Get Ready: Mandated Integrated Reporting Is The Future of Corporate Reporting

Trying to create reporting standards that integrate environmental, social and governance performance along with financial information is “fraught with conflict” and an “almost political adjudication process,” says Harvard Business School’s Robert Eccles. That’s why he loves it.

Photo: Robert Eccles

Robert Eccles, professor of management practice at Harvard Business School

As co-author of One Report: Integrated Reporting for a Sustainable Strategy (Wiley, 2010), Building Public Trust: The Future of Corporate Reporting (Wiley, 2002) and The ValueReporting Revolution: Moving Beyond the Earnings Game (Wiley, 2001), Robert Eccles has carved out a unique role. He has become, as he puts it, part of “this tiny little network, maybe 10 to 20 people at its core, in this bizarre little domain of standard-setting for nonfinancial information.”

Eccles’ great passion is integrated reporting, the concept of having public companies publish annual reports that include not just the now-required financial information, but information on their environmental, social and governance (ESG) performances, too.

Integrated reporting, also known as “One Report,” has been taken up by a handful of companies, including United Technologies Corporation, American Electric Power, Southwest Airlines, Germany’s BASF, Denmark’s Novo Nordisk, Brazil’s Natura and the Netherlands’ Philips. For most companies, the question of whether to pursue integrated reporting is optional, and one that they have not yet chosen to pursue.

Eccles wants to change that. When a company is forced to look at and report on the resources it consumes, the wastes it creates, the human capital it uses and develops, the way it manages risk and the communities it helps or disrupts, the reporting, he says, has the potential to be a mechanism for not just articulating actions more clearly but for spurring them, too.

In a conversation with David Kiron, executive editor of Innovation Hubs for MIT Sloan Management Review, Eccles, a professor of management practice at Harvard Business School, explained why it’s critical that integrated reporting be mandatory, standardized and backed by clear enforcement — and why the current hodgepodge of overseers makes the field too chaotic.

There has been conversation for years about getting corporations to report their ESG performance, their efforts at sustainability-related issues. When you think about the constellation of factors that influence how companies approach sustainability-related issues, how big of a factor do you think these reporting measures are?

In most cases, not much. Many, if not most, sustainability reports are more window dressing than substance and so aren’t very effective at influencing the company’s resource allocation decisions.

Read the Full Article:

Sign in, buy as a PDF or create an account.

4 Comments On: Get Ready: Mandated Integrated Reporting Is The Future of Corporate Reporting

  • Bruce_Klafter | March 13, 2012

    I think integrated reporting is important and at some point in the future will be much mor prevalent. However, the call for a mandated, one size fits all approach is misguided. Often missing from these discussions is comment from companies and from stakeholders other than the SRI community. These are some of the facts that shuld be taken into account in the discussion: 1. few analysts ever delve into the subject of sustainability, much less get into the details. Next quarter’s orders rule the roost; 2. Integrated reporting runs the risk of diminshing the amount of sustainability information that will be provided publicly because it will be subjected to accounting standards, requiring enterprise data systems (which most companies still lack), auditing, etc. 3. Many of the calls for integrated reporting come from accounting professionals who are clearly conflicted here. They stand to benefit immensely from adding a whole new set of information that must be audited and verified. I would submit that companies first need to surmount the challenge of truly integrating sustainability considerations into their operations as opposed to integrated their reporting. Yes, a mandate might accelerate the process, but it creates a real risk that the integration will be skin deep.

  • Get Ready: Mandated Integrated Reporting Is The Future of Corporate Reporting « Environmental News Bits | March 14, 2012

    [...] Read the full story in the MITSloan Management Review. Trying to create reporting standards that integrate environmental, social and governance performance along with financial information is “fraught with conflict” and an “almost political adjudication process,” says Harvard Business School’s Robert Eccles. That’s why he loves it. Rate this: Share this:EmailPrintPrint & PDFMoreFacebookTwitterDiggStumbleUponLinkedInRedditLike this:LikeBe the first to like this post.   [...]

  • frea.haandrikman | March 20, 2012

    I think the point about making this kind of reporting institutionally legitimate is an important one. But it also makes me think one step further. Not only about the consequences when reporting is fraudulent, but also about what the consequences are of what is actually reported. The average consumer does not delve into reports, so what if a report shows that a company is not the best to its employees, suppliers or environment. Like the article states, shareholders ARE the primary audience for these reports, so they must also link consequences to bad practices. But in reality I think the focus is still too much on simply making a profit by any means.
    Along side the struggle for integrated reporting must be a struggle for making shareholders aware that profits should not come at a great social or environmental cost.

  • almcmanus | March 20, 2012

    The potential benefits for integrated reporting are intriguing. I see oversight as the primary obstacle. First, the UN and most NGOs have poor track records when it comes to cost-benefit analysis and post-completion audits. They are not standard bearers in any responsible context. Next the SEC has a history of demanding increasing levels of legislative oversight which it then fails to implement – even when egregious examples are pointed out, e. g., Madoff, recent financial meltdown. The Europeans initially gloated over our misfortune until their banks came clean with the same massive problems. If governments can’t move themselves to properly audit black and white accounting problems, how will they manage more subjective metrics? They won’t.

Add a comment