The Facts
Integrated reporting has been the hot reporting topic of the past two years, with debates and plans for a broad transition from CR reporting into integrated financial and non-financial reporting.
During 2011 integrated reports made up around 6% of CR reporting and annual growth is modest but steady Integrated reports by year
Half these reports are from Europe (this seems to be the case for anything to do with reporting) and the regional picture is fairly consistent year on year. Australia produces most integrated reports, but since 2004 worldwide growth has swamped this output.
Australia’s output is impressive, given that this reporting is voluntary. South Africa’s legislation for companies listed in the Johannesburg Stock Exchange has led to the production of many ‘integrated’ reports. The reason more South African reports of this type are not profiled on CorporateRegister.com is because they are still predominantly annual reports with short sustainability sections. Our site definitions provide that we profile annual reports with at least six pages of relevant non-financial information, but most ‘integrated’ South African reports fall below this threshold.
The 350 integrated reports identified to date as published during 2011 come from a range of sectors. Taking the top 10 of these, it’s revealing that Banks are dominant. The financial sector itself shows most interest in integrated reporting, and banks have relatively straightforward direct environmental and social impacts - far easier to assess and map than mining companies, where impacts are many and complex, and current sustainability reports regularly exceed 300 pages.
The Opinion
So, what will this new beast look like? There are at least three different views. Where some maintain that there should be one combined report, others such as Paul Druckman, CEO of the IIRC argue in favour of connected reporting, where the information may be available from multiple linked documents and data sources. So far the popular perception and certainly the practice in published reports is to weave non-financial or ‘sustainability’ data into the weft of an annual report resulting in an ‘annual report plus’. At the moment this is hit and miss – the ‘hits’ can be seen on pages 16-17 of the Report. ‘Misses’ can be seen in many of the integrated reports coming out of South Africa, essentially annual reports with short additional sustainability sections. This third approach of ‘annual reporting plus’ could mark a step backwards for CR reporting if it replaces stand-alone CR reports, but of course if it results in net additional CR information then it should still be welcome.
Where the history of two decades of CR reporting shows single-issue reporting evolving organically into today’s comprehensive multi-issue CR and sustainability reports, we now have the idea of integration taking shape, with an organisation to support it. The ‘International Integrated Reporting Council’ (IIRC) has a framework of Council, committees and taskforces, Board, Secretariat et al working out what integrating reporting should look like. Well-organised and well-connected, and necessary in order for recommendations to be taken seriously and implemented. But a look at the 40 person Council composition leaves me with the overwhelming impression that this is an organisation dominated by accountants, auditors and finance. There’s some civil society representation (WWF, Transparency International, CERES) and several large corporates, but given the Council’s composition my apprehension is that CR reporting may soon be subsumed into conventional annual reporting. Organisations guiding conventional financial reporting have not played a leading role in the development of CR and sustainability generally (and spectacular corporate failures of recent years have demonstrated that all is not well with accountability and transparency in our financial reporting models – perhaps the IIRC should start here), and yet my feeling is that they have somehow appointed themselves to this new reporting role, on behalf of us all.
If CR reporting becomes subsumed, we’ll see many changes. Presumably the auditors will edge the remaining CSR consultancies and certification bodies out of the assurance market (no representatives from these two constituencies are represented on the IIRC council) and the auditors’ ISAE3000 assurance standard or a new variant will reign supreme. It is extremely likely that the focus for integrated reports will be the investment community, perhaps exclusively so. From a corporate perspective the expertise needed to develop these reports will only be offered by a few multinational specialists, no more niche CSR consultancies here! I expect this new breed of report to be reassuringly expensive.
Meanwhile important corporate issues, such as human rights, so long overlooked by investors and accountants, will not go away and nor will those stakeholders who use CR reports to find information about them. A report geared to one audience cannot serve all audiences, and companies will still need to meet the expectations of their many stakeholders.
I think it probable that if companies are serious about corporate responsibility, when they are required to switch from publishing separate annual and CR reports, that they will switch to ‘integrated’ (some are doing this already) but continue with the CR reports, which are simply too useful to be abandoned. Both should be connected, of course. Plus ca change…