Annual Reporting: Is purpose hot air?
Purpose is either the northern star of your annual report or nothing at all. We asked analysts, investors and key employees what role the company purpose plays in annual reports — and it looks like it’s a dividing topic.
The Annual Report season has come to an end. Or so it could seem. Just as we’re done reminiscing over the year that has just passed, the scouting for upcoming milestones and touchpoints begins. Committed to learning from our experiences, we continue our 365-day journey of annual reporting. During the course of six articles, we’ll present our most essential takeaways regarding performance, purpose, ESG, exposure & opportunities, words & visuals, and format. Using our focus model — How key stakeholders prioritise content and communication in annual reports as our backbone. Here’s what to focus on when scoping your company’s purpose in the reporting season of 2023.
Purpose is important. No doubt about that. But it is also dividing your readers into two groups. The ones who think that purpose is a bice to have — the investors and analysts. And the ones who think of purpose as a need-to-have — your employees.
From the research for our study Trends in danish corporate reporting vol. 2 — Understanding key stakeholders made in collaboration with Simply Revolution, we quickly realised that the audience is split in two when it comes to the question of what role the company purpose plays in annual reports.
For your employees — current and prospective — purpose is the North Start of your Business. And for that reason, it should also count as the primary parameter connecting all sections of your annual report, scope the narrative, and all-in-all tie everything neatly together as a cohesive story.
“I’d like to see the outlook in the context of the company purpose. There should be a red thread connecting the core activities to the plans for the future.”
— Employee, Team lead
The way you link your performance to your purpose in your annual report — and show how it directs everything you do — is key to gaining their trust.
Reflecting purpose clearly in an annual report is important. You should start with purpose — preferably in the letters — and use it to give direction throughout the report. The report should show how purpose is used to create value — to make sure it’s not just words on paper.
Head of global communications
Professional investors and analysts would prioritize the company purpose in another manner. It comes second after the performance. Their scepticism towards purpose grows from seeing too many company purposes that are too fluffy or generic. Put in other words — it might not be a question of voting the purpose in or out, but rather a call to action to handle purpose with great precision:
I think a lot of companies have set out a purpose but the purpose statements aren’t very good and they don’t necessarily have ambitions linked to them. It should be more concrete and more differentiated.
If purpose is to work as the narrative core of your annual report, it needs to be on point and thorough:
“When the purpose and the business model are aligned it is very powerful and creates the most stakeholder value.”
— International investor
Let’s exemplify it …
We’ve worked with 11 different companies crafting 8 annual reports, 2 integrated reports and 4 sustainability reports and a wide variety of other reports.
In the discussion around purpose, we circle back to all reports we’ve been helping with. It’s our main priority to present a clear and thorough purpose that works as exactly the core narrative in an annual report — as the Professional investors and analysts request. One great example is the annual report by Novo Nordisk.
Novo Nordisk is using Purpose as a red threat throughout their entire annual report — starting with their CEO/Chair letter stating purpose as an essential driver for growth.
Following the introductory letter, we glimpse Novo Nordisk’s corporate strategy. Again with an obvious marker for their company purpose.
Novo Nordisk’s annual report perfectly links its business value creation with sustainability goals and purpose. Especially their sustainability business and purpose have a connection, which has been present since 2004.
Your purpose is the reason why your business exists. It’s the driving force behind your operations, decisions, and goals. By communicating your purpose in your annual report, you can ensure that your stakeholders understand why your business exists and what you’re trying to achieve.
When that is said: You need to be consistent and precise in your communications around purpose. And even more important is it that you react and scope the company’s future according to your company purpose. Else it is looked upon as nothing but hot air. But if you succeed in doing so, the purpose sets you apart from your competitors and gives your stakeholders a reason to believe in your business.
Being consistent about your company’s purpose is a strong catalyst for attracting new talent as well as new stakeholders. It waters the relationships your company already has, ensuring that goals and beliefs are aligned, and helps you stay focused on your goals.
But we cannot stress enough that it is crucial to be transparent and consistent when building your company goals and annual report on your purpose.
Learn more about the case
From scale-up to enterprise