innovate by identifying how actions in one area can affect another.
At SAP, we believe that social investing – employee volunteering, financial gifts, technology donations – links to greater employee engagement, productivity, and the ability to acquire new customers, especially in emerging markets. Reducing our greenhouse gas footprint with renewable energy sources or reducing our employees' travel, for instance, is not only good for the environment: we believe it can positively affect our people's overall health, our ranking as a top employer, and our customers' loyalty, as well as grow revenue as more companies require this of their suppliers.
Looking ahead, the integrated reporting movement is poised to speed up, fueled by innovation. It will be easier to execute and embrace as cloud computing, analytics, and in-memory technologies simplify companies' ability to track, assess, compare, and share data. As always, the best companies will change before they absolutely have to.
I've always believed that the only way to achieve audacious outcomes is to set audacious goals. And audacity is at the heart of sustainability. As leaders, we are our records. Our leadership will be defined by the people we touch and what we leave behind. So as you read this important book, reflect on what it means for your legacy, your people, your company, and our world.
Preface
Many exciting developments have taken place since we published the first book on integrated reporting (One Report: Integrated Reporting for a Sustainable Strategy) four years ago. The International Integrated Reporting Council (IIRC) was formed in 2010 and the Sustainability Accounting Standards Board (SASB) in 2011. Global Reporting Initiative (GRI) released its G4 Guidelines in 2013, the same year the Climate Disclosure Standards Board (CDSB) updated its Reporting Framework and announced plans to expand the scope of its Framework to include other natural resources and the IIRC published “The International <IR> Framework” (<IR> Framework). Other important events include the launch of the UN-sponsored Sustainable Stock Exchanges Initiative (SSE) in 2009 and the Corporate Sustainability Reporting Coalition (CSRC), sponsored by Aviva Investors, in 2011.
For these and many other reasons, we decided that now was the time to take stock of the integrated reporting movement. We very consciously use the term “movement” to describe what is happening with integrated reporting today. Its members include companies, investors, supporting organizations and initiatives, and firms that supply products and services to help companies produce an integrated report. With the exception of South Africa, no country has made any kind of regulatory intervention in support of integrated reporting. The bulk of adoption today is being accomplished through a social movement. The people and organizations involved see integrated reporting as an essential, but certainly not sufficient, mechanism to help companies create more sustainable strategies to support investors making longer-term investment decisions that, together, will support the creation of a sustainable society. Just as financial reporting played a critical role in creating the capital markets we have today, integrated reporting, supported by sustainability reporting, will help create the capital markets and society we need for tomorrow.
Chapter 1 is a case study on the emergence of integrated reporting in South Africa. Members of the movement are well aware of the country's leadership here, but they may not know the full story of how this country became the first and only one so far to require integrated reporting on an “apply or explain” basis. Chapters 2 through 4 review the state of the integrated reporting movement today. Although the topics in these chapters will be familiar to those involved in the promotion of integrated reporting, we examine them through the lens of a movement. Chapter 2 posits four overlapping phases for how meaning has evolved, starting with company experimentation, through early commentary, up to codification, and ending with the recent start of institutionalization. Chapter 3 examines the movement's momentum in terms of adoption, acceleration, and awareness, and Chapter 4 analyzes the motives of the different types of actors involved.
Chapter 5 focuses on materiality – a core, albeit elusive, concept in integrated reporting and reporting in general. Chapter 6 looks at efforts companies have made to operationalize it through a “materiality matrix.” To the extent that this book attempts to break new conceptual ground, this is the work of Chapter 5, where we introduce the idea of an annual board “Statement of Significant Audiences and Materiality” (Statement) and 6, where we describe the “Sustainable Value Matrix” (SVM) as a tool for translating this statement into management decisions. Through the Statement, the company makes clear its purpose vis-à-vis providers of financial capital and other stakeholders. The SVM provides guidance to management on reporting, stakeholder engagement, resource commitments, and opportunities for innovation.
In Chapter 7, we assess the quality of integrated reporting prior to the publication of the International <IR> Framework through a careful analysis of the self-declared integrated reports of 124 companies. In Chapter 8, we do the same for the corporate reporting websites of the largest 500 companies in the world. These two chapters set the stage for Chapter 9, which discusses the role of information technology (IT) in integrated reporting and how it can be used to promote integrated thinking. We believe that the movement needs to be more cognizant of the importance of IT, and this chapter seeks to place this topic at the center of the conversation.
In our final chapter, we make four recommendations for what needs to be done to ensure the success of the movement. The first concerns the role the IIRC can play in certifying the quality of integrated reports. The second describes how best to marshal market and regulatory forces to spur the adoption of integrated reporting, and our last two recommendations focus on organizations, clarifying the role of accounting firms and professional accounting associations and emphasizing the need for the major NGOs supporting the movement (CDP, GRI, and the SASB) to collaborate as much as possible.
As we submit this book to our publisher in May of 2014, how do we feel about the integrated reporting movement? Cautiously optimistic. That said, the future is not predetermined. It is there to be shaped. We will continue to do everything we can to support the movement in our own modest way, and we encourage all who care about creating a sustainable society to do the same.
Acknowledgments
We could not have written this book without the help of many other members of the integrated reporting movement, starting with Sydney Ribot. A research associate at the Harvard Business School who is also working on a narrative web TV series about globalization in Istanbul, she contributed to every chapter and appendix in this book through research, writing, critiquing, editing, and the final polishing before the book could be called done. Sydney also took the lead on Chapter 1, “South Africa,” where we would also like to thank Leigh Roberts for making sure we told the South African story accurately. As someone deeply involved in the movement in South Africa and on a global basis as well, Leigh was well positioned to do that for us.
There were other chapters where we depended upon extensive contributions by others, starting with Tim Youmans, an independent researcher, and Andy Knauer, a research associate, both at the Harvard Business School. Tim and Andy had joint responsibility for Chapter 5, “Materiality,” and 6, “The Sustainable Value Matrix.” Tim had the lead on the former and gets credit for having the insight that materiality should be linked to corporate governance by making its determination a responsibility of a company's board of directors. Tim also gave us excellent feedback on the many drafts of the other chapters. Andy conducted a thorough analysis of the materiality matrices of 91 companies that served as the data backbone