Will Integrated Reporting improve sustainability?

– 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.

6 thoughts on “Will Integrated Reporting improve sustainability?

  1. Pingback: IGAP Research Centre: Will Integrated Reporting improve sustainability? | The IIRC

  2. Pingback: Will Integrated Reporting improve sustainability? | The IIRC

  3. Simple and interesting point of view on the complex IR. I´d like to know how you translate the following points mentioned in your article into more specific facts:
    ◾By changing how organisations communicate ==> how? just by changing to IR?these will probably imply more changes in communication, which ones do you foresee?
    ◾By encouraging integrated thinking ==> means thinking more of the consequences or of the externalities or in taking into account the REAL environmental/social Situation?
    ◾By better representing stakeholders’ ‘legitimate interests and needs’ ==> in what extent do you think it is better IR type of Analysis on stakeholders than the materiality Analysis that was already proposed by ISO 26000 and that also has to be done for GRI 4.0?

    • Thanks for your comments Alicia, and the important points you raise. We will respond to each of the areas of potential change you highlight in upcoming blogs, but some brief initial responses, which we will address more soon, are:

      • IR is in a sense like a new language, or at least a new vocabulary. An organisation may use new words to communicate exactly the same message, in which case nothing really changes. But new words can also enable new ideas and conversations. In our view then, the issue for sustainability is whether organisations choose to use IR concepts like social and relationship capital to more genuinely engage with social and environmental stakeholders and concerns.

      • Exactly what integrated thinking means is still unclear. IR is focused on the needs of the organisation, and so integrated thinking technically fits within this mould. But there might be scope for this idea to take on a broader and more holistic meaning in practice.

      • As far as I can see, there is no substantive process for assessing stakeholders’ needs in IR; nor for determining which needs are legitimate, which is a significant gap. This may be an area where established processes in other frameworks – like GRI 4.0 – might complement IR. However, an issue will then be how compatible these processes are, especially when – as our blog and article try to highlight – sustainability reporting and IR have quite different goals and reporting strategies.

  4. Pingback: Will Integrated reporting improve sustainability

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