More of our clients are asking us about integrating their sustainability disclosure into their company’s main annual report. So in my fourth post on key issues in CR and sustainability reporting, some words of caution about going down the integration route . . .
As sustainability issues take their rightful place at the heart of business decision-making, they will no longer be seen as add-ons to be covered in a separate report. Instead, they will be material enough to merit inclusion as a core part of annual reports for mainstream investors.
The logical next step for reporters might then be for the annual report to swallow the sustainability report completely – as is already the case in some organisations.
Examples of this kind of integrated reporting include:
Some in the sustainability reporting sector dub integrated reports ‘Frankenstein’s Monsters’, although they, with US academic and accountancy colleagues, see the ‘One Report’ approach as a metaphor rather than an immediate physical outcome for reporting companies.
In some ways, integrated reporting might look like a coup for those of us working in the sustainability field. And of course doing a combined report can bring cost savings in the reporting cycle – in design, print, distribution and project management, if nothing else.
But first, some words of caution…
Before more pushing of boundaries in reporting practice takes place there needs to be a huge increase in absolute numbers of companies reporting, period! So integrated reporting could be premature rather than innovative.
Companies could integrate reporting in other ways – with supply chains (e.g. food and beverage companies), across their sectors (e.g. UK automotive), and at different geographic levels – local, national, regional.
In South Africa, a company’s Board of Directors may delegate certain aspects of risk management and sustainability to the audit committee. The King Report on Governance for South Africa 2009 (King III) provides a list of best practice principles to assist and guide director decision-making. King III introduces the concept of integrated reporting combining financial and sustainability information, and it allows for the Board to delegate the review of integrated reporting to the audit committee. The audit committee would then recommend to the Board the need to engage external assurance on the accuracy and completeness of material elements of integrated reporting.
Putting sustainability issues into the main annual report means companies having to be even more circumspect with data and performance claims, which of course become subject to formal financial audit. This can reduce overall transparency and so reduce the value of the report to stakeholders.
Finally, an integrated report is likely to alienate certain stakeholder groups. Currently, it takes a sophisticated online delivery and a web-savvy reader to make it work. Many stakeholders will be unlikely to see, let alone have the perseverance to find, impenetrable prose tucked away in a printed annual report that they have to order because they are not shareholders. That’s why companies that integrate usually still need to publish separate single-issue papers to specific stakeholder groups.
So it’s a case of thinking carefully about any decision to integrate.
Tags: alex nichols, Reporting
[...] his latest blog post, UK-based Alex Nichols of Two Tomorrows cautions some of his clients who are considering [...]
Spot on, Alex. We still need a ‘mainstreaming’ of sustainability reporting. There seems to be too much focus on pushing the boundary in terms of innovative leadership. That seems to be doing very little in terms of bridging the chasm between reporters and the no-reporters. That aside, users of annual financial reports and sustainability reports are – to date – typically part of very different stakeholder segments with very different expectations/needs.