On Monday, two international organizations devoted to corporate social responsibility (CSR), the Global Reporting Initiative (GRI) and the Prince’s Accounting for Sustainability Project (A4S), joined forces in advocating for integrated reporting. The International Integrated Reporting Committee, or IIRC, is tasking itself with creating a globally accepted framework for bringing together financial, social, environmental, and governance information. By developing a clearer and more concise framework that will allow stakeholders to monitor companies’ performance at all levels, the IIRC’s intention is to help create and maintain a more sustainable economic model for business.
Integrated reporting is in its infancy but is catching on. South Africa is the first nation to require public companies to disclose what advocates call “one report,” and mandated integrated reporting has become the talk in countries from Brazil to Denmark. In the United States, American Electric Power, United Technologies, and Southwest Airlines issue such reports; European giants Novo Nordisk and Philips have also integrated their financial and CSR disclosures. These companies decided to present such reports to their stakeholders because they believe it is the best way to demonstrate their commitment to sustainability while proving that they have the internal discipline and rigor to follow through.
Intuitively, combining financial and CSR reports into one document appears to be a no-brainer. For public companies, issuing financial reports has become notoriously expensive, especially in the United States since the 2002 adoption of the Sarbanes-Oxley Act, which a response to the corporate scandals that engulfed Enron and MCI. Sustainability reports have become more commonplace, but lack consistency, though GRI is becoming the standard. Eliminating duplicative tasks makes sense. But so far only about 1500 of the world’s largest 80,000 companies use the GRI approach. If the IIRC’s vision is to become reality, many significant barriers must be overcome:
- Partnering with regulators. Despite the arguments economics are a driver behind CSR reporting, many companies still will not go through the trouble unless governments require them to do so—and that comes with a risk. At a time when there is a global backlash against “big government,” finding a way for business and government to work together in finding such a solution is key.
- Aligning financial reporting requirements with those of non-financial disclosures. Integrating a company’s internal controls and procedures will be necessary—GRI is already a step ahead with its XBRL taxonomy.
- The mindset of investors and analysts lends them to ignore companies’ sustainability performance. It will be up to the GRI, A4S, and IIRC to prove and demonstrate that assumptions of business performance and sustainability are two separate issues are false.
- Clearly defining and quantifying how CSR performance impacts a company’s bottom line. Many CSR advocates and companies claim that improved sustainability, labor, and governance equals improved shareholder value but do not offer the numbers to back them up.
CSR reports are improving, moving beyond “green PR” to actually demonstrating how companies are making a difference in their communities, with their workforce, and on the planet. For those who have been pushing for integrated reporting, the formation of the IIRC will make for an exciting decade. Not to mention a nice legacy for Prince Charles, who set up A4S in 2004.