Vice President, Human Rights, BSR
Former Director, Advisory Services, BSR
In a recent article, we explored the different ways companies can approach the materiality principle given the potentially incompatible definitions put forward by the three most influential sustainability reporting initiatives, the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB), and the Global Reporting Initiative (GRI). In the end, we recommended our own “blended approach” that works with all three.
However, a problem has lingered: Should a company really have to publish three different reports containing sustainability performance information?
The focus of the three initiatives suggests that a company should publish three separate reports:
- For the SASB, the focus is first and foremost on an increase in sustainability disclosures made in the existing Form 10-K.
- For the IIRC, the focus is on new integrated reports that concisely set out an integrated story about how the company creates value in the short, medium, and long term—but only to the extent that it is material to investors.
- For the GRI, the focus remains on sustainability reports that provide information that is material not just to investors, but to all stakeholders.
Indeed, the IIRC Consultation Draft anticipates that companies will publish three separate reports: “Organizations may provide additional reports and communications (e.g. financial statements and sustainability reports) for compliance purposes or to satisfy the particular information needs of a range of stakeholders. The integrated report may include links to these other reports and communications.”
So what happened to integrated reporting?
After some thought, we have some bad news and some good news for those interested (as we are) in more efficient reporting.
The bad news is that there’s some compelling logic behind each separate report:
- Integrated reports: We’re greatly attracted to the concept of an integrated report that tells a concise story about a company’s strategy and performance. Tackling today’s challenges requires fully integrating sustainability into business management, and this implies the need for corporate reporting that communicates the full range of factors affecting the ability of an organization to create value over time.
- Financial reports: However, a succinct integrated report is never going to satisfy the detailed financial (and nonfinancial) information needs of investors, so detailed Form 10-K reports (and their cousins outside the United States) will remain a permanent feature of the reporting landscape.
- Sustainability reports: Likewise, a succinct integrated report also will not satisfy the detailed sustainability information needs of the public and the broader non-investor stakeholder community, and detailed sustainability disclosures are also likely to remain a permanent feature of the reporting landscape.
So, three reports it is. But, as we said, there’s good news: We believe there are ways to streamline the reporting process through a “joined-up approach” that looks like this:
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In our previous article, we advocated for a “blended materiality” approach that serves as the common jumping-off point for all three reports—with the integrated report providing the overall picture and the financial and sustainability reports filling in the details for specific target audiences.
Most importantly, however, our experience with today’s reporting processes suggests that implementing this joined-up approach would result in greater efficiency, allowing for shared features in the three reports, including:
- Same look and feel: The three reports can have a common branding, design, and format. Though they have different audiences, they are parts of a complete series.
- Same theme: The three reports can highlight the same basic narrative for the year. Most obviously, this could be conveyed in a single CEO letter, which would cover risks and opportunities for the business, areas of growth, strategy, and other relevant points stemming from the blended materiality approach.
- Same performance overview: The three reports can contain one performance dashboard, covering financial and sustainability key performance indicators, which would serve as a common reference point for financial analysts and other stakeholders to understand the company’s performance without sifting through three reports.
- Same approval process: The three reports can follow an identical review and sign-off protocol. We’ve been involved in both sustainability and financial reporting processes and find that the makeshift approach to approving a sustainability report contrasts sharply with the methodical nature of the financial report sign-off. It’s time for an integrated reporting process with identical review and approval protocols and timelines for all official reports.
For us, integrated reporting remains the end goal. However, the issue remains that different audiences—investors and broader society and non-investor stakeholders—have different information needs. This information can still be conveyed through a suite of reports and communications vehicles, with the 10-K outlining financially material information, for example, and the sustainability report using the GRI G4 framework to provide sustainability performance information not covered elsewhere. Thus, the onus would be on complementarity, not duplication, of data and supporting information.
An examination of the three main reporting initiatives leads us to conclude that the solution to integrated reporting isn’t a single integrated report; rather, it’s an integrated set of reports—using common methodologies, processes, frameworks, and language—that, when combined, tell the complete story and meet the needs of diverse report users. And as we’ve outlined above, we believe that this vision, in which reporting coalesces and combines where it makes most sense, is within the grasp of companies today.
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