Should Sustainability Reporting Be Integrated? Global Thought Leaders on the Subject of Sustainability Are Proposing a New Organizational Reporting Structure That Links Current Financial Performance with the Social, Environmental, and Economic Context within Which the Organization Operates. This Initiative Is Unlikely to Find Traction in the U.S. Today
Verschoor, Curtis C., Strategic Finance
The quantity of financial information that organizations report to their shareowners, regulators, and the general public has expanded greatly in the last few years. Although it isn't required, many corporations also publish reports of nonfinancial information concerning their social, environmental, and other sustainable activities. The number of companies issuing such reports continues to grow rapidly. Almost all companies issue their sustainability reports separately from their financial reports, whose contents are mandated by government or regulatory agencies.
Global thought leaders on the subject of sustainability are addressing the challenge of providing more useful information in a clearer, more concise, and user-friendly format. The latest example is the discussion paper titled Towards Integrated Reporting--Communicating Value in the 21st Century, which was published in September 2011 by the International Integrated Reporting Committee (IIRC). The IIRC is composed of an international cross-section of leaders from the corporate, investment, accounting, securities, regulatory, academic, and standards-setting sectors as well as civil society.
According to Sir Michael Peat, chair of the IIRC, "All matters which are important in assessing an organization's performance and position, past and prospective, need to be reported, but not by making annual reports ever longer and more complex. The information needs to be provided clearly and concisely with the connections between financial, environmental, and social impacts demonstrated."
The trend toward greater focus on an organization's responsibility to act sustainably and to voluntarily report relevant performance information began outside the United States. For example, actions to stem global warming are far more advanced in the European Union than elsewhere. In 2001, France became the first country to legally require reporting of sustainability information. Concerning reporting, Corporate Register.com logged sustainability reports from 580 U.K. companies in 2010, an increase of 60% from 2006. In comparison, the 641 U.S. reports from 2010 represented an increase of 136% in the same period.
Reflecting the influence of various global nongovernmental organizations, sustainability reports have unique titles and cover varying areas of corporate responsibility. The world's largest developer of voluntary standards, the International Organization for Standardization (ISO), published ISO Standard 26000 in November 2010 to provide guidance on social responsibility. Over the years, considerable effort has also been expended to develop standards for the content of reports on sustain-ability performance.
The Global Reporting Initiative (GRI) developed the Sustainability Reporting Framework, which is generally considered the most widely used framework for reporting performance on human rights, labor, environmental, anticorruption, and other corporate citizenship issues. Participants in the development process were drawn from global business, civil society, labor, academic, and professional institutions. Because the process involves a multiple-stakeholder and consensus-seeking approach, their use is voluntary in most countries, and their application is subject to interpretation by an organization's management.
The Sustainability Reporting Framework consists of the Sustainability Reporting Guidelines, Sector Supplements, and the Technical Protocol--Applying the Report Content Principles. Included within the Framework are performance indicators and management disclosures that organizations can utilize voluntarily, flexibly, and incrementally, enabling them to be transparent about their performance in key sustainability areas.
The Sustainability Reporting Guidelines, which are part of the Framework, were first issued in 2000, with the current version, G3, published in 2006. Version G3.1 contains expanded guidance on local community impacts, human rights, and gender. …