One report: one plan for future financial stability

Efforts to establish integrated reporting have been stepped up in recent months. Mike Scott speaks to Michael Krzus, an accountant at Grant Thornton and crusader for the cause

In the aftermath of the financial crisis, there is a growing view that investors and companies need to take more account of environmental, social and governance issues as well as more straightforward financial indicators.

While many investors have ignored these issues in the past, there are many who would have liked to take them into account but were unable to gain access to all the information. A new initiative launched last year by the Global Reporting Initiative and the Prince of Wales’ Accounting for Sustainability initiative  – the International Integrated Reporting Committee (IIRC) – aims to change this by encouraging companies to include such information in their accounts.

One of the driving forces behind the concept of integrated reporting is Michael Krzus, a partner at Grant Thornton, based in Chicago, co-author of One Report: integrated reporting for a sustainable strategy, which sets out the case for the practice.

While the concept is in its infancy, there is some urgency to the IIRC’s work, he says. ‘The overarching goal is to get a draft framework on integrated reporting ready to be presented to the G20 at their meeting in November.’

France, which will hold the G20 presidency at the time, is believed to be receptive to having integrated reporting on the agenda.

To come up with a framework in time for the meeting, the IIRC, which includes representatives of governments, accounting firms and business, will have to stick to fairly high-level principles rather than trying to include too much detail, Krzus believes. ‘The framework will also have to be something that existing frameworks such as the GRI and the CDP can be plugged into.’

Integrated reporting has three main benefits for companies, he argues – internal improvements, external market benefits and mitigation of reputation and regulatory risks.

‘When a company has more clarity about the relationship between financial and non-financial performance it can start to see how issues need to be integrated into its business strategy and the tactics needed to implement that strategy,’ he says.

Integrated reporting will force companies out of their ‘comfortable silos’, forcing the CSR department to talk to the finance department, which  will have to talk to the marketing people. ‘We have to break down the walls between departments. Business is not just about financial metrics,’ he points out. ‘Going through this process helps companies to understand and make better decisions.’

Externally, integrated reporting, which a few companies such as BASF and Novo Nordisk are already using, helps businesses to ‘tell their story better – it helps to give investors some context and helps them to draw conclusions on the quality of management’.

When it comes to regulatory and reputational risk, it is not just a question of learning how capital markets perceive your company but how societal factors are changing and what your risks might be in 10 years.

Krzus says: ‘The Holy Grail would be to be able to show that integrated reporting can contribute to financial stability – that would really catch people’s attention.’