Converging Sustainability Reporting with Integrated Reporting – Is it Imperative?

Accountability is a highly desirable outcome for any 21st Century business, yet current accounting requirements and expectations are inhibiting many businesses from delivering what matters – change and improvement, says Paul Davies – a member of the GRI G4 Practitioner's Network and principal at sustainability performance company, Banarra.

Corporate Sustainability Reporters have a tough life. Those who are responsible for their organisation’s reporting are usually there to do a job that is designed to achieve much more than simply producing multiple reports – they are there to maintain or enhance the productivity, compliance, governance, sustainability, performance and/or profitability of their business.

In other words, reporting is meant to be no more than an accounting for what the organisation has achieved (or not, as the case may be), and is never an end in itself.

Yet we have clients who tell us that the majority of their time and shrinking budget is not about doing the job they were hired to do, but instead reporting on it to multiple parties. Accountability is a highly desirable outcome for any 21st Century business, yet current accounting requirements and expectations are, to varying degrees, inhibiting many businesses from delivering what matters – change and improvement.

With that in mind, initiatives that look to reduce the “multiple reporting” burden make perfect sense. If a single report can convey relevant and useful information to multiple parties, giving all of them what they want or need to know to reach a view or make decisions, then that is a great result. The recent GRI G4 sustainability reporting guidelines have rightly sought to achieve this in looking to align, or at least streamline, its disclosures in relation to other international accounting frameworks such as the CDP and the UNGC.

One of the stated objectives of the new G4 guidelines was to look to “link the sustainability reporting process to the preparation of an Integrated Report (IR) aligned with the guidance to be developed by the International Integrated Reporting Council (IIRC)”. This has been interpreted by some to mean an eventual convergence of the two frameworks so that we eventually end up with one framework doing both.

Is it desirable to start converging what are intrinsically two distinct reporting frameworks (one still evolving, mind you), both aimed at enhancing accountability, but looking to address distinctly different interests of different types of stakeholders with different types of information?

There is, I believe, a widespread misunderstanding in the marketplace about what actually constitutes an ‘integrated report’. A recent GRI research papers notes that “the number of self-declared integrated reports in the GRI database that are explicitly titled ‘Integrated report’ has grown in recent years…but the majority – from 50-60%- are called ‘Annual report’, followed by ‘Sustainability report’ or ‘Sustainable development report’”.

In fact a closer look at the figures from GRI’s research suggests that at least 70% of those reports claiming to be “integrated” are not, and if you take the literal interpretation of an integrated report (from the current IIRC consultation draft), then the actual figure is possibly closer to 90% of claimed ‘integrated’ reports not meeting this intent.

This misunderstanding is creating confusion in the marketplace about reporting options and directions. It is fuelling a view that IR is the inevitable successor to sustainability and financial reporting, and in particular that producing an IR will relieve the organisation from sustainability reporting in future.

By way of example the GRI research paper includes the following view from one invited contributor “(IR) is the next step in the evolution of financial and sustainability performance in an integrated and transparent way.” I don’t adhere to this view.

At this point in time, now that we have GRI’s G4 out in the market and the IR consultation draft recently made available (the final framework is due to come out in December this year), it’s clear that sustainability reporting remains primarily focused on providing information for stakeholders wanting to understand an organisation’s key social, economic and environmental impacts and how it is managing them. IR, on the other hand, is targeted at providers of financial capital seeking information that demonstrates how an organisation creates value across a range of interconnected capitals in a coherent and strategic way.

That is not to say the content of these two types of reports is mutually exclusive, but that they do have a distinctly different emphasis recognising the needs of their target audiences. If I am an NGO wanting to know about your impacts on biodiversity, my first port of call would be your company’s sustainability report. If I am an investor I may also want to check that out in the sustainability report too. But if my primary interest is in determining whether your business is capable of increasing the value of its key assets over time, then your IR is where I’d look first.

Now some would say these aspects are all interconnected anyway, and to some degree they are. If I have a key externality that is going to negatively affect my share value, that information could rightly sit in both reports. If I have had a positive impact on my local community by investing in its growth and prosperity, thus adding social value, then that could also appear in either or both types of report.

The challenge though is that reports are ultimately communication channels, and the best communication channels are those that are highly targeted at their key audiences’ specific information needs. Communication efforts that try to cover all, or too many, bases end up either compromising or diluting the quality of the information and its value to the reader. Witness the monolithic tomes that some sustainability reports have become – they are more effective as door-stoppers than they are as accountability tools.

Convergence of the two reporting frameworks would be counterproductive at present. G4 is a step up in sustainability reporting, but it is still new and untried in the marketplace. IR is promising in what it seeks to deliver, but is yet to see full light of day and will significantly challenge many reporters who really seek to apply it to achieve its true intent.

Convergence of the two, if that is an expectation in the marketplace, may in fact strip the value out of these reports and lose readers in overwhelming detail that they neither interested in nor need. As Robert G. Eccles, Professor of Management Practice at Harvard Business School, notes “I don’t think integrated reporting makes sustainability reporting go away, although it may have implications for its format."

Coming back to a point made in the GRI research mentioned earlier, reporters may want to see the GRI refine key performance indicators specifically to assist IR. Integrated reporters can use the GRI approach to broaden their thinking and understanding of sustainability impacts for their business, and how those impacts might be reflected in the value creation focus of their IR.

Let’s keep looking to reduce the reporter’s burden by seeking smart, sensible outcomes that mean accountability does not hinder getting the job done. But let’s also not lose sight of what makes accounting most effective – highly targeted, audience driven, uncluttered communication that adds value for the business, enlightens the reader and enables better outcomes for both.

About the author 

Paul Davies is a Principal at Banarra and has worked on numerous reporting, materiality, stakeholder engagement, strategy, community standards and assurance assignments in the property, telecommunications, financial, mining, energy, legal and service sectors.

Davies is a certified GRI trainer, a member of the GRI G4 working group on management approach disclosures and a member of the GRI G4 Practitioner's Network.