ACCOUNTING & SUSTAINABILITY
Integrated Reporting
Traditional reporting from companies involves communicating performance via financial reports. These reports consist of financial statements and disclosures over a certain time period. Traditional reporting differs somewhat between the United States and the rest of the world. The U.S. adheres to a “rules-based” approach and uses Generally Accepted Accounting Principles (GAAP) whereas much of the globe uses International Financial Reporting Standards (IFRS) and is “principles-based.”
Traditional reporting primarily focuses on communicating financial information and doesn’t include social and environmental factors unless they translate to conventional categories.
Limitations of Traditional Reporting
Due to its purposefully narrow focus, financial reporting was never intended to consider broader environmental, social, and governance (ESG) factors. Plenty of research now demonstrates ESG factors have important, material effects on financial performance, such as this report from NYU Stern School of Business that looked at over 1,000 studies between 2015-2020.
The limitations of traditional reporting and the promise of new measures of financial performance have created the need for a framework to integrate financial and non-financial (e.g. ESG) information. This has to led to the concept of “integrated reporting”, a key concept for today’s accounting professionals to understand.
Introduction to Integrated Reporting
Integrated Reporting: Merging Financial and Non-financial Information
Integrated reporting combines material financial and non-financial information and presents the business context as a whole to show how these business facets connect and create value that can be sustained over time. According to the Value Foundation’s “Towards Integrated Reporting” report, the following guiding principles are used when preparing an integrated report:
- Strategic focus
- Connectivity of information
- Future orientation
- Responsiveness and stakeholder inclusiveness
- Conciseness, reliability and materiality
The Value Foundation report lists the following goals of integrated reporting are to:
- Improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.
- Promote a more cohesive and efficient approach to corporate reporting that draws on different reporting standards and communicates the full range of factors that materially affect the ability of an organization to create value over time.
- Enhance accountability and stewardship for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their interdependencies.
- Support integrated thinking, decision-making, and actions that focus on the creation of value over the short, medium and long term.
Integrated Report Example
The Value Reporting Foundation shares examples of integrated reports resulting from various awards and ranking programs that they claim meet their standards for integrated reporting. Learn more about integrated reporting by reviewing these published reports by actual companies.
Integrated Reporting Around the World
According to Columbia Law School research, integrated reporting is not yet as commonly used in the United States as in other parts of the world. However, some U.S. companies do voluntarily produce integrated reports and the pressure to do so is increasing among investors, consumers, and regulators. More information on the differences between reporting on sustainability information in the U.S. vs globally can be found on the “Global Reporting” page.
Learn about more sustainability concepts within this major.
ADVANCE YOUR KNOWLEDGE OF REAL ESTATE AND SUSTAINABILITY
Learn what sustainable accounting is all about and its importance
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