‘Integrated reporting advances the proposition that sustainability reporting and financial reporting are inherently linked and thus would benefit from merging.’ Bob Massie, co-founder of the Global Reporting Initiative
Required:
Explain how integrated reporting merges sustainability reporting and financial reporting. (10 marks)
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Integrated reporting: merging sustainability and financial reporting
The value created by an organisational strategy that achieves financial results and creates sustainable value cannot be expressed by individual financial and sustainability reports with no obvious links between the profit figure and sustainability impacts. Integrated reporting therefore involves taking a more cohesive and efficient approach to corporate reporting with the aim of improving the quality of information available.
An integrated report is a single annual report, however unlike a traditional annual report, it focuses on government, social and environmental as well as financial issues. An integrated report is prepared with all stakeholders in mind, rather than simply shareholders; it requires the co-operation of departments throughout an organisation rather than the individual input of some; it deals with the future as well as the past. The Framework provides guidance on the principles and contents that should be incorporated into financial reporting.
It explains that there are three main aspects to an integrated report, being capitals, guiding principles and content elements.
- Capitals are the inputs to an organisation that are used to create value. These include financial capital as well as non-financial capital such as human, social and natural capitals.
- Guiding principles explain how an integrated report should be prepared – these include principles that underlie financial reports such as materiality and reliability, but also principles more relevant to sustainability such as stakeholder relationships and future orientation.
- Content elements of an integrated report again include both financial and sustainability elements. They are: organisational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook and basis of presentation.