Integrated reporting, an innovative communication tool, enables companies to highlight all of the value that they create, including non-financial value. This is a windfall for organisations which have chosen to integrate sustainable development in their practices.
An increasingly significant proportion of the value created by companies is not integrated in their financial balance sheets. They thus have to use innovative methods to give a full picture of their activities. Integrated reporting can do this, thus enabling companies to better meet the expectations of all the stakeholders: customers, shareholders, local authorities and NGOs, etc. Furthermore, since it implies an all-inclusive analysis of value creation, it also facilitates integration of sustainable development practices into company strategies. This means that companies acknowledge the relationship between innovative green products and growth in their turnover (Philipps in 2010), as well as the negative impact of layoffs on the loss of the company’s collective memory (AEP in 2011).
A great opportunity for accountants
Integrated reporting is the result of an ambitious project to link economic, social and environmental performance to governance of the company. This is a major undertaking which gives accountants the opportunity of integrating the challenges of sustainable development into their analysis. The method is not obvious to the extent that it requires knowledge of environmental issues and the adoption of a global approach to the company’s activities. It is not always easy to count CO2 or litres of water instead of euros! Nevertheless more and more multinationals ( Danone, Engie or Unilever for example) have understood that one of the conditions for their future growth and even for their survival, was that they integrate the issue of sustainable development in their industrial and commercial activities. Consequently it was quite logical for them to gear up from an environmental strategy to environmental accounting. They now invite more and more stakeholders (local authorities, NGOs, customers, etc.) to help them develop their strategies, based on designing and manufacturing ‘ethical’ products and investing in sustainability.
To manage these initiatives, management accountants had to introduce suitable calculation procedures. Integrated reporting gives companies the opportunity to go further by assigning a value to the company’s social, environmental and economic capitals. This process generally begins with a product, a range of products or a region and then gradually extends to include all of the activities. The advantage is tangible : integrated reporting becomes an instrument which facilitates the transformation of practices (production, marketing, human resources, etc.), thus making it possible to improve the value creation process.
A global approach that is nevertheless unique
In South Africa companies are obliged by law to implement integrated reporting. In Brazil they are not bound by any mandatory regulations but are subject to market imperatives (pressure from investors). In both countries there is a lot of feedback on good practices. In Europe this is less true, as companies are in no way obliged to implement integrated reporting. Even though a lot of research has been done on the subject for the last 40 years, only a few companies (Novo Nordisk, Vancity, Natura) had really adopted it before the founding of the IIRC , which has made several tools available to multinationals since 2010 on how to implement integrated reporting. But the large range of available tools cannot replace the inevitable preparatory groundwork, since the aim of the approach is not simply to standardize company practices by means of standard tools (which in any case are evolving continually), but also to reflect how the practices create value in their company and to showcase their unique business model.
What makes integrated reporting so particular is that it is at the same time global (companies all around the world and in all sectors are committing to it) and specific to each company (since it matches their specific activities). In Europe for instance, even though there are groups working on the subject, companies tend to develop their own reporting rules since this enables them to show that they are unique. Over the years, those companies who have made the most headway on the subject have consequently developed specific expertise (for instance for recording the litres of water consumed or taking into account their impact on local populations). They are proud to have set up an efficient environmental accounting system with their own specific tools. Moreover, the IIRC has no intention of imposing any standards and approves the innovative efforts of these multinational companies. Its goal is to get integrated reporting adopted by as many companies as possible.