Why the World May Not Be Ready for Integrated Reporting

Integrated reporting has been seen as the holy grail of sustainability reporting since I've been tracking CSR reports. After all, combining the CSR report with a company's financial report means that the content it includes will be seen by many more people, including those outside the sustainability tent. Aligning sustainability with financial best practices can only increase its legitimacy, right?

The short answer is a resounding "yes!", but the long answer - the how, and especially the when - will always be more complicated. The Global Reporting Initiative launch of the G4 guidelines last week brought together a cadre of sustainability reporting practitioners and the topic of integrated reporting was on everyone's minds - and the subject of many networking break conversations. The challenge of implementing integrated reporting gets to the core of what reporting is all about - who it is for, what those people want, and how best to collect and share that information.

There is no doubt that the leaders of the Global Reporting Initiative are keen to support integrated reporting. In March, GRI and the International Integrated Reporting Council signed an MOU to deepen cooperation and GRI CEO Ernst Ligteringen said, “Integrated Reporting is a powerful lever to mainstream sustainability disclosure where it relates to a company’s ability to create and sustain value." But the G4 and even that MOU are quite vague on the details of how current sustainability best practices will find a home in the swirling beast of regulatory practice that is financial reporting and auditing.

Some fear that the heart of CSR - those stories and the passion for social and environmental change - will be lost amid the deep regulatory framework of the SEC, 10-Ks, annual reports and the enormous body of rules and regulations for reporting that financial accountants have developed over the years.

Here are three reasons the world might not be ready for integrated reporting:

Things are moving too fast

All in all, sustainability reporting - the concept of reporting on an organization's social and environmental impact publicly, and working to improve it - is still pretty young. The drastic changes to best practices seen in the latest version of GRI's guidelines, show that the movement is evolving rapidly.

Bruno Sarda, Director, Global Sustainability Operations at Dell said, "Sustainable reporting is still pretty new and many of the metrics we track are not as mature as, say, financial data. If it needs to be audited alongside financial data the fear is that integrated reporting will result in fewer sustainability issues being reported."

Many practitioners of sustainability reporting expressed similar concerns to those shared by Sarda. Although the best practices for sustainability are quite stringent, the end result, in terms of the reports we see coming out, vary quite a bit in terms of quality and adherence to the standards. Perhaps we need more time to fully bake our industry before we merge it with another.

Is the data there?

Integrated reporting is all well and good, but integration means more than simply tacking the existing sustainability report on to the annual report as an addendum. If that is the future home for sustainability in integrated reports, reporters don't want any part of it, because it will mean that the story, the heart of sustainability, gets dropped in favor of information with hard numbers behind it, and those numbers just may not be "there" yet.

Mary O'Malley, VP of Environment and Sustainability at Prudential participated in a recent integrated reporting pilot program and expressed deep concerns about integrated reporting during a panel at the Amsterdam Stock Exchange. "We don't want to create a report for a report's sake. Combining sustainability reporting with financial reporting means defining materiality very narrowly because you have to create a document short enough that people will actually read it." The challenge is that sustainability metrics are not up to par enough to stand up to the rigors of the financial materiality litmus tests.

Yet, we as sustainability practitioners know that the challenge is not with the importance of sustainability, it's with our means of measuring the direct financial impact of social and environmental issues. The measurement metrics will get better as we continue to refine the reporting process, but if we throw sustainability reporting in with financial reporting too quickly and hold our issues up to the cold light of the financial auditing process, much sustainability information may not hold up, and may be tossed out in order to have a succinct report.

Integrated reports may lose some of the story

The practice of sustainability is an interesting beast. So many leaders in the CSR community speak about a personal passion for the topic, a deep understanding of the social and environmental constraints faced by the world, and what some would call a near-compulsion to do their darndest to make companies do a better job of addressing them.

Our work comes from the heart, yet to be successful in our mission to make every company a sustainable company, we must make the business case for sustainability, we must define the ROI on sustainability projects and we must measure what we want to be managed. Our tools for doing so have not caught up with our heart's passion for the work. While truly integrated reporting, where social and environmental issues are reported on alongside financial information, is an obvious win for the sustainability movement, the metrics may not "be there" yet for every company. And a sustainability practitioner who has still not yet convinced her company's leadership to turn the company in a sustainable direction, faces a big risk if she tries too hard to hold every sustainability project up to the cold hard light of quarterly profits. We are too early on in our fight to lose the heart, the story, that drives us in our work, and if turning it over to the accountants means losing that component, the world may not yet be ready for integrated reporting. But we'll keep pushing in that direction.

However, that's not the end of the story. There are a number of companies who have successfully transitioned to integrated reporting and are doing so in a manner that deepens the legitimacy of sustainability as a measure of a company's impact - rather than sweeping it under the rug. Check back tomorrow for a round up of integrated reporting best practices.

[Image credit: MikeBehnken, Flickr]