Annual reports are fast becoming political treatises

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What are the chances that a European company could describe the operating environment of the past year without mentioning the words “Russia”, “Ukraine” or “war”?

You might think it would be impossible. But you would be wrong.

Swiss insurer Helvetia has managed to do just that in its 2022 annual report, despite the invasion of Ukraine triggering roaring inflation, an energy crisis and disruption to supplies of everything from grain to fertiliser to metals. Even if Helvetia mentioned the war as a post-balance sheet event in its 2021 accounts, with a fleeting reference in 2022’s first-half results, failing to bring up the conflict in last year’s annual report seems like a glaring omission.

The company’s take on 2022 is just one of several unexpected approaches taken by European companies in their most recent annual reports. In stark contrast to Helvetia is Swedish online bank Avanza. In his letter to shareholders, Avanza’s chair and founder Sven Hagströmer urges Ukrainians and the west to “break the back of the Russian bear”, and describes the invading country as an “evil and unreliable power”. 

A niche Swedish bank run by an outspoken entrepreneur could be an outlier. Except that even Euronext, Europe’s biggest stock exchange group, has decided now is not the time for the usual corporate diplomacy when it comes to the region’s politics. In its annual report, Stéphane Boujnah, the European exchange’s chair and chief executive, stresses that Russia’s invasion of Ukraine “has demonstrated very clearly the need for reinforced European cooperation and a strengthened European Union”.

German metals group Aurubis warns that Russia is “weaponizing” energy, while Swedish property developer Fabege says that the war has “blurred the line between reality and fiction in an unreal and frightening way”. 

The emotional intensity of many of this year’s reports is understandable given the recent extraordinary events. But it raises the question of whether these documents are evolving as companies feel increasingly compelled to take political positions.

Annual reports are not just financial summaries. They are “strategic” documents, carefully drafted to address a company’s perceived accountability to stakeholders, says Hendrik Vollmer, associate professor of accounting at Warwick Business School. In the past, companies tried to avoid appearing biased, he tells me. But as the definition of accountability has been extended — to environmental commitments, for example — “there has been something of a dam break”.

Being accountable means taking a clear position on what needs to be done, according to Hagströmer. “Companies should be more outspoken politically. They are part of society,” he says.

That view has become more common over the past decade as companies embrace corporate social responsibility. “If you go back to the 1980s or 90s, when companies talked about social responsibility they would donate money to build a stadium or support a sports team,” says Kaisa Snellman, associate professor of organisational behaviour at Insead business school. “Now CSR means that . . . as a CEO, you are going to speak up. Sometimes it will offend your customers . . . [or] your employees. And sometimes . . . your investors.”

In some respects, that may not be a bad thing. A recent study found that companies that came in highest or lowest on a well-known ranking of LGBTQ policies were rewarded by investors with share-price rises, while those in the middle were ignored. It was not about who had the most inclusive policies, but who had the clearest position.

“Not taking a position will make both sides hate you,” says London Business School assistant professor Aharon Cohen-Mohliver, co-author of the study. “People have to believe you are sincere and for that you have to bear some cost by using language that is very strong and clear.”

There are obvious risks in taking public positions on these issues, as companies such as Disney have discovered. Yet Mohliver believes more companies will be willing to do so in future in order to differentiate themselves from rivals. “The more you see companies take a position on one side, the more the market opportunity increases for taking a position on the other side,” he says. 

Meanwhile, Avanza’s Hagströmer has no intention of holding back. “What is going on in the world really affects markets,” he says. “If everybody is affected, why should it not be in annual report? It’s the elephant in the room.”

peggy.hollinger@ft.com