New stakeholder demands fuel need for integrated reporting

More than 60 companies are testing a corporate reporting model that brings together financial and CSR into one integrated document.

More than 60 companies are testing a corporate reporting model that brings together financial and CSR into one integrated document. The pilot project is run by the International Integrated Reporting Council, which is looking to build a business case for the new model.

"Times have changed," says CEO Paul Druckman. "A big concern businesses have is that the financial meltdown will lead to more compliance, which might not be beneficial in the long run. We want to make sure if something does transpire it has real merit. It should not be just about adding more to the information clutter that is already out there."

Last fall, the council launched the two-year pilot and hopes to build a set of standards for publicly traded companies to follow. Geographically, most pilot participants, including Danone, SAP, and Marks & Spencer, are headquartered in western Europe.

Participation in the US lags, which is why the organization is reaching out to additional Fortune 500 companies.

"We need at least a dozen companies from the US to have fair representation," says Druckman.

To date, the five US pilot participants are Cliffs Natural Resources, Microsoft, Prudential Financial, The Coca-Cola Company, and Edelman.

Countering Contradiction

Integrated reporting can improve investor, analyst, and business media communications, says Jessica Fries, executive director for the International Integrated Reporting Council.

In addition to financial documents, a lot of companies produce various CSR reports. "But I've seen multiple reports from the same company with very contradictory messages," she notes. Integrated reporting creates a common base for communication, helping to improve consistency of message.

In addition, by better integrating CSR and financial functions, Fries believes integrated reporting "can also help connect the dots between different parts of a business and build a better company narrative."

A matter of trust
Alan VanderMolen, vice chairman of Daniel J. Edelman Inc., tells PRWeek, "There is great need for integrated reporting because businesses and regulators, to a great extent, have lost their trust mandates with investors. We've seen a shift from what I would call a shareholder society to a stakeholder-led society.

"Investors increasingly want to have their eyes on corporate strategy, governance, and the financials, as well as social and environmental policies," he adds.

Business tech company SAP is participating in the program because leadership feels corporate reporting and disclosure face new challenges in the 21st century due to changing stakeholder demands and IT developments.

"While sustainability reporting has come far in identifying external impacts," says Rami Branitzky, SVP of sustainability strategy at SAP, "more work is required to integrate sustainability into corporate strategy, improve data quality, and assess the associated risks and opportunities to all stakeholders."

According to early results, most companies in the pilot already produce some type of sustainability document, in addition to the standard financial reports. In most cases, however, the CSR report is distinct in its communications from other company reports, which can inadvertently lead to contradictory messages.

By bringing various reports together, companies now find "they report on things such as CSR against key performance indicators that align to corporate strategy rather than just being about compliance," Druckman notes. "Companies have also found benefit in the collaboration that comes with working across business units in producing the report."

Roadblocks remain
Integrated reporting isn't without hurdles, however. "Regulators are the biggest roadblock right now," explains Druckman. "Many companies want to be as transparent as possible, but they feel prevented from doing so because of the litigious society we live in."

Druckman's organization works with regulators from various jurisdictions, including the US, but admits integrated reporting is not high on their agenda.

The pilot has also found that only 5% of companies have sufficient systems in place to be able to deliver the required information for an integrated report.

"Companies have a lot of financial data," says Druckman. "While a lot of them might also collect non-financial data, they're simply not doing it with the kind of detail and controlled level required for accurate, external reporting."

The adoption of integrated reporting requires institutional change in which the chief sustainability officer is on a more level footing with the CFO, concurs VanderMolen.

"These reports and behaviors tend to be put out in silos," he says. "What we're talking about here is breaking down internal silos so you have organizational recognition of the importance of integrated reporting."

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