developing the working culture, employee engagement and DEI-programs
Describing initiatives and results in relation to working culture and employee engagement is an essential part of corporate reporting. Especially, the terms diversity, equity, and inclusion (DEI) have been hot topics in corporate reporting in recent years.
The description of results and measures on these terms includes a lot of variety from one company to the next. It is regulatory to describe gender diversity, but diversity includes much more and should also be reported in regard to e.g. nationality, educational background, job functions and possibilities for personal growth and development. Also, when it comes to inclusion companies could describe how they help people with disabilities or how they work with NGOs or local communities create meaningful jobs.
The role of culture, engagement and DEI should also be reported in relation to the strategies and actions focusing on recruitment, retention and other employer branding activities.
These topics should not be subject to pure storytelling. Companies should use relevant measurements to document their results – this could include surveys on engagement, loyalty, and leadership, measurements of participation in training and education, and calculations on employee growth, new hires, and retention rate. Just to mention a few ways to develop data-driven reporting on people and culture.
Pandora is communicating its targets, results and initiatives for diversity, equity and inclusion in a way that demonstrates commitment and progress.
Guideline #10
Connect UN’s Sustainable Development Goals to the targets and initiatives within ESG
With a comprehensive framework of laws, directives and standards to guide corporate reporting, this discipline is to an increasing extent becoming somewhat complex and technical. E.g. understanding the implications of the sustainability statement is not an easy task to non-advanced readers.
Many companies have adopted UN’s Sustainability Development Goals (SDGs) as a way to understand and direct actions to support specific goals and the Paris Agreement (2015). SDGs are important guidelines to nations, companies and people around the world and serve as a common language for sustainability. In this way, the SDGs are also relevant as a complementary framework to communicate the value of a company’s sustainability strategy and its specific priorities in light of the SDG’s.
The position and role of the SDGs in the annual report can take many forms. However, it is important that the use of the SDG’s and the illustrative icons is not just graphic decoration of the report, but that the connection of SDGs to the strategy and operations is explained and documented. If you include SDGs in reporting, they must be expected to be a focus for discussion and prioritizations in top management.
Lundbeck is integrating the UN SDGs into the annual report illustrating how this correlates with the company’s priorities and the DMA.
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More info
Get the full report ”Guide 2025 – Corporate Reporting” from www.corporaterelations.dk/annualreport