Integrated Reporting: Experiences from KPMG, PwC, Experts, Practitioners

What is integrated reporting? What are the benefits and what’s involved in its adoption? We survey views from PricewaterhouseCoopers, KPMG, and talked to Michael Krzus, the author of One Report: Better Strategy through Integrated Reporting. Joanne Westwood of Vancity shared with us their practical experiences.

PricewaterhouseCoopers published a report in February 2011 called “Creating value from corporate responsibility: Does your reported data get the respect it deserves?” (PDF). Today there is more emphasis than ever on companies’ environmental and social performance—in addition to traditional financial results. Companies are disclosing unprecedented amounts of information, promoting their corporate responsibility goals and commitments. More enterprise value can be generated by those efforts with stronger operational discipline.

From the KPMG and SustainAbility report “Count me in: The readers’ take on sustainability reporting” (PDF), the future of sustainability reporting includes continuous stakeholder dialogue linked to the core business agenda.

Reporting standards like the Global Reporting Initiative and mechanisms such as third-party assurance have helped improve the content and quality of reports. AccountAbility’s AA1000 Stakeholder Engagement Standard (PDF) is a generally applicable framework for the design, implementation, assessment and communication of quality stakeholder engagement. The AA1000 principles provide great guidance on the underlying reporting processes and are firmly embedded in the proposed integrated reporting framework.

What is Integrated Reporting? Integrated Reporting combines the different strands of reporting—financial, management commentary, governance and remuneration, and sustainability reporting—into a coherent whole that explains an organization’s ability to create and sustain value. According to KPMG’s “Road to Integrated Reporting” (PDF), a key aspect of integrated reporting is that it addresses those resources (referred to as Capitals) which the business consumes and creates — financial, manufactured, human, intellectual, natural and social.

Integrated Reporting can reduce the reporting burden on organizations and help investors and other stakeholders gain clearer understanding of the information. Much of this information could be moved to an online environment, reducing clutter in the primary report, which will focus only on the matters that the organization considers most material to long-term success.

Key Benefits of Integrated Reporting: The informative Harvard Business School article on the book “One Report: Better Strategy through Integrated Reporting” (Amazon.ca) by Robert G. Eccles and Michael P. Krzus states four key benefits of integrated reporting:

1. Greater clarity about the relationship between financial and non-financial key performance indicators
2. Better management decisions
3. Deeper engagement with the broad stakeholder community
4. Lower reputational risk

One Report challenges management to be much more granular about how they are “doing well (for shareholders) by doing good (for stakeholders)”, says Krzus, who spoke in the Carbon Economy Summit in Toronto in 2010.

Experience from South Africa: According to the KPMG and SustainAbility report, South African organizations have shown a positive start in the adoption of integrated reporting. Integrated reporting became a requirement for Johannesburg Securities Exchange listed entities effective from years commencing on or after March 1, 2010. Several experiences are worth noting. Integrated reporting has helped businesses to be better understood and managed. Organizational change was a key requirement. The biggest challenge was the efficient gathering of non-financial information. A full implementation of integrated reporting could take three to five years.

Vancity shows Canadian leadership: Vancity, the largest English-speaking credit union in Canada, is a benchmark for many global companies aspiring to be sustainable leaders. Their 2006-2007 Accountability Report was short-listed for Best Sustainability Report award from the Ceres-ACCA North American Awards for Sustainability Reporting. Their 2008-2009 Accountability report won the Globe Sustainability award.

The next milestone for Vancity is its participation in the International Integrated Reporting Committee’s Integrated Reporting Pilot Programme. “We’re keen to push the agenda and bring the co-operative perspective to the table,” says Joanne Westwood, Manager of Accountability Reporting at Vancity, in an exclusive interview. “We also want to learn from the IIRC and the experiences of the participants to take our reporting practices to the next level.”

Now that we’ve talked about the benefits, what is involved for a company to adopt integrated reporting?

Phase One: Prepare the organization for engaging with stakeholders: A company should first understand what information is needed by their stakeholders, then perform an information gap analysis to arrive at an optimal level of transparency in consultation with the board. For an example, see BASF Report 2010.

Phase Two: Adopt integrated reporting: Once the company has started engaging with their stakeholders, Mike Krzus suggests seven steps for the adoption of IR:

1. Get CEO and board support
2. Appoint an executive to drive the process
3. Identify material financial and nonfinancial performance measures
4. Develop explicit causal models about the relationship between financial and nonfinancial performance
5. Determine the content of the first integrated report along with a plan for further improvement and development
6. Redesign the company’s website to be able to support integrated reporting
7. Engage and seek feedback from all stakeholders

Deloitte’s report “Integrated Reporting: A Better View?” (PDF) includes 11 practical steps similar to those suggested by Krzus. One of its key recommendations is to use a formal process to determine relevant KPIs that are aligned with the organizational profile and strategy. Leveraging existing activities and risk and strategy personnel would be a smart move.

Westwood shared with us Vancity’s experience, “integrated reporting is a journey, one that will expose areas of your business that are not managed in an integrated way as well as gaps or inconsistencies in your business strategy or operations. It will be a catalyst for dialogue and process. It will be a catalyst for performance improvement. Ultimately, it will add immense value to your organization and stakeholders.”

If you would like to be part of a discussion forum focused on solving the challenges related to integrated reporting, please write to stakeholdersolutions@gmail.com.