Integrated reporting is one of the most debated topics in the accounting and business reporting space. Its advocates argue that integrated thinking is the wave of the future and that older reporting models ignore important value creators. Opponents suggest integrated reporting is an unnecessary, or at least expensive, reform with which most businesses don’t have the time to comply. There’s a lot of information out there from both sides. Here’s a quick breakdown of integrated reporting, its pros and cons, and why it’s not the same thing as sustainability reporting.
Why the Debate About Integrated Reporting?
You usually run into two reasons for the adoption of integrated reporting. The first reason might be characterized as a reflection of shifting social and cultural values – namely, that businesses should learn to think more responsibly in terms of their social and environmental impact. The second reason- which may seem more practical from an operational or investment standpoint – is that integrated reporting is better than any other existing model at reflecting the long-term ability of a company to generate and sustain value creation. Towards that end, the International Integrated Reporting Council (IIRC) published a consultation draft of its reporting framework in 2013. It argued for companies to adopt a series of standards to help clearly communicate value. The Chartered Professional Accountants of Canada released a public statement about the IIRC’s consultation draft. Therein, CPA Canada suggested that the “concept of an integrated report” was fine but that most investors and lenders didn’t yet demand such reporting and that most organizations are unable to meet strict new standards in a cost-effective manner. As CPA Canada put it, “In our view, few organizations currently have sufficiently integrated and robust systems and processes or an integrated thinking mindset necessary to generate a reliable integrated report.”
What Integrated Reporting Really Means
Practically speaking, integrated reporting combines strands of several other existing business reports. IIRC CEO Paul Druckman told an interviewer that, “Integrated reporting is where an organization explains how it is going to create value.”KPMG, a global accounting network, said the chief characteristic of integrated reporting is its ability to address each of the major “Capitals” consumed or created by businesses. Among these were:
Integrated Reporting Is Not Sustainability Reporting
Although they may seem similar in some of their emphases and requirements – both reporting styles acknowledge the importance of environmental and governance issues in business. For example – integrated reporting should not be confused with sustainability reporting. Sustainability reporting is focused on some value-relevant data. That said, it only creates actionable information incidentally. A sustainable report might introduce sustainability indicators and show trends in resource usage, but it ultimately remains disconnected from a more direct financial purpose. On the other hand, integrated reporting cares primarily about relevant reporting for investors and business owners and executives. The idea is to link non-financial performance to a business directly. It should help evaluate how effective a company is at achieving its mission.