Achieving Sustainability Through Integrated Reporting
Integrated reporting, a combination of financial, non-financial, and environmental reporting, is an emerging trend that looks to correct the shortfalls of traditional corporate sustainability reports.
With the rise of digital disruption and sustainability concerns in many industries, corporations are looking for new ways to communicate with shareholders, customers, and employees. As people like investors and customers become more interested in how businesses affect the world around them, companies themselves are becoming more concerned about achieving sustainability.
What is integrated reporting?
An integrated report organizes information that presents financial and non-financial aspects of business performance. It can help companies find ways to make their business run better and make improved decisions for the future.
Traditional financial reporting focuses on precise measurements, but integrated reporting helps you think about how non-financial information, such as CSR activities, the quality of services, flexibility, utilization of resources, etc., about your business can develop a vision for the future. In this way, you can use integrated reporting to make better decisions for achieving sustainability.
The evolution of sustainability reporting
A sustainability report is an essential part of any company’s communication strategy. Not only does it addresses the stockholders of the company but also the stakeholders displaying the organizational journey. Again, it is an excellent tool for companies to follow trends and address their stakeholders’ concerns. The first sustainability reports appeared over 20 years ago when the Global Reporting Initiative started.
Since then, the concept has been expanding, and companies have been reporting their progress on several topics, including climate change, human rights, supply chain transparency, and many more. Some companies are even making sustainability reporting mandatory. For example, in Australia, all companies on stock exchanges have to write a report every year about how they affect the environment and society.
Why should you integrate your reporting?
The integrated report takes data from different sources and merges them into one account, thus reporting to the people about their investments and the ability of the company to achieve sustainability for the years to come.
While some prefer to read the report, it can also be in the form of a small table, graph, or pie-chart. The purpose of the integrated information is to be transparent to the stakeholders. A good business analyst should continue updating the latest tools to automate reporting. The reporting tools used should be meaningful and easy to understand for decision-makers.
The benefits of integrated reporting
Integrated reporting starts with a single report that summarizes both the financial and non-financial performance of a business. However, an integrated report is not a comprehensive collection of all available performance data. Instead, it centralizes critical information on financial and non-financial aspects. An ideal business world would also show the link between these vital financial and non-financial performance measurements. Unfortunately, this is not a common practice even in the most progressive organizations that use integrated reporting today.
The following are some examples of the kind of data that might be included in an integrated report:
– How can training programs help the staff be more efficient, reduce turnover, and improve customer satisfaction?
– The more satisfied customers are, the more likely they stay loyal. Therefore, how much money should be allocated to client loyalty programs?
– How can better risk management through good corporate governance help the brand’s value and strength?
– What are the company’s goals toward global warming or climate change?
The advantages of integrated reporting
Integrated reporting is still in its infancy, but three benefits groups can be seen:
– The first benefit is internal, and it includes better internal resource allocation choices, more interaction with shareholders and other stakeholders, and less risk of a bad reputation.
– External market advantages include meeting the needs of mainstream investors who want to know about environmental and social governance, achieving sustainability indexes, and ensuring that data providers accurately report on the company’s non-financial information.
– Prepare for a possible wave of global regulation, answer stock exchange questions, and be a part of the process of making frameworks and standards. This third area is called risk management.
Naturally, integrated reporting is neither a panacea for optimizing resource allocation choices nor a silver bullet for resolving contemporary financial and non-financial reporting issues, especially given its youth. Businesses interested in adopting integrated reporting encounter several obstacles; the first is the absence of an internationally acknowledged standard defining what constitutes an integrated report.
However, there are an increasing number of integrated report examples from which businesses may learn. A closely related issue is the absence of an internationally acknowledged set of standards for the measurement and reporting of non-financial data. As a result, few businesses have internal control and measurement systems as robust for non-financial information as for financial information. It is hard to get all the non-financial and financial data you need for an integrated report if you are a business.
Additionally, users of integrated reports have time limits that mitigate their ability to benefit from integrated reporting today. Without a way to organize and standardize non-financial data, it is impossible to compare the performance of different businesses, which is an essential part of investment research.
Another constraint is the limited number of organizations that use integrated reporting and the fact that it is likely to be implemented to varying degrees across sectors and nations. There are concerns regarding the veracity of the data given by businesses. A third-party assurance on non-financial material in the report is often optional, let alone the complete integrated information. And even when a warranty is offered, it is seldom conducted with the same thoroughness as a financial report audit.
While they are substantial obstacles, they can and must be conquered swiftly.
A sustainable society necessitates that all of its businesses adopt integrated reporting to ensure that today’s resources do not compromise future generations’ access to resources. There is just no substitute for comprehensive reporting. This concept, which is still in its infancy, must mature into a robust and solid management practice. The government, non-profit, and business sectors need to work together to make this happen.