20 Oct 2010  Research & Ideas

HBS Workshop Encourages Corporate Reporting on Environmental and Social Sustainability

The concept of integrated reporting could help mend the lack of trust between business and the public, Harvard Business School Dean Nitin Nohria tells attendees at a seminal workshop.

 

The development of corporate integrated reporting (IR) standards has the promise to be one of the great business innovations of the 21st century, and could be pivotal in restoring public trust in business institutions, Harvard Business School Dean Nitin Nohria told a seminal gathering of IR key stakeholders at an HBS workshop last week.

Integrated reports combine a company's financial, environmental, social, and governance performance measures into a report that can be presented and used both online and on paper, giving stakeholders a transparent, past/present/future view into how the institution is living up to its commitments in each area. Still in its infancy, integrated reporting has been adopted by a few dozen companies including AEP, BASF, Novartis, Novo Nordisk, Philips, Southwest Airlines, and United Technologies.

"Integrated reporting is one effort to start to restore the trust we have lost with society," Nohria told some 100 attendees. "It is an extraordinarily promising idea … as important a topic as we have at this time."

The workshop, the first conference sponsored by HBS's new Business and Environment Initiative, was the largest gathering of financial and accounting professionals, regulators, corporate executives, educators, fund managers and environmental sustainability advocates around the topic, according to the organizer, HBS professor Robert G. Eccles.

Eccles, a pioneer in the field, coauthored the first book on integrated reporting, One Report: Integrated Reporting for a Sustainable Strategy.

Several key questions arose during the workshop:

  • To what degree should new reporting standards be melded into the existing corporate accounting model? Many participants called the existing financial reporting model broken, and not to be emulated.
  • How can organizations ensure that the reports are more than simply separate filings paper-clipped together, but rather that the financial and non-financial data interrelate with each other to tell a unified story?
  • To what degree should the reports be mandated and enforced by government?
  • Should changes be brought about slowly--one model shows an adoption curve ending in 2020--or with more of a big-bang approach? There appeared to be general agreement that the time for action is now. "I believe that every participant left the workshop with this sense of responsibility to get things rolling," said workshop co-organizer Beiting Cheng, an HBS doctoral student.
  • Short of government mandates, how can corporations be motivated to adopt integrated reporting? Will shareholders be a driving force? What about outside agencies such as NGOs? Can CEOs and boards be persuaded to act in their own self-interest? Supporters say integrated reporting brings benefits to companies, including better risk management, development of strategies for long-term sustainability, and positioning of the company as a leader and innovator.
  • Which stakeholders are most important to target to create momentum for adoption? Investors? Regulators? Or is this, as Eccles said, "a giant collective-action problem--no one group can change it."
  • What metrics would be most useful and actionable to regulators, stakeholders, and the companies themselves?
  • What capabilities need to be developed by accounting firms to deliver a truly integrated audit?

One of the key new themes that emerged at the workshop was the role technology could play in gathering, organizing, and analyzing IR data.

"Technologies not traditionally associated with corporate reporting, like sensor technology and cloud computing, can make a major contribution in the production of information by companies and its use by investors and other stakeholders," Eccles said after the conference. "The question is more one of will and commitment rather than technical feasibility."

MBA student and conference co-organizer Daniela Saltzman said that the workshop demonstrated that integrated reporting is gaining momentum.

"Business schools worldwide continue to evolve, moving away from the traditional singular focus on the financial bottom line, and allowing the concept of sustainability to permeate into the classroom and across the campus. Similarly, we must recognize that current reporting practices are antiquated, and the time for a new, sustainable framework has arrived."

The workshop included a discussion of the HBS case study, Southwest Airlines One Report and a conversation with one of the case's protagonists, Communication Manager Marilee McInnis.

Participants recently published an e-book around themes that emerged at the workshop, The Landscape of Integrated Reporting.

The School's Baker Library | Bloomberg Center has one of the most comprehensive collections of corporate reports worldwide, including original company documents from as far back as 1820. The Knowledge & Library Services organization is also documenting the integrated reporting movement.

The workshop was held October 14 and 15.

Comments

    • Rachel M.
    • Manager, NA

    This is good to hear. I think the cloud technologies have enabled the great use of integrated reporting and its exciting that the sustainable reporting is becoming more valued in creating business value to attract captial invest and growth.

     
     
     
    • tomas conde
    • sustainability, bbva

    We would love to have that e-book with the main take aways ready as soon as possible. It makes no sesen anymore to have differente report. CSR o ESG is not an isoltated stuff but mainstream and as such must be reported. Congratulations HBS and lets hope that Mr.Eccles can share all this with the brand new IIRC. Best regards

     
     
     
    • Wim Bartels
    • partner, KPMG Sustainability

    The workshop seems to have addressed the right questions, including that of accountant's role. Now the world of business reporting is changing so rapidly and the current reporting models are apparently seen as becoming obsolete, this is the right time to change corporate reporting. And yes, the point of auditing is taken - accountants will have to innovate quickly to play a relevant role. Much to be learned from the sustainability folks here!

     
     
     
    • Livia Piermattei
    • Senior Manager, Methodos

    Integrated Reporting is mostly an issue of organizational change: of the practice of management; of the culture and language of an organization. Companies need to act NOW and begin to explore this new dimension so to actively contribute to the creation of this new approach to Corporate Reporting. A short, easy-to-adopt, easy-to-compare and to-read, "transition" framework for integrated corporate reporting from IIRC would be most welcomed.

     
     
     
    • Karthik Ovuraj
    • Consultant

    Sustainable initiatives in different markets and business environments essentially require adaptation based on specific local challenges and nature of the importance attached to social and environmental objectives. In light of this, I certainly think that integrated reporting is less meaningful and might have a long way to go.

     
     
     
    • Ajay Kumar Gupta
    • Doctoral Researcher and Faculty, ITM, Tata Institute of Social Science

    I think the better way to bring revolution in corporate reporting is to lead by examples. The examples set by existing companies and their success stories should be discussed and debated publicly to change exisiting model of corporate reporting. The mechanism should be created to show the trust factor pre and post corporate integrated reporting of these companies. Similarly, transparency and accountability factor should be measured through innovative conceptualised framework that is simple, clear and short. The other two elements of tripple bottom line i.e. environment and social factor should be reported numerically to bring accuracy and accountability. It is possible through mechanism whose indicators are based on consensus of different stakeholders. The main obstacle in integrated reporting is to convert intangible parameters into measurable metrics. If it is done successfully, it will be a breakthrough achievemet in corporate integrated reporting system. The initiative also needs a change in existing corporate governance that focuses more on stakeholders and shareholders. The corporate policy should address all section of people connected with the oganisations in unbiased and examplary manner. So, corporate integrated reporting starts on policy level reform and initiative. Corporate pay fixing is one area where consensus is needed. Other areas of concerns that needs attention are actions, decisions and clauses that should be open for discussion and challenge any time. I also feel that corporate social responsibility should starts at every level in the hierarchy rather than at top level only. Organisations should empower, encourage and involve each and every employee and stakeholders in corporate social initiative. At present, CSR is top level initiative but it is the high time to make it bottom to top level initiative. It needs a coproate initiative shift from tip of iceberg to bottom of pyramid. Ownership of CSR should be taken by majority of people rather than minority of people who make rules and regulations. The indicators of social sustainability and environment reporting should be geographic specific. At the same time, non financial measures should be reported in corporate integrated reporting. Non financial measures include efforts, ethical decisions, moral obligations and integrity etc. This will change the perception and perspective of businesses. The metrics and parameters suggested are challenging to include but once it is practiced, it will be a historical and innovative decisions that will bring reforms in corporations, environment and society.

     
     
     
    • Olaf Brugman
    • senior manager, Rabobank

    'Integrated reporting' is an inspiring movement already provding better insights on the actual impacts of reporting organizations. However, there are many aspects still to be discovered and elaborated. Some examples: * While the audit and standards perspective seems to drive the developments, this is by far not the only perspective. For example, to implement integrated reporting, managemant accounting practice and methods are just as necessary, or may be even more necessary. The planning & control competency still is silent on the matter * Strong focus on the form and format of integrated reports. Opportunities and consequences in the back end organization of the report also deserve to be addressesd. * Investors generally say they are interested in integrated reporting, and that they need broader and deeper information. What they really need and want - or will actually use - remains completely in the dark as yet. Could Investor Information Requirement Standards be a useful complement to the Audit Standards being developed for integrated reporting? * The movement could benefit from common competence building and craftsmanship. For a license to operate as a standard setter regarding integrated reporting, the minimum requirement seems to me to be an integrated reporter itself. * Empirical evidence from rigourous, independent and academic research on the phenomenon is painfully lacking: what are the reporting trends, what is the pace of adoption in different countries, which aspects of reporting are better or less developed in terms of operational definitions, what is the impact of integrated reporting, does integrated reporting causes business to incurr extra costs or will it reduce costs, what is really being done with integrated reports, what is their actual significance for investors, for government, for company stakeholders, what about comparative research, how to compare and evaluate integrated reports, what is more effective: a classic report, or a viral social media ready xbrl file, etc. Lots of question marks here.