On April 16, 2013 the International Integrated Reported Council (IIRC) will release a draft of ‘Version 1’ of its Integrated Reporting framework for public comment. This release marks a new stage in efforts to measure organisations’ performance on non-financial grounds, such as their use or ‘stewardship’ of social and environmental resources. While there have been many previous methods of social and environmental reporting, the distinctive idea of Integrated Reporting is to use simultaneous presentation of financial and non-financial information to show how organisations’ management of different types of resources – financial, human, and environmental – are interconnected, so that success or failure in one area (e.g. use of natural resources) has consequences for the whole. Integrated reporting has attracted significant support in a comparatively short period of time, including from major international organisations like Microsoft, Coca-Cola and Volvo in the IIRC’s pilot program and business network, and recognition from the peak international professional body in accounting: the International Federation of Accountants.
Will IR be successful over the long term? A useful starting point is the experience of the Global Reporting Initiative (GRI), which co-founded the IIRC in 2010. From small beginnings in 1997, the GRI has grown to become arguably the most well-known and widely used means of reporting social and environmental information. However, there has been considerable debate over the impact that the GRI is having on corporate reporting. On one hand, many studies have highlighted the extensive use of sustainability reporting by the world’s largest firms, with the GRI the most popular reporting mechanism. On the other hand, critics like David Levy, Halina Brown and Martin de Jong have argued that the adoption of GRI by businesses overall has been comparatively low. More importantly, they claim, the social and environmental measures developed by the GRI are not being widely used by investors and social institutions for their intended purposes.
It remains to be seen whether the fourth iteration of GRI due out in May – ‘G4’ – will address some or all of its critics’ concerns. However, regardless of your view on the GRI, the GRI debate raises important questions about how IR will deliver enough value to stakeholders to encourage use of integrated reports over the long term. One feature of the IIRC’s approach is to stress that IR can add value to companies by promoting dialogue across the organisation. The feedback on the IIRC’s pilot program suggests that at least those large international companies that are trialling IR view this approach positively. Yet while the abstract value of sustainability reporting (e.g. to organisational reputation) has been long discussed, it has proved more difficult to quantify these benefits, especially for the smaller to medium sized organisations which face relatively higher costs.
As the GRI debate also highlights, the usefulness of IR to investors will depend not only on the internal benefits of IR for any one organisation, but also on investors’ ability to compare organisations’ performance on social and environmental indicators. It remains to be seen whether the voluntary framework proposed by the IIRC is capable of meeting this objective, especially where organisations adopting IR have discretion over the indicators they choose to report.
Finally, while the IIRC has been making a strong case for the business benefits of IR, the IIRC’s focus on investors has at least temporarily sidelined the question of whether IR provides the type of transparency that broader groups of stakeholders require. As also raised in GRI debates, increasing organisations’ accountability for their use of social and environmental resources requires some mechanism of limiting their motivation or capacity to ignore or ‘greenwash’ information that presents their activities in an unfavourable light. If part of the public case for supporting IR is that it will increase public accountability in this sense, then one question future IIRC releases need to clarify is how the IR framework will perform this additional reporting function.
– Dr Dale Tweedie, IGAP Research Fellow.
What is your view of the IIRC’s approach? Is integrated reporting likely to be useful to you or your organisation?