EXPERT COMMENTARY: THE FIRST REFLECTIONS ON INTEGRATED REPORTING

Not long after the first integrated reports were published, close observers of corporate reporting—a think tank, a consulting firm, and an academic and an accountant—began to reflect on the experiences of the early pioneers. Two publications appearing within a few months of each other in 2005 initiated the second phase of meaning: Expert Commentary.38 Five years later, the first book on integrated reporting was published. These studies sought to give their own meaning to the concept of integrated reporting, to identify the benefits and challenges facing companies adopting it, and to make suggestions about what needed to be done to secure large-scale adoption of this practice. Though not treated in any depth, materiality was mentioned in all three studies. Stakeholder engagement received extensive attention in the book and the think tank article, although not in the article from the consulting firm.

New Wine in New Bottles

In a June 20, 2005, publication, Allen White, Vice President and Senior Fellow of Tellus Institute, a nonprofit research and policy organization, wrote, "A quiet renaissance in corporate reporting is gradually transforming its purpose, content and readership."39 Although his piece primarily focused on non-financial reporting, he explicitly mentioned the term "integrated reporting." He did not specifically define the concept but described it as "embryonic" compared to the "pre-adolescence" stage of nonfinancial reporting.40 Citing Novo Nordisk's 2004 Annual Report as providing a "glimpse of next-generation reporting," he went on to use the efforts of the pioneering cohort to explain the term. Examples he cited of companies combining financial and nonfinancial performance information in a single report included Swiss pharmaceutical company Novartis (2002), British automotive and aerospace engineering company GKN (2002), Canadian electric utility company BC Hydro (2003), Scandinavian airline SAS Group (2004), German chemical company BASF (2004), Dutch chemicals and life sciences company DSM (without giving a specific date), and Natura.41

White made the case for both the information ("It is integral to doing business and retaining the license to operate in the coming decades.") and transformation ("If wisely managed, it is also an opportunity to sharpen management's effectiveness while helping to position the firm in the vanguard of firms committed to corporate responsibility.") functions of integrated reporting.42 Claiming that this "reporting renaissance is irreversible," White made five predictions which have largely emerged as true by 2014:

(1) integration of financial and nonfinancial disclosure will accelerate,

(2) metrics will continue to evolve "toward a set of generally accepted standards applicable to all companies," (3) sector-based initiatives will ensure that "disclosed information is in fact material information to stakeholders," (4) the use of technology "to communicate and access information will experience a quantum leap," and (5) indices and ratings will become as commonplace for nonfinancial performance as they are for financial performance today.43

The Solstice/Vanity Study

Two months later, the Canadian sustain ability consulting boutique Solstice Sustainability Works published a study on integrated reporting sponsored by the Canadian cooperative bank Vancity.44 In it, they defined integrated reporting as a fusion of financial and sustainability reporting into a single document: "The working definition of integrated reporting for this research was reporting that meets the needs of both statutory financial reporting and sustainability reporting. In practical terms, this will usually mean one annual report containing sustainability performance information and financial statements."45

As in White's paper, the views expressed in the report were based on company examples (12)46 as well as interviews with experts in companies and other organizations. Without references or supporting data, a claim was made in the Introduction to the report that "For many years, integrated reporting has been something of a holy grail for advocates of accountability, something that has not been achieved through most efforts at triple bottom line reporting."47 Solstice was more reserved in its assessment of integrated reporting as a practice, declaring, "Reporters should not count on significant tangible benefits of integrated reporting."48 Instead, its authors saw the primary benefits to be largely intangible and internal: "challenge for staff, improved understanding of the links between sustainability and business strategy, consistent messaging, and improved decision making." This view was reinforced by their assertion that "there does not appear to be a significant external demand for integrated reporting, yet."49

While Solstice noted that the degree of integration in an integrated report varied and that some "combined reports sometimes look like different stories inexplicably bound in the same volume," it acknowledged that "the combined report could be seen as a useful first step in integrated reporting."50 In identifying integrated reporting's benefits, Solstice listed reduced cost (not much), efficiencies in report preparation (mixed), recognition for leadership (maybe), interesting challenges for the reporting team (probably), improved internal understanding of business/sustainability linkages (yes), improved consistency of messages (yes), and forcing or reflecting integrated thinking (in theory, yes). In elaborating on integrated thinking, Solstice asked an important "chicken-and-egg" question which remains relevant: "Does integrated reporting encourage holistic management or does a holistic management approach naturally lead to integrated reporting?"51 Major challenges cited for implementing integrated reporting included getting support from senior management, gathering information on nonfinancial information as quickly as information on financial performance, overly long reports or reports which lose important content on nonfinancial performance for the sake of brevity, the necessity for the team putting the integrated report together to build new skills, and that investors' information needs may dominate over those of other stakeholders.

Solstice addressed three other issues that remain central to the movement today. First, it concluded that regulation could not drive integrated reporting because it was focused on "only the most material social and environmental disclosures."52 Second, they questioned whether an integrated report would lead to an integrated assurance opinion. Arguing that financial auditors do not have the skills to audit nonfinancial information, they remained noncommittal, expressing the concern "that bland or negative assurance will become the norm."53 Third, they pointed out that technology was enabling a "shift in focus from the report to reporting," and that it could facilitate integration.54