Why Intergrated Reporting is important to the economy
Although many people can tune out when they hear the words ‘corporate reporting’, the reality is that meaningful reporting can transform the global economy, and business has a real opportunity to lead the way.
Traditional metrics for measuring value and economic progress, notably GDP, have never provided a complete picture of prosperity; and similarly, traditional corporate reporting models have long failed to account for natural and other non-financial capitals. For years this has been sending the wrong signals about the true value and impact of business.
In a world of extreme climate change, overpopulation, staggering levels of poverty and wide-scale environmental degradation, single-capital financial reporting has lost touch with what really matters, and what increasingly conscious stakeholders demand.
One solution is Integrated Reporting.
According to the International Integrated Reporting Council (IIRC), an Integrated Report is ‘a concise communication about how an organisation creates value over the short, medium and long term’. Built on a multi-capital model which emphasises the interdependencies and connectivity of all a company’s six capitals: financial, manufactured, intellectual, human, social and relationship; an integrated report can provide a much more holistic and transparent communication about a company’s forward-looking strategy and performance.
Central to a truly integrated report is integrated thinking. In today’s world, it is increasingly evident that financial and non-financial capitals cannot be clearly separated, as one always affects the others. Integrated thinking involves emphasising the connectivity between capitals, by considering each capital in the context of the other capitals. By doing so, a more holistic and ultimately, sustainable, business strategy and company can be pursued and communicated.
This is because it helps companies understand their value over a longer term and break down internal silos to work more efficiently, all whilst bringing potentially big benefits to wider society. Additionally, it is finally placing sustainability at the very core of a business, so it can no longer be viewed as a mere ‘add-on’.
I am personally a great believer in the concept of an integrated report that tells a holistic and forward-looking story about a company’s strategy and performance. I also think it introduces valuable concepts such as the six capitals, with an important focus on outcomes. Nevertheless, I do have concerns. For example, I worry that replacing stand-alone sustainability reports altogether, with all their detail and metrics, will leave only that which is most material to a narrow range of stakeholders – financial investors in particular. Integrated reporting alone can also lack sustainability context – how company impacts against the various capitals relate to broader societal and planetary boundaries – and to be truly effective must be fully integrated into and drive change in accounting processes. This in turn provides greater understanding of the impact of decisions on the capitals which we all depend on and is more likely to drive transformational change.
Whilst there can be no doubt that tackling today’s challenges requires fully integrating sustainability into business decisions, it is equally true that a succinct integrated report is unlikely to satisfy the many and various needs and expectations of a broad range of stakeholders. And if we are to take anything from the history of corporate reporting, it is that non-financial data will often be the one left underrepresented. This is particularly likely in the early stages of a transition towards integrated reporting, when a company may not have yet achieved true integrated thinking across the business, and therefore replacing the sustainability report would mean removing that information altogether.
Our advice for companies choosing to go down the integrated reporting route therefore is:
- Stay focused on closing the ‘sustainability context gap’ – measuring and articulating company performance against the macro perspective
- Go further and use it as a catalyst to align and adapt accounting methods
- Supplement an integrated report with additional reports or communications, which go into more detail on performance against issues and areas where necessary to satisfy the demands of a broader range of stakeholders
Next generation strategy and reporting platform Reporting 3.0, which, as a Global Common Good initiative, works with and builds on frameworks like IIRC, positions it as moving from integrated thinking to integral thinking. The change in language is subtle but this is a seismic and important shift if corporate reporting is going to help bring the global economy onto a sustainable path.
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