Why is integrated reporting important for sustainability?

Articles, Entrepreneurship, Sustainability - Dr. İzel Levi Coşkun - August 28, 2015

The heavy responsibility to leave a better future to the next generation in a period in which we are experiencing the pain of transitioning to a sustainable society from a consumer society requires that establishments determine their strategies within the framework of the development criteria.

The Brundtland Report published by WCED in 1987 defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

It was soon realised that sustainable development goals which require long-term planning and a cooperative approach could not be achieved with the decisions and practices of the state only.

Following such realisation, The Global Compact, which was presented at the World Economic Forum in 1999 and which contained 10 principles under the main titles of Human Rights, Labour, Anti-Corruption and Environment, highlighted the responsibility of companies and invited them to become a part of sustainable development.

Accordingly, the notion of corporate sustainability, which was defined for sustainable development for macro-scale states, in parallel with micro-scale enterprises, states that social goals such as the protection of the environment, social justice, equality and economic development must be achieved, while accepting that companies need to grow and make profits.

Thus the goal of corporate sustainability is to create an awareness of carrying out business in harmony with the principles of sustainable development. It strives to make sure that establishments aim to create long-term stakeholder value and observe the interests of the system in which it operates rather than their own interests only. What is aimed at that point is to establish equilibrium between economic return and social and environmental impact; to make these components measurable and to integrate them into the operations and corporate management as well as to integrate the generated service or product into the whole life cycle. This is the hardest task of all because adopting such an approach will force establishments to reconsider some factors which they had previously defined as external and express them in numbers for the sake of corporate sustainability. This requires that some habits be given up and that a different and holistic point of view be adopted.

According to Mervyn King, Chairman of the International Integrated Reporting Council (IIRC) and Chairman Emeritus of the Global Reporting Initiative (GRI), the management should monitor and manage both financial and nonfinancial elements across the whole value chain (from design and supply chain to operation and from consumer purchases to the end of the product life-cycle) rather than focusing on financial performance only. The goal is to ensure that financial and nonfinancial data are integrated… The logic here is that neither corporate financial reports nor the increasingly popular sustainability reports present a comprehensive view of the establishment’s value and performance; unless these two come together, neither type of report will be complete.

Integrated reporting is a brief and to the point means of communication which directs an establishment’s strategies, corporate governance, performance and goals towards creating value in a way that will include its external environment in the short, medium and long term.

The integrated report, which brings together the financial and nonfinancial data is aimed at all stakeholders that play a part in the value creation chain of an organisation, which includes the employees, customers, suppliers, business partners, local communities, policy-makers and law and standard-makers.

An integrated report must not be thought of as an annual report that contains financial tables only and another one that combines environmental, social and corporate governance information. The key here is to bring together financial data with nonfinancial components that are seen as external components and to establish a relationship between these two through the integrated report. Achieving Sustainability through Integrated Reporting contains some example questions about the kind of information that an integrated report can contain: How much water does a company use per unit of production compared to its competitors? To what extent do energy-efficiency programs reduce carbon emissions and lower the costs of production? What is the impact of training programs on improved workforce productivity, lower turnover, and greater customer satisfaction? How do improvements in customer satisfaction lead to greater customer loyalty, a larger percentage of the customer’s spending, and higher revenue growth? How is better management of reputational risk through good corporate governance contributing to the value and robustness of the company’s brand?

The International Integrated Reporting Council (IIRC), which consists of law-makers, standard-makers, investors, companies, accounting professionals and NGOs, published its standards for integrated reporting in December 2013 in the belief that the next step in the future of corporate reporting will be creating value.

Some examples of integrated reporting practices in the world are as follows: in 2010 South Africa made it compulsory for all listed companies to prepare integrated reports, which was a first in the world. In 2008 Argentina introduced the obligation of companies with over 300 employees to publish annual sustainability reports. Denmark, Sweden and Norway also have sustainability report rules in place. France, on the other hand, expects all listed or large corporations to prepare annual reports within the framework of the rules of Grenelle II, and these annual reports must contain information about the social and environmental impact of the operations of such corporations.

A very important development in Turkey is the sustainability index that begun to function in the stock exchange. I believe that Çimsa and Garanti Bank, the Turkish participants of the IIRC’s pilot programme will light the way for other establishments that plan to prepare integrated reports in the future.

I believe that the following will play an important part in the future of integrated reporting:
1-It should be ensured that notions of social and environmental benefit are better understood by stakeholders, and particularly by consumers. Accordingly it should be ensured that the public gains an awareness of sustainable development;

2-The integrated reporting infrastructure should be turned into an approach which will naturally adopted by environmental, social and corporate governance in companies;

3-Integrated reporting should be spread across a wide range of companies from small and medium enterprises to start-up companies rather than being limited to listed or large companies;

4-Auditing standards must be set to ensure the accuracy of the information contained in the reports;

5-The relationship between the financial and nonfinancial data contained in the reports must be established efficiently and such connection should be made measurable and subject to standards;

6-Reward and punishment mechanisms should be set up;

7-The sustainability effect should be added to the results as (+) or (-) in the calculation of enterprise value and brand value.

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