Integrated Reporting - A Pathway to Rebuilding Trust in Business
Society’s trust in key institutions — business, government, NGOs, and media - has reached crisis point, according to a survey by the 2017 Edelman Trust Barometer of over 33,000 respondents in 28 countries.1
This has primarily been driven by a lack of faith in the capital system that fails to address societal and economic concerns, including globalization, the pace of innovation and eroding social values. In particular, the globalisation of businesses has allowed companies to exploit cheap labour in developing countries, abuse natural resources and cause serious consequences for the natural environment and human health through pollution. But that is changing as society has become more informed and less tolerant since the growing use of the internet and social media. In a UK context, this is reflected in the lack of societal trust in business, where the Edelman Trust Barometer revealed that societal trust was only 45% in 2017, with only 28% of respondents viewing CEO’s as credible (down 12% from 2016).
Companies therefore need to change in order to survive in the longer term. According to the Edelman Trust Barometer, institutions need to move from traditional models and work toward an integrated operating model that gives active consideration to not only financial concerns but also societal and environmental elements in order to rebuild trust and restore faith in the system.
Integrated Reporting (IR) is a new corporate reporting model, introduced as a framework in 2013, which builds on reporting developments to provide a more holistic form of reporting the value created by a business, by considering non-financial resources such as human, social and intellectual capitals as well as financial capital.
Active consideration of how these capitals impact on the business, and on society generally, requires integrated thinking to ensure all business functions (e.g. sustainability, strategy, human resources, operations), not just the finance function, are involved in identifying and collecting data for these capitals, and looking at their connectivity – and how value creation affects the business now and in the future. A 2016 global survey found that the majority of executives agreed that organisations need to shift focus from pure shareholder value creation to wider value creation.2 Greater clarity on links between the capitals helps address the challenge of demonstrating their place in strategic decision-making. It also creates the potential to significantly alter investor and company mindsets on how companies operate. This creates a shift in focus from meeting short-term financial goals, to developing a long-term business strategy, which not only makes a commitment to social and environmental issues, but also to sustainable businesses and society.
Studies suggest early adopters have gained several benefits from IR, including enhanced reputation, more effective decision-making, breaking down of internal silos and attraction of longer term investors. Indeed, a recent survey by EY of more than 320 investor organisations worldwide, found that more than 80% agreed that: CEOs should lay out long-term board-reviewed strategies each year; companies have not considered environmental and social issues as core to their business for far too long; generating sustainable returns over time requires a sharper focus on ESG (Environmental, Social and Governance) factors; and that ESG issues have real and quantifiable impacts over the long term.3
IR is already practiced on a mandatory basis in both South Africa and Brazil. In the UK, the IIRC (International Integrated Reporting Council) database indicates that approximately 20% of FTSE companies currently refer to, or are influenced by the International IR Framework. Additionally, a recent survey of 500 industry leaders by the Chartered Institute of Management Accountants (CIMA), the American Institute of CPAs (AICPA), and Black Sun identified that 50 percent of CEOs, CFOs, and chief operating officers are moving toward IR, with 35 percent saying they will adopt it in the next two to three years.4
At Leeds Beckett University, we have an active Integrated Reporting Steering Group that aims to bring practitioners and academics together to discuss current issues, communicate recent research,5 and aims to be a catalyst that promotes IR in our society through research that influences policy and practice. Our most recent research, discussed at our last meeting, sought to establish UK early adopters of integrated reporting (IR) to establish motivations for IR adoption and factors which have either helped or hindered the diffusion of IR within their organisations. If you feel that Integrated Reporting may be the way forward for your business and/or would like to find more about what we do, please contact Fiona Robertson: email@example.com.
- Global Results, Edelman
- Value of Board Level Insights: Purpose Beyond Profit, Integrated Reporting
- Is your non financial performance revealing the true value of your business to investors?, EY
- Tomorrow’s Business Success: Using Integrated Reporting to help create value and effectively tell the full story, CIMA
- What is Integrated Reporting and why does it matter?, ICAS