Integrated reporting is a cornerstone of trust
February 05, 2013 12:26 PM
Integrated reporting will change perceptions about whether a business is worthy of shareholder and stakeholder trust.
Before I go any deeper into this article, it is important to say a few words about the difference between an integrated report and integrated reporting. An integrated report is simply a business communication. Integrated reporting is really a core business process that helps management understand the inextricable linkage between the economic, governance, environmental and social issues.
Companies don’t earn trust from combining an annual report to shareholders and a sustainability report and self-declaring, “this is an integrated report.” Companies put themselves into a position to earn trust when they demonstrate their understanding of the need to balance an imperative for the long-term viability of the company and society with the demands for short-term competitiveness and profitability.
Here’s what integrated reporting does to help a company earn the trust of shareholders and stakeholders…
Integrated reporting matters because, at its best, it provides a robust conversation about the relationship between financial performance and nonfinancial actions and that demonstrates an understanding of changing perceptions about attributes important to trust and long term value creation. The 2012 and 2013 Edelman Trust Barometer surveys suggest that the basis of trust in business has moved toward attributes such as, “communicates frequently and openly about the state of its business,” “treats employees well,” “has ethical business practices,” and “has transparent and open business practices.” Openness about how a company creates value for shareholders and society is essential to building trust.
One definition of trust is a “firm belief in the reliability, truth, ability, or strength of someone or something.” Integrated reporting by itself won’t make a business trustworthy. However, integrated reporting represents an incremental change in transparency, engagement, candor and decision-making. For me, that’s a good place to start and a good place to focus my energy.
Before I go any deeper into this article, it is important to say a few words about the difference between an integrated report and integrated reporting. An integrated report is simply a business communication. Integrated reporting is really a core business process that helps management understand the inextricable linkage between the economic, governance, environmental and social issues.
Companies don’t earn trust from combining an annual report to shareholders and a sustainability report and self-declaring, “this is an integrated report.” Companies put themselves into a position to earn trust when they demonstrate their understanding of the need to balance an imperative for the long-term viability of the company and society with the demands for short-term competitiveness and profitability.
Here’s what integrated reporting does to help a company earn the trust of shareholders and stakeholders…
- It provides insights into how a company views itself and its role in society.
- It communicates a company’s performance, both good and bad. It creates commitments to improve future performance and establishes accountability for meeting objectives.
- In addition to the traditional measures of business performance, integrated reporting focuses on the financial effects of sustainability initiatives such as reducing carbon emissions, water usage and waste.
- It explains whether sustainability drives innovation in a way that enables a company to reduce costs by making business processes more efficient and increase revenues through development of new products and services.
- Integrated reporting provides insights into the quality of a company’s relationship with all of its stakeholders and explains how an organization responds to stakeholder needs and expectations.
- Integrated reporting explains how compensation structures link pay to achieving economic, governance, environmental and social objectives.
Integrated reporting matters because, at its best, it provides a robust conversation about the relationship between financial performance and nonfinancial actions and that demonstrates an understanding of changing perceptions about attributes important to trust and long term value creation. The 2012 and 2013 Edelman Trust Barometer surveys suggest that the basis of trust in business has moved toward attributes such as, “communicates frequently and openly about the state of its business,” “treats employees well,” “has ethical business practices,” and “has transparent and open business practices.” Openness about how a company creates value for shareholders and society is essential to building trust.
One definition of trust is a “firm belief in the reliability, truth, ability, or strength of someone or something.” Integrated reporting by itself won’t make a business trustworthy. However, integrated reporting represents an incremental change in transparency, engagement, candor and decision-making. For me, that’s a good place to start and a good place to focus my energy.