Will Integrated Reporting improve sustainability?

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– Dr Dale Tweedie and Prof. Nonna Martinov-Bennie.

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If the Integrated Reporting Framework is successful in engaging business and investors, how – if at all – will this success affect sustainability?

This is the first of a series of short blogs that address this question, based on a new article published in the Social and Environmental Accountability Journal in February, 2015.

What is sustainability?

The word ‘sustainability’ has many different meaningsWe use the term to refer to a replicable and just use of social and natural resources. This is the ideal of sustainability made famous by the World Commission on Environment and Development’s definition of sustainability as ‘meet[ing] the needs of the present without compromising the ability of future generations to meet their own needs’.

One difficulty with assessing how the Integrated Reporting framework will affect sustainability is that the International Integrated Reporting Council (IIRC) itself uses the word ‘sustainable’ to mean two quite different things:

  • Sustained value creation; which refers to a company’s ability to continually create value over time; and
  • Natural and social sustainability; which refers to companies that consider how their actions are connected to, or impact, society and the environment.

These two ideas are linked, but they are not synonymous. For example, an energy company might profitably sustain itself extracting and selling fossil fuels for many years, without necessarily considering its impacts on global warming or accounting for the costs that future generations will bear.

How Integrated Reporting will not affect sustainability

Integrated Reports require companies to consider natural and social capital, but an Integrated Report is not a sustainability report.

Sustainability reports typically require businesses to explain more fully how their activities impact societies (e.g. work, health and safety reporting) and natural environments (e.g. recycling and energy use).

In a sense, Integrated Reporting does the reverse: An Integrated Report aims to better explain how society impacts business.

One partial but useful way of thinking about Integrated Reporting is as expanding companies’ balance sheets to better represent how companies depend on non-financial resources, including resources or ‘capitals’ the company does not or cannot own. For example, in an Integrated Report, social capital might reflect how companies’ supply chains and sales depend on a hidden web of trust and goodwill, as well as on its monetary wealth and physical assets.

But an Integrated Reporting ‘balance sheet’ is still organised from the companies’ point of view, rather than from external stakeholders’ view of how the company impacts them. More precisely, an Integrated Report is organised from the point of view of how social, natural and other capitals enable companies to create financial value, especially over the longer term.

So if Integrated Reporting is to improve sustainability, it can’t be in the same way as sustainability reports.

How Integrated Reporting might affect sustainability.

Integrated Reporting might affect sustainability if bringing new types of capital into mainstream business reporting and business models helps to improve how companies interact with their communities and natural environment; such as by being more responsive to harmful effects that are not priced into conventional markets.

Our recent article considers four possible ways that IR could impact natural and social sustainability in this way:

  • By changing how organisations communicate
  • By encouraging integrated thinking
  • By better representing stakeholders’ ‘legitimate interests and needs’
  • By better capturing the long-term impacts of how organisations use resources.

In our upcoming blogs, we will review each of these possibilities in more detail.

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Any comments or thoughts are most welcome.

Safety at Work: Policy meets performance

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???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????discussion of Dr Sharron O’Neill’s research with Safe Work Australia in late 2014 – by WHS consultant Kevin Jones – highlighted how better WHS accounting might improve both work, health and safety (WHS) policy and performance.

Jones reported on the 2014 annual Australian Council of Trade Unions (ACTU) conference on occupational health and safety, which was held in Melbourne last October. The conference was addressed by the ALP Shadow Minister for Employment Relations: Brendan O’Connor MP.

According to Mr O’Conner, the Royal Commission into the Home Insulation Scheme risks distracting attention from broader deficiencies in the WHS laws that should ‘protect the interests of working people, particularly young workers’.

Whether legal reform can improve WHS outcomes is a matter of debate. Jones’s view is that the needed changes are:

unlikely to come through laws, particularly as OHS/WHS laws remain a State responsibility. Change will need to be attempted through modifying the public services’ processes of consultation and collaboration of safety-related matters.

However, the Shadow Minister also discussed the economic argument for improving WHS policy and performance, which suggests that WHS accounting has a critical role to play:

If you look at the costs that are borne by a community because of bad health and safety laws, on economic grounds you win the argument, leave aside the fact that you’ve torn a family or community apart because of injury or death.

If the economic grounds of WHS are indeed central to the public policy argument, then accounting needs to be able to bring the costs of WHS into both public policy discussions and organisations’ reports in a clear and comparable way.

As Dr O’Neill’s presentations on WHS reporting have shown, both financial and non-financial accounting has some way to go to adequately recognise either the community or organisational costs of WHS practices, or to effectively communicate good WHS practices to stakeholders.

But if the current standard of WHS reporting is part of the problem, then new WHS reporting mechanisms, which Dr O’Neill’s research is helping to develop, have the capacity to be an important part of the solution.

For more information on this research, or on improving WHS performance in your organisation, contact Dr O’Neill at: sharron.oneill@mq.edu.au.