Reactions to Launch of International Integrated Reporting Committee

The TakeAway: Integrated reporting is a great idea, but there are many implementation challenges.

Sustainability guru John Elkington calls integrated reporting  (which blends financial reporting with environmental, social and governance  reporting) a Holy Grail, the “Second Tiger” of the Transparent Economy.  Most commentators greet this week’s launch of the International Integrated Reporting Committee (IIRC – which we reported yesterday) and the concept behind it with similar enthusiasm.  However, some caution against loading too many expectations onto the IIRC’s shoulders.  Today, we survey the spectrum of responses, sorting them as follows:

The Skeptical Response: A small group of professional skeptics question the value of assembling  prominent experts to save the planet, as IIRC does.  Rachel Sanderson of The Financial Times called the task “challenging, because international accounting rule-setters still struggle to make financial reporting rules converge.”  Prince Charles’ support, she contends, could help it succeed, though Michael Cohn of WebCPA satirized his impact.

The “Stop-Look-and-Listen” Response: These commentators spot potholes  on the road to widespread use of One Report (another term for integrated reporting).  Yesterday, TriplePundit’s Leon Kaye identified several significant barriers to overcome before integrated reporting becomes a reality.

  • Advocating for government mandates, as most companies won’t report voluntarily;.
  • Connecting integrated reporting with XBRL protocols; and
  • Overcoming investor and investment analysts ignorance of sustainability factors.

Dominic Jones of IR Web Report thinks investors and investor relations professionals are “scarcely represented” within the IIRC constellation, noting the absence of the CFA Institute and Global Investor Relations Network (GIRN)

The “Don’t Take the Wind Out of the Sails” Response: A more nuanced set of reactions stem from worries that integrated reporting is “the topic du jour for report wonks,” as Business for Social Responsibility CEO Aron Cramer recently put it.  In his blog, Cramer lauds the effort, but cites unintended consequences that may “reduce” or “dumb down the ESG [environmental, social, and governance] content on which companies report.”  That is, once lawyers and accountants get involved, the aspirational language that inspires and motivates people will devolve into box ticking edicts.

Cramer also makes the fascinating point that, in a rapidly changing media landscape, the idea of one report runs the risk of being outdated.  First, he says, there won’t be enough room in a single report for all that information, unless it’s vastly consolidated.  Second, with the explosion in technological tools such as social media and on-demand, customized reports, having a static “one report” may prove untenable.  With radical transparency and information bombarding us from everywhere, “It is possible that an integrated report is to sustainability what the daily newspaper is to journalism: a model that won’t survive the digital revolution.” JustMeans CEO  Martin Smith similarly stated that the democratizing of data has profound implications for corporate social responsibility and social media.

Yesterday, Global Reporting Initiative Chief Executive Ernst Ligteringen responded to Cramer, validating his concerns valid and adding another. “Some may suggest that only ESG factors that can be monetized would be fit for integrated reporting.  While the need for robust ESG information is indisputable, an exclusive focus on such measures would filter out many relevant factors.”  Ligteringen continues by stating that not only will the IIRC initiative “mainstream ESG reporting, but more importantly, drive the integration of sustainability into all aspects of the business.”  The basic aim is to develop a new form of reporting “to equip ourselves for a different future.”

Well said.  But let’s not forget that building a more sustainable, prosperous, and just world involves other things beyond integrated reporting.

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