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Does CSR Belong in Financial Reports?

By Melissa J. Anderson

Last month, Triple Pundit reported that the Global Reporting Initiative and the Prince’s Accounting for Sustainability Project announced their support for integrated reporting – joining forces to form the International Integrated Reporting Committee, or IIRC.

Proponents of integrated reporting believe that financial, social, environmental, and governance information belongs in the same report. According to Triple Pundit:

“By developing a clearer and more concise framework that will allow stakeholders to monitor companies’ performance at all levels, the IIRC’s intention is to help create and maintain a more sustainable economic model for business.”

Integrated reporting falls in line with recent calls to treat corporate responsibility as a strategic business imperative rather than as a side project or a function of PR. Positioning social, environmental, and governance reporting next to corporate financials will hopefully show how this information contributes to a company’s bottom line and long term growth, raising its importance for many.

The One Report

The seeds of integrated reporting have been around at least since 1994, when John Elkington came up with the term “Triple Bottom Line.” In fact, integrated reporting received a boost in April, when Robert G. Eccles and Michael P. Krzus published their book The One Report. According to an interview with HBS Working Knowledge, Eccles and Krzus believe “integration allows companies a clear view of risks to and opportunities in their own strategy.”

And it will give shareholders a better glimpse of the importance of CSR initiatives that don’t immediately show up in the company’s financial bottom line. As we’ve reported in the past, business leaders have complained that shareholders lack long-term vision when it comes to corporate citizenship, and with CSR reporting included alongside financial reporting, they may look more positively on these types of initiatives. Eccles and Krzus explain:

“[The One Report means] deeper engagement with the broad stakeholder community. First, it will help shareholders focus on more than short-term returns and better understand the investments necessary to ensure long-term viability. Second, other stakeholders will begin to appreciate the need for a company to make a profit if it is to create value over the long term.”

And, they say, the One Report isn’t just an idea. A few companies are already practicing integrated reporting. According to Eccles and Krzus, Philips, Novo Nordisk, Natura, and United Technolgies are leading the way.

Unanswered Questions

As the Triple Pundit article points out, there are stringent rules on how financial reports must be put together, in certain industries in the US at least, and regulations would have to be revised for integrated reporting to catch on. On the other hand, South Africa recently mandated integrated reporting, and Brazil and Denmark are considering it.

Another drawback to integrated reporting is the sheer size of the report. Of late, corporate responsibility reports have grown fairly long, many including supplementary or multimedia material on the web. In an integrated report, would these materials, many of which serve to make the case for CSR, have to be disregarded?

As time goes by, these questions will have to be sorted out. But we seem to be headed in the direction of integrated reporting, which many mean that questions of sustainability, diversity, and corporate citizenship are becoming mainstream for businesses.

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