The concept of integrated reporting (IR) has been around for awhile but only recently are companies beginning to embrace it. According to the International Integrated Reporting Committee (IIRC):
“IR demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, IR can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing.”
Benefits of IR
The idea is simple: in the past companies published separate CSR and financial reports for different audiences. Now however, an integrated report will keep all the relevant financial and ESG information in one report. The primary benefit of IR is that it encourages a more holistic view of the company’s operations. Financial executives are incentivized to consider the sustainable performance of their business. This perspective is needed for a company’s long-term objectives, strategy and corporate value.
According to Robert Eccles of Harvard Business School and author of One Report: Integrated Reporting for a Sustainable Strategy based on Southwest Airlines’ transition to IR:
“Integrated reporting instills the discipline to be much more specific about the relationships between financial and nonfinancial performance, and this will benefit all stakeholders.”
In addition to Southwest Airlines which was one of the first companies to use IR; BASF, Philips, Novo Nordisk, United Technologies Corporation (UTC) and American Electric Power (AEP) also use this method. In 2008, UTC was the first Dow Jones Industrial Average member to produce an integrated report. Now Clorox is joining this league.
Clorox Embraces IR
According to their website:
“For Clorox, its financial performance and corporate responsibility commitment go hand in hand. That’s why we have integrated our financial, environmental, social and governance performance in one report. “Our success in each of these areas matters to our stockholders and a range of other stakeholders, including employees, consumers, customers, government and non-government organizations, business partners and our communities.”
Sales for the 2011 fiscal year ending in June stayed steady with the previous year at $5.2 billion. Clorox has managed to reduce energy and water use as well as GHG emissions. They have also made environmental improvements to 16 percent of their product portfolio with plans to improve a quarter of their products by 2013. Having all of this relevant information in one source makes assessment of company value and performance easier. Socially responsible investors demand this kind of information and many countries and stock exchanges might even make it mandatory. South Africa has already mandated IR for 450 publicly traded companies on the Johannesburg Stock Exchange and has released a first-draft South African Framework for Integrated Reporting.
The only downside of this format is that the report is bound to be very long which means stakeholders are unlikely to read it. However, the framework by IIRC will overcome this problem significantly. For now, it remains that IR may well be the future of reporting.