3E’s – The Challenges of Integrated Reporting: Execution, Engagement, Education
How hot is the integrated reporting (IR) trend, which unifies corporate financial and sustainability information? It depends on your lens. By the numbers, it’s barely a blip on the radar: according to CorporateRegister.com, a mere 247 integrated reports were published globally in 2010 (up significantly from 10 in 2004), paling in comparison to the 5,494 sustainability and corporate responsibility (CR) reports produced last year—not to mention the reams of financial reports. But these statistics belie a longer arc.
Judging from cultural momentum, integrated reporting seems inevitable. At its May 2010 conference, the Global Reporting Initiative (GRI), the predominant framework for sustainability reporting, called for a standard for integrated reporting to be “defined, tested and adopted by 2020.” Three months later, the high-powered International Integrated Reporting Committee (IIRC) emerged to create just such a standard. In September 2011, the IIRC released a Discussion Paper advancing the business case and proposing a preliminary framework for integrated reporting, as well as inviting public feedback (prompted by a set of stimulating questions) through December 14th. And in October in Rotterdam, IIRC launched Pilot Cycle 1 of its Pilot Programme, during which forty-four large companies – including Natura, Novo Nordisk, Deloitte, KPMG, Volvo, Microsoft, Marks & Spencer, PricewaterhouseCoopers, Coca-Cola, Prudential, HBSC, and Gold Fields –will road-test the IR principles for two years.
The IIRC efforts represent one side of the equation driving integrated reporting—the push side. That is, companies (and other organizations) pushing performance information into the world. For corporate sustainability advocates, reporting is a means to an end, a door opener to achieving the greater goal of integrating environmental, social, and governance (ESG) factors into core business strategy—a kind of “unified theory” that the IIRC Discussion Paper advances. In other words, companies can push sustainability into the marketplace by melding ESG considerations into their operational DNA.
On the other side of the equation, stakeholder and public demand for companies to take full-spectrum accountability creates significant pull for integrated data and engagement. For example, a recent Harvard Law School blog on the 2011 proxy season signaled a possible “tipping point” for shareholder resolutions on ESG issues. And as the organic globalization of the Occupy Wall Street movement suggests, everyday people recognize the distorting effects of exclusive focus on financial profiteering without valuing broader social and environmental inputs and impacts. And external stakeholder demand has traditionally spurred corporate sustainability far more than internal voices within companies. That’s why investors, regulators, and activist NGOs are lining up behind integrated reporting.
This push and pull dynamic toward integrated reporting creates major overlapping challenges for corporate accountability that fall into three categories—Execution, Engagement and Education—or the 3 E’s. When coupled with enhanced materiality, stakeholder support, and early warning systems, they give companies a competitive edge.