Corporate transparency is moving towards an integrated report in which financial and non-financial performance are tied together and articulated in a single document. Although as yet there is no formal standard as to what constitutes an integrated report, it is becoming clear that the sustainability reporting benefits a company. Research shows that financial markets reward those companies that engage in sustainable behavior and comprehensive disclosure.
As reviewed in an Ethical Corporation interview with Robert Eccles, Professor of Management Practice at Harvard Business School, integrated sustainability reporting is a trend continues to grow.
Eccles has published two books that addressed sustainability reporting and he has been a driving force in this area for almost two decades starting with a 1995 paper he published in the Sloan Management Review with Sarah Mavrinac called “Improving the Corporate Disclosure Process.”
This paper revealed that while the market was interested in non-financial information, companies were not disclosing information on sustainability.
In a 2010 book titled One Report: Integrated Reporting for a Sustainable Strategy, Eccles wrote with Mike Krzus they explored the idea of “integrated reporting.”
Eccles says that “the vast majority of investors aren’t interested in sustainability reports. This is not surprising since they are not the target audience for them. Sustainability reports are meant for a broad range of stakeholders, most of whom have a very particular environmental, social or governance interest.”
However they are interested in integrated reporting which is intended for investors, as well as for those stakeholders who want a more holistic view of the company’s performance.
Eccles goes on to say that “Even so-called mainstream investors are increasingly recognizing that a company’s ESG performance increasingly affects its ability to create value for shareholders over the long term, and can even put its license to operate at risk.”
Eccles believes that 2013 and beyond should be a very exciting time for integrated reporting. He does not expect that mandated reporting will happen in the US any time soon.
Although he says that “Mandating disclosures is something that needs to be done by the state.” He goes on to say that “I don’t expect to see much in the way of mandating specific disclosures in any country. I also don’t think that this should happen. Mandating specific disclosures is contrary to the spirit of integrated reporting and ignores the fact that what should be disclosed is a function of a company’s sector and strategy.”
Eccles expects that many more companies will be issuing integrated reports on a voluntary basis. He also says that “companies will be increasingly sophisticated in how they are leveraging the Internet to make integrated reporting an active and engaging exercise with shareholders and other stakeholders where they listen as well as talk.”