Recent evidence has shown that private social, ethical and environmental reporting (SEER) has started to grow and has become an important aspect of private dialogue and engagement between companies and their core institutional investors. This growth is accompanying the shift of socially responsible investment (SRI) from marginal to mainstream institutional investment. A recent report emphasised the importance of an evolving dialogue between institutional investors and companies, with specific mention of ‘softer’, non-financial issues, as a means of restoring trust in UK financial institutions. Indeed, research has shown that in the last couple of years, private SEER has become increasingly dialogic in nature, with both institutional investors and their investee companies initiating engagement. However, there is no discussion in the existing literature of specific mutual benefits of the private SEER process to investment institutions and their investee companies, or of the potential outcomes of this process. In this paper, we seek to address this gap in the research using a series of interviews with UK listed companies. Specifically, the interviews aimed to shed light on the following: the extent of private SEER; mutual benefits deriving from private SEER; influences on private SEER, and potential outcomes of the private SEER process.

One strand of literature has been dedicated to shareholders’ (especially institutional investors’) views concerning the decision-usefulness of publicly available SEER. The research has employed a broad range of methodologies, including questionnaire surveys, experimental studies, and stock price reaction studies. The results have been mixed, but the overall impression is that over the last 30 years, SEE information has become increasingly decision useful. One of the main reasons why SEE issues are becoming increasingly important for companies and shareholders is the growing awareness that SEE risks are linked closely to company reputation and consequently to financial performance. The Turnbull Report (1999) brought risk management onto centre stage by proposing an explicit framework for internal control to UK listed companies. One of the outcomes of the Turnbull Report was an emphasis on improving non-financial risk management, especially SEE risks. However, despite the perceived usefulness of public SEER, research has also indicated that the SEE information disclosed in companies’ annual reports has been considered inadequate by the UK institutional investment community. Indeed, public SEER has been considered highly qualitative, incomparable and of minimum use for investment analysis. Partly as a result of these inadequacies, private dialogue in the SEE area has started to evolve.

Despite an ever-growing wealth of literature in the area of public SEER, research into private SEER is in its infancy. This reflects, to some extent, the embryonic nature of private disclosure in this area. However, it may also reflect the inherent difficulties involved in researching private communications between institutional investors and their investee companies. Access to investment institutions is not easy, and asking questions about private communications is unwelcome, because of confidentiality and concerns about insider information. Indeed, there is relatively little literature focusing on the process of private disclosure in general. The extant work on private channels in financial reporting has shown that communications between institutional investors and their investee companies have grown substantially in the last decade, have provided an important complement to public financial reporting in general, have to some degree filled information gaps in public disclosure, and have informed the public disclosure process. In contrast, research into the specific area of private SEE disclosure is embryonic.

One study found that most SRI funds were not engaging in constructive dialogue with their investee companies on SEE issues. The private disclosure process was found to include little face-to-face contact, relying mainly on requests by SRI funds for information from investees via letters, questionnaires or telephone conversations. The researchers concluded that the SEE engagement process was undeveloped and uni-directional, with information being passed to enquiring institutional investors in a didactic, uncritical manner. This conclusion was echoed by a professional research report, stating that the current state of communication between the SRI community, companies and mainstream investors was ‘confused and frustrated’. The study focused exclusively on members of the ethical investment community, which meant that the views of the mainstream, non-SRI-specialist investors were not represented in the research. Therefore, the extent of private dialogue between mainstream institutional investors and investees on SEE issues within the agenda of the complete process of private disclosure was unlikely to be revealed. The research however, indicated that SEE engagement was evolving.

Another strand of research employed interviews with mainstream institutional investors, rather than solely members of the SRI community. The study revealed an increasing interest in SEE issues, as well as a significant growth in the incidence of SEE issues appearing on the agenda for private meetings between the institutions and their investee companies. Indeed, this study showed that not only was private SEER developing rapidly, but that it was also becoming dialogic in nature. In other words, not only were institutional investors using the private disclosure process to obtain additional information from their investee companies on SEE matters, which supplemented public SEER, but also companies were beginning to use private dialogue to inform the public disclosure process. Both parties appeared to be initiating a mutually beneficial learning process. This suggests that a more intimate relationship of mutual trust may be evolving between these two powerful groups in society. Companies were starting to ask institutions about the type of information they required in public disclosure, indicating an interplay between private and public SEER. These findings were in stark contrast to those concerning stakeholder engagement, where little genuine dialogue or accountability were detected.

The importance of dialogic SEER in the public arena has been explored by Thomson and Bebbington, 2003 and Thomson and Bebbington, 2004. They demonstrated, from a pedagogic perspective, that the ‘learning’ process of SEER should be dialogic and should not imitate a ‘banking’ approach, as SEER can be viewed as a process of education. They stressed the need to encourage stakeholder dialogue, which would inform public SEER and enhance corporate accountability. The analysis was drawn from the paradigm portrayed in Freire’s (2004) ‘Pedagogy of the Oppressed’. Banking-type education involves downloading information on students, without encouraging critical reflection. Freire (2004) explained that whereas banking education anesthetizes and inhibits creative power, dialogic, ‘problem-posing’ education involves a constant unveiling of reality. Banking education maintains the submersion of consciousness whereas dialogic education reveals consciousness and critical intervention in reality, such that,

“Banking education … attempts, by mythicizing reality, to conceal certain facts which explain the way human beings exist in the world: problem-posing education sets itself the task of demythologizing. Banking education resists dialogue; problem-posing education regards dialogue as indispensable to the act of cognition which unveils reality”.