Financial Effects of Corporate Social Responsibility and Information Transparency (The Research for the Pharmaceutical Industry) (Финансовые Эффекты Корпоративной Социальной Ответственности и Информационной Прозрачности (Исследование Для Фармацевтической Отрасли))

<b>English Abstract:</b> The article is devoted to research and evaluation of the usefulness of information disclosed in reports of pharmaceutical companies. The main purpose of the study was to assess the transparency of the metric, inter-firm comparability of nonfinancial reporting data, and to identify the usefulness of the disclosed information for international pharmaceutical companies. The methodological basis of the research is the harmonization of the requirements of business practice standards with financial reporting standards. The paper uses the method of proportional-typical selection of stable structured performance indicators of companies. The authors were not limited to information requests from investors in one country, individual companies, or priority areas of interests of interested and involved persons. The study approach implemented for the multilateral consideration of the views of stakeholders. The research database was compiled by reports of five companies, such as Johnson &amp; Johnson, Novartis AG, Merck KGaA, Sanofi, and Takeda Pharmaceutical Co. Ltd. from the Global Reporting Initiative Database and financial reports of 20 pharmaceutical companies of the Access to Medicine Index System in 2014 and 2016. The result of the study is that the total position of 5 companies moved up from the 8th to the 6th rank. The result of the ratio of growth rates of their total revenue, capitalization and long-term capital is positive when compared with the growth rate of the quality of their disclosure of non-financial indicators. Such relationship is the strongest in attracting long-term capital, followed by growth in capitalization and it is the smallest in growth in revenue. The format of the minimum required set of harmonized indicators helps to increase the confidence of stakeholders in the financial and non-financial information of socially responsible companies. The novelty of the results obtained consists in using a metric expression of the quality of reporting indicators to assess their usefulness in the business practice of companies with a production profile. The results obtained in the course of the study allow us to make a generalized conclusion that useful information generated on the basis of harmonization of structured data from financial and non-financial statements contributes to increasing the level of business activity and its comprehensive performance of all parties involved in the company’s affairs.<br><br><b>Russian Abstract:</b> Статья посвящена исследованию и оценке полезности информации, раскрываемой в отчетах фармацевтических компаний. Основная цель исследования состояла в том, чтобы оценить прозрачность показателя, межфирменную сопоставимость данных нефинансовой отчетности и определить полезность раскрытой информации для международных фармацевтических компаний. Методологической основой исследования является гармонизация требований стандартов деловой практики со стандартами финансовой отчетности. В статье используется метод пропорционально-типового отбора стабильно структурированных показателей эффективности компаний. Авторы не ограничивались запросами информации от инвесторов в одной стране, отдельных компаний или приоритетных областей интересов заинтересованных и вовлеченных лиц. Исследовательский подход реализован для многостороннего учета мнений заинтересованных сторон. База данных исследования была составлена на основе отчетов пяти компаний, таких как Johnson &amp; Johnson, Novartis AG, Merck KGaA, Sanofi и Takeda Pharmaceutical Co. Ltd. из базы данных Глобальной инициативы по отчетности, и финансовых отчетов 20 фармацевтических компаний из группы «Доступ к медицине». Индексная система в 2014 и 2016 годах. Результатом исследования стало то, что общая позиция 5 компаний поднялась с 8-го на 6-е место. Результат соотношения темпов роста их общего дохода, капитализации и долгосрочного капитала является положительным по сравнению с темпами роста качества их раскрытия нефинансовых показателей. Такие отношения являются самыми сильными в привлечении долгосрочного капитала, сопровождаемого ростом капитализации, и это наименьший рост выручки. Формат минимально необходимого набора гармонизированных показателей помогает повысить доверие заинтересованных сторон к финансовой и нефинансовой информации социально ответственных компаний. Новизна полученных результатов заключается в использовании метрического выражения качества показателей отчетности для оценки их полезности в деловой практике компаний с профилем производства. Результаты, полученные в ходе исследования, позволяют сделать обобщенный вывод о том, что полезная информация, полученная на основе гармонизации структурированных данных из финансовой и нефинансовой отчетности, способствует повышению уровня деловой активности и ее всесторонней эффективности для всех сторон. участвует в делах компании.


Higher School of Economics
Social and ecological problems cause a heightened stir in the society because the assessment of building trust towards a company, loyal relationships between a company and its prospective customers (buyers), investors (including lenders) and partners should be beyond a purely financial measurement. Piecewise requirements and recommendations of IASB Board as regards generation of additional non-financial and nonmonetary information in its own platform do not satisfy the existing information requests. So, in September 2015 general public was scandalized by the facts reported by mass media which concerned overpollution of the environment by Volkswagen's (VW) cars from 2009 to 2015. Later it affected adversely the concern capitalization. As a result of the scandal the stakeholders urged to provide transparency of non-financial information along with financial one.
Against the background of the stakeholders' request for measuring the companies' impact on the planet applying a reliable and unified method, in the way their revenues are calculated at present, there are report forms of multiple and poorly harmonized voluntary non-financial standards beyond the bounds of financial information. Therein an increasingly greater number of decision makers from companies' management think it strategically important to pursue the concept of corporate social responsibility because the community demands more and more to establish fair and ethical business practices.
In his full-fledged analysis of business practices of international and American companies and organizations Barukh Lev [1] distinguishes the key sectors for which the traditional accounting and financial statements model no longer meets the requirements of stakeholders. Apart from the financial sphere and mass media sector the author identified so called capital-intensive segments: pharmaceutical, oil and gas, chemical and power-producing industry. It is the companies with a significant part of capital tangible assets on the books which release great amounts of hazardous substances into the atmosphere, water, soil.
A great number of papers offer conclusions on positive interrelation of meeting CSR by a company and customer behavior which is shown by the customers' loyalty. Stakeholders' loyalty to socially responsible business is confirmed by researches in the banking sector [2; 3], retail business [4], mass media and entertainment [5; 6] and insurance [7]. But we found a drawback in such studies for the abovementioned capital-intensive economic sectors the companies of which should make commitment to CSR principles a priority managerial task.
Therein one of the problems is how one can convey in a short and brief way valuable information on its activity to all concerned parties using communication channels and platforms which they prefer at reasonable expense [8]. A lot of organizations do not disclose certain key performance indicators as, for example, the International Integrated Reporting Council (IIRC). However, the standard reads that quantitative and monetized indicators "are extremely beneficial when explaining how an organization generates value, uses various types of capital and influences them" [9, p. 10].
In 2014 the European Union passed Directive 2014/95/ ЕС in implementation of which Guidelines on Non-Financial Reporting 2017/C215/01 (Methodology for Reporting Non-Financial Information) were published for the reports made by company management. In accordance with the Guidelines companies should disclose the business practices formats they followed because it improves transparency and comparability. But although the Guidelines mention and offer the companies to base themselves upon KPI they virtually offer to the companies of various global economy sectors no way of selecting KPI and no instrument for quality assessment of non-financial information.
In Russia the Concept of Development of Public Non-Financial Reporting in Russia indicates the relevance of making a list of performance indicators. The Concept contemplates "defining the list of minimum essential basic indicators for disclosure of information on the performance results of a company in the economic, environmental and social spheres…" [10, p 13].
The research conducted by the pharmaceutical company Johnson & Johnson showed that implementation of CSR concept into business strategy of social and environmental aspects advances attaining financial goals of development [11]. Improvement of financial results is especially notable for the companies of business-to-customer sector which compete on the basis of their reputation and brand and at the same time use natural resources widely [12]. Cooperation with stakeholders and transparency in CSR are manifested in the companies' access to debt capital (reduction of its cost, easier access). Simplification of access to financing is accounted for reduction of information asymmetry due to activities' transparency and saving of agency costs for stakeholders due to increase of their involvement [13].
In our turn, we put forward the hypothesis that improvement of quality of disclosure of significant non-financial information by companies from capital-intensive sectors, which comply with corporate social responsibility requirements, causes increase of stakeholders' loyalty: buyers (as growth of the total market share of sales), lenders (who provide accessibility of long-term funding sources) and investors (who manifest their confidence in company's opportunities for growth through being active in making deals while shares' cost increases). We think that it is possible to assess company's commitment to CSR concept and programs on the basis of measuring/metric approach. The following approaches are widely spread now: • testing of the model of structural equation based on the assessment of perception by stakeholders' groups of companies' social responsibility. Aggregation of similar CSR researches makes it possible to make a checklist of CSR definitions where respondent's feedback ranges within a 7-point Likert-type scale [2]; Higher School of Economics • assessment of reputation, for example, review of corporate reputation by Fortune Magazine [14]. The assessment is made by industry sector analyzers and people with knowledge of the matter who prepare ratings for companies. Therein the magazine does not disclose assessment for all aspects presenting just an average rating -Fortune's MAC Rating in the range of 1 to 10 points; • use of independent ratings, for example, responsible investment indexes: FTSE4Good Index, the Dow Jones Sustainability Indices (DJSI), MSCI KLD 400 Social Index, Calvert Social Index etc. [15; 16]; • direct data collection from company reports, published materials, interview with the management and its quantitative (availability of indicators, parameters) and qualitative analysis (data ranking) [17; 18].
In our paper we develop the last-mentioned approach finding out financial effects of expanded non-financial information disclosures. In the study of six largest (according to revenues) global pharmaceutical companies [17] the authors relied just on interviews with managers conducting only the quantitative analysis of commitment to CSR programs. At the same time the research [18] of non-financial reports of international pharmaceutical companies covers presence of KPI from the Global Reporting Initiative (GRI) as well as qualitative analysis of the degree of their disclosure. But the criteria of company selection are not transparent, the authors have not substantiated the number of KPI and the applied ranking system is falling behind similar systems [19] which have been elaborated more thoroughly.
In Russia some authors also have their requirements to building of the company indicators system, that is: data should not be collected by means of complicated, expensive and labour-intensive work; a systemic approach is necessary to choose indicators; the number of indicators should be sufficient but, if possible, minimal, and all indicators should be transparent, independent and complementing each other [20]. Therein the indicators offered by the authors are, as a matter of fact, just the lines of social, environmental and economic development set by them without offering any certain metrics. We defined the organizations which offer measurable indicators of efficiency: • Global Reporting Initiative [22; 23]; • Sustainability Accounting Standards Board [24]; • European Federation of Financial Analysts Societies [25]; • The Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting of the United Nations Conference on Trade and Development [26].
Here we list the main characteristic features of the abovementioned standards: • GRI standards are a well-developed information platform represented as a set of KPI for all sectors of global economy; • SASB standards were developed from the perspective of the investors' view of the format of nonfinancial reporting. We used KPI of SASB for the pharmaceutical industry; • EFFAS standard was developed for listed companies and bond issuers. It inspires the capital market players to implement their KPI in their assessment models. We used KPI of EFFAS (version 3.0) for the pharmaceutical industry; • UNCTAD facilitates investments, economic stability and sustainable development by means of encouraging the best practices of corporate transparency and accounting.
Applying the proportionally-typical selection for the purpose of ensuring the selection representativeness we offer a uniform set (table 1) of 15 significant performance indicators for the companies of the capital-intensive pharmaceutical industry (our numeration from 1E to 15S). We are not limited by stakeholders from one country, company or sphere of interest, we rather rely on the approach of multi-sided consideration of opinions of concerned parties (multi-stakeholder approach) with reference to which the four abovementioned standards were developed.
The indicators were added to the set if they were present simultaneously in two or more standards of the four ones mentioned above. We indicated them in short-hand form -from new GRI Standards which entered into force on July 1, 2018 and we found their exact matches to KPI of the previous standard GRI G4 (General Standard Disclosures). We offer practical implementation of the approach to ranking taking into consideration business practices of preparing non-financial reports (using energy companies as an example) as an instrument of handling non-financial information. Points are assigned as follows [19]: 0 points -the stated indicator is not shown, 1 point -there is a short mentioning of the indicator in the report; 2 points -the report presents valuable information expressed in figures; 3 points -the information is clear, there are diagrams and their analysis; 4 points -the issue is described completely.
Use of the mechanism of business practices standards harmonization and the data ranking instrument helps to appraise the obtained KPI set using pharmaceutical companies as an example. The database of our research comprises reports of sustainable development of com-panies from the rating system Access To Medicine Index (AMI) which describes the best practices of functioning of 20 most innovative pharmaceutical companies [27]. We considered reports of companies from AMI list for 2014 and 2016 where we used the following criteria: • reports should be entered into a corresponding database [28]; • reports should be in accordance with GRI G4 Reporting Guidelines; • reports should be made in English or Russian.   1E  EN2  1  1  0  2  0  4  3  0  0  2  4  9   2E  EN3  4  4  3  3  3  3  3  0  1  1  14  11   3E  EN8  2  2  3  3  0  4  3  2  3  3  11  14   4E  EN15  3  3  4  4  4  4  3  4  4  4  18  19   5E  EN16  3  3  3  3  4  4  3   The compound quality improvement rate of disclosure by the five companies of performance indicators amounted to (164/154 -1)•100% = 6.5%. Stakeholders who get an opportunity to access significant non-financial information disclosed by socially responsible companies will most probably be more ready to credit such companies and more tending to purchase their shares or products than those of informationally closed, "non-transparent" companies. It should be noted that since Higher School of Economics This coefficient equals k s = 0.38 when comparing the revenue growth rate of (32.6%/31.8% − 1)•100% = 2.5% to the rate of quality improvement of disclosure of non-financial indicators of (164 point/154 point − 1)•100% = 6.5%, k s = 5.0 and k ч = 0.91 when comparing with the rate of growth of long-term capital raising (32.8%) and capitalization (5.9%), respectively. The stronger the studied relation the greater the value of the sensitivity coefficient. The obtained results suggest that the most pronounced financial effects of stakeholders' loyalty to socially responsible business manifest themselves in providing by investors of long-term debt capital to companies and purchase of shares, and the least pronounced effect manifests itself in revenue growth.

Higher School of Economics 37
The offered mechanism of business practices standard harmonization may be applied to any sector of global economy on the basis of proportionally-typical selection of key performance indicators of operations. Sufficiency of the set of indicators should be considered from the point of view of existence of inter-company comparability of enterprises of a certain industry sector. The format of a minimal set of indicators for such case facilitates the quantitative and qualitative analysis of non-financial information disclosures and makes it possible to assess loyalty of concerned parties to socially responsible business. Therein introduction of an obligatory mode of preparation of non-financial reports should provide for a better information disclosure which, together with calculation of non-financial indicators, may result in improvement of efficiency in the spheres which are most important for the shareholders, other concerned parties and the society in general.