Annual Reports – best practices and trends

This week we analyzed the annual reports from the top 10 companies in both the S&P 500 and the IPC to identify best practices, trends and what they include. First let’s take a look at the best practices for producing an annual report:

1. Set out your company’s vision, goals and achievements, especially in the CEO’s letter.
2. Provide the key data and events that took place during the year. This could range from new products to new relevant team members.
3. In addition to the financial statements and data, include key points in the body of the report with explanations. 
4. Use tables, graphs and images to help explain your point and make the report attractive and easy to read. 
5. Include ESG initiatives and achievements, including details on senior management, committees and the Board of Directors. Even if you produce a separate sustainability report you should still refer to ESG in your annual report. We recommend reporting ESG data under GRI or SASB standards.
6. Give a clear, concise and coherent message. Don’t produce a long report for the sake of it. 
7. Narrate a story to make your company memorable. One way to do this is to pick a theme for the report and ensure that you keep referring back to it. 
8. Use multimedia, and make sure the digital version looks really good. Few people will read the print version if it is not visually attractive.

For the purposes of this analysis, we classified company reports into three categories: financial report, sustainability report and integrated report. The results of this analysis are shown below:

S&P 500 Top 10

Source: Company reports

As we can see on the table above, all 10 companies provide us with a separate sustainability and financial annual report and none of them have integrated reports. Most financial reports follow the 10-K filing format with some light upgrades.

Here are some of our key takeaways form the annual reports:

• We were surprised to see that only Microsoft has an interactive financial report, all of the others just have the standard PDF. Also, Tesla includes an interactive impact report on their webpage where you can see their progress towards lowering CO2e emissions. Johnson & Johnson has a 2020 year in review website where you can see their highlights for the year.
• The best-designed reports, in our opinion, were Apple’s sustainability report, both of Alphabet’s reports, Tesla’s impact report, Nvidia’s corporate responsibility report, and JP Morgan’s financial report. Financial reports had a simpler look whereas sustainability reports had more colors and were better designed in general. One thing we liked was the index in J&J’s sustainability report as it has a fixed bar at the top of the report with a summary of the table of contents and you can click on any section to be taken to it automatically.
• Some companies such as Berkshire Hathaway and Alphabet have various sustainability reports. Alphabet has three different ESG reports: a supplier responsibility report, a diversity report, and an environmental report. Berkshire Hathaway does a separate sustainability or ESG related report for each of its subsidiaries.
• Some companies in the sample, like Microsoft, Alphabet and JP Morgan, have financial reports that include ESG information, but the data is generally focused on corporate social responsibility.

IPC Top 10

Source: Company reports

* Just the BMV format.

As for the Mexican companies, they do either an integrated report or separate the financial and sustainability reports.

Here are some of our key takeaways form the annual reports:

• FEMSA and Walmart have interactive annual reports, all of the others just have the standard PDF. We especially liked FEMSA’s interactive index, as it is full of images and very colorful.
• The best-designed reports, in our opinion, were Banorte, Grupo México, FEMSA, and Walmart.  We noticed that Mexican financial reports were better designed in general vs. American reports. For Mexico as well, sustainability reports had more colors and were better designed in general than financial reports. Walmart and América Móvil (sustainability) also include a small table of contents at the top of the report so you can access the main sections and table of contents from anywhere in the PDF. Elektra’s sustainability report has three lines at the top left corner that take you to the table of contents.
• As per the integrated reports, Cemex, Banorte and Walmart include detailed information under SASBI and GRI standards.
• Elektra, GAP and ASUR don’t do an annual report, they just upload the BMV/CNBV format.

In conclusion, all the companies in the sample make an annual sustainability report and if they do not do so, it is because they have an integrated annual report, demonstrating that ESG issues are increasingly important for public companies globally.

In general, there is no rule in terms of which way to do your annual report (integrated vs separating financial and sustainability), although separated reports are more popular. If you are interested in learning the difference between an integrated report and an ESG report, please see this link. We recommend that annual financial, sustainability and integrated reports be visually appealing. This helps investors and analysts take in the information that is most relevant to them without having to dive into every line. Having an interactive report can also help you capture interest.

As always, if you require any assistance in terms of the content or the design of your annual report or sustainability report then Miranda IR, Miranda ESG and Miranda Digital and Design would be happy to help.