Integrated Reporting – A fad or a step change?

Listening to a panel discussion convened in Johannesburg and involving leading South African sustainability reporters made me wonder: is Integrated Reporting a new fad or a step change?

In mid September 2010, I had the opportunity to attend a Sustainability Assurance Practitioner Course held in Johannesburg. The course was co-sponsored by ACCA South Africa, AccountAbility and SustainabilityServices.co.za and was expertly delivered by Michael Rea and Alan Knight. The course featured a panel discussion involving leading South African sustainability reporters Sasol, Standard Bank, Eskom and Altron.

The South African Institute of Directors launched the King Report on Corporate Governance in South Africa - better known as the King III Report - in September 2009. Its recommendations became effective in March 2010 and recommend the integration of sustainability into business strategy and reporting practices. Companies listed on the Johannesburg Stock Exchange are now grappling with understanding and applying reporting requirements emerging from King III.

“Integrated reporting is not for the faint hearted” was one of the memorable quotes emerging from the panel discussion. The quote underlines the challenges associated with a (more) systematic integration of broader sustainability issues as part of companies’ strategy development, engagement of stakeholders, assessment and management of material risks, financial reporting and assurance processes. Side shows of the discussion included the meaning of “integrated” (one physical report/publication vs. integrated reporting of financial and non-financial performance) and role/competition/competencies of assurance providers and auditors (Big 4 vs. CSR/Sustainability Assurers). So is Integrated Reporting anything new? Is it just a fad? And does it have legs to go the distance?

My impression from the panel discussions is that King III is catalyzing a step change in discussions around approach to determining and managing material risks, and the sustainability reporting process. The associated issues are moving up the food chain to C-Suite and Board Committees. Considering the serious efforts by South African (and other) reporters and emergence of new bodies, such as the International Integrated Reporting Committee (IIRC), Integrated Reporting seems to have a real purpose and strong institutional legs to go the distance.

Do you think Integrated Reporting can be mainstreamed and provide an extra push to take sustainability reporting beyond the “usual suspects”? Will this help those who have yet to adopt sustainability reporting (and underlying processes)? Or will this become a playground and new celebration opportunities for those already considered to be leading reporters?

6 Comments to Integrated Reporting – A fad or a step change?

  1. Mike Guillaume left this comment on my related LinkedIn entry:

    “Certainly not a fad, when you have a look at some of the best annual reports for last year (see http://www.reportwatch.net). Have a look at NovoNordisk, BASF, AkzoNobel, Philips, Danone, Air Liquide, et al. Still, not all succeed in their integration process.”

  2. Jouko Kuisma posted this note on my LinkedIn entry:

    “I believe in integrated reporting. If non-financial performance is kept separate, it is more difficult to understand how it effects financial results and vice versa. It should be quite normal to report on financial and non-financial performance side-by-side and analyse results in both, but also analyse their internal relations in monetary terms. I know this is difficult, but how else do we convince all those who still do not quite understand what this is all about? Again, the frontrunners do this voluntarily, but I am afraid the legislators will follow, as in South Africa, France, etc.

    There are two major problems here: how to get Board of Directors to make integrated decisions, i.e. to handle non-financial issues in a similar (or almost similar?) way they handle financial issues. And how to make auditors study the whole package and write an integrated statement, instead of one for the books and the other one – by a separate team – for CR report. How could the auditors change their risk-avoiding, regulated language to a more consulting, even critical style?”

  3. Derek Knudsen posted this note on LinkedIn:

    “I was closely involved with exactly this sort of debate while with BC Hydro in Canada. We decided to go with integrated reporting provided there was no “dilution” of sustainability aspect of the report. In the first year, the integrated report ended up being quite long; but in subsequent years and using the GRI suite of sustainability performance indicators, the report became shorter, more focused and more heavily hyperlinked to external detailed information. The whole issue of integration within the Utilities Sector was also debated and discussed when we developed the GRI Sector Supplement for the Utilities Sector. We saw the integration of financial and sustainability reporting as inevitable over time and a key part of true triple-bottom-line reporting and management.

    In Canada (now under IFRS rules), however, as in other jurisdictions there must be separate auditor statements. Integration of audit accounting, it seems, lags the integration of sustainability in performance reporting, it would seem. Setting the Scope of Work in the CR portion of the audit to be more consulting-style and less pseudo-regulatory could be one solution to the issue you have posed.”

  4. Christa Avery posted this note on LinkedIn:

    “I am not so sure. Auditors are by definition backward looking. A lot of sustainability reporting is about the future – it is about innovation and change. I think there is a point at which there is no overlap. Hence, I do very much see the role for Directors as it is clearly both about compliance AND performance (the two hats a director wears). Not sure I can see it as clearly for the auditor. My mind is, however, always open for input…… “

  5. This note was posted by Maura Hodge on LinkedIn:

    “In my opinion, the only way sustainability reporting will become pervasive and reliable is through integrated reporting. Only when management adopts sustainability as a core element of its strategy will the appropriate resources be allocated to it. As a result of being part of the Company’s strategy, sustainability information will naturally follow in a Company’s attempt to be transparent and accountable.

    As an auditor for KPMG, I know that we support integrated reporting and are developing ways to address increased sustainability reporting within financial reports. I forsee a future of auditors being able to provide assurance on historical quantitaive information, i.e. data the Company has collected thus far to report on the results of their sustainability efforts as well as assurance on qualitative or forward looking information similar to that found in a MD&A.”

  6. Olaf Brugman posted this on LinkedIn:

    “IR is a step forward, clearly.
    However, there are several external barriers for companies to innovate their reporting towards more integrated reporting: 1) executive paralysis because of suffocating oversight and regulation, 2) Increased government oversight and regulation in itself (however contradictoray that may seem), 3) underinvolvement of business in IR initiatives, 4) underinvolvement of the management accounting perspective in IR, meaning that steering and control professionals and mechanisms do not develop congruently with the frameworks coming towards them, 5) overinvolvement of external auditors (although this profession seems to understand the topic of non-financial performance very well), 6) lack of recognition that transparency and integrated impact calculation are very different things 7) immaterial indicators surfacing in new reporting standards/principles, 8) imbalanced stakeholder groups: parties involved the most in IR standard setting are the worst reporters themselves: governments, NGOs, audit/accountancy firms, consultancy firms (what happened to lead by example?) 10) with all these different perspectives and interests regarding IR, there is the risk that the battle for who is taking control of IR will become more important that the qualities and effects of IR itself.”

    Many thanks for sharing these insights, Olaf!

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