Integrated Reporting: The Issues
I mentioned earlier this week that the GRI Conference was an eye-opener for me. Having sold Securities & Exchange Commission (SEC) data in the past, I remember that we had one bundled product, a collection of corporate social responsibility (CSR) filings. No one ever asked about them. I have a feeling that the market is a little more different now. While I was in Amsterdam, GRI’s chief executive’s opened the conference by advocating for the mandated integrated reporting by companies that publicly disclose their material information to regulatory authorities. If the GRI has its way, this would be standard practice globally by 2020. Integrated reporting supporters want companies to issue “One Report” . . . financial information along with CSR reporting (in Europe, ESG—environmental, social, and governance), that would no longer be issued separately. In the wake of financial scandals and now, environmental catastrophe in the Gulf of Mexico—especially after learning today that BP executives took risky shortcuts while producing a media spin plan that was much longer than any scenario plan designed to cope with such a disaster—we should welcome the movement towards integrated reporting. But there are some caveats that organizations like GRI must carefully consider:
- Standards and Guidelines: True, GRI is the leading CSR/ESG standards organization in the world, and their work over the past decade has been the driving factor in motivating companies to be more transparent about their corporate governance structure and create sustainability reports that actually report instead of showcasing glossy pages full of . . . nothing. Nevertheless, the challenge for GRI is to create a standard that work well when integrated with the security disclosure laws as required by various governments. This will be a huge task: many public companies (or private companies issuing public debt, which have to report to the SEC) find securities disclosures costly and onerous. Adding even more requirements, especially complex ones for non quantifiable data that are integral to CSR reports, will complicate corporate reporting. In fairness, these companies will need time and clear, lucid guidelines.
- Engagement: A common complaint of CSR—and of course, financial reports is that they are often ignored by the folks who need to read them the most: the company’s stakeholders. Issuing a PDF report or slapping the report on a corporate web site is not enough. Talk about “Web 2.0” often sounds clichéd, but social networks and other web platforms give stakeholders the opportunity to collaborate and as Harvard University’s Accountability Web project proclaims, “co-create.” One company that is takes this innovation to the next step is Timberland: its Voices of Challenge puts together consumers, thought leaders, and experts together to confront challenges like energy usage, product information, community support, and labor practices. It should not be up to stakeholders—and shareholders—to respond to a report. They should be part of the reporting process, participate, and debate the content—not just wait for its issuance.
- Information that Matters: How much of this information can get crammed into a report? With all the financial requirements that securities regulatory agencies already require, one could picture an integrated report reaching 300 or so pages. Some have suggested issuing a long and short form, allowing investors to choose the depth of information that they want to receive. But again, this is where a contemporary web platform can come in. When attending the GRI Conference, I heard some panelists fear that such a move towards standardization could result in companies creating boilerplate reports—a common criticism of Item 7 of the SEC’s Form 10-K, the Management’s Discussion and Analysis section that sometimes is revealing—but often not.