One Report: The First Book on Integrated Reporting

In 2010, five years after the papers by White and Solstice were written, the first book on integrated reporting, written by us, was published.55 In keeping with the assertions of pioneer companies and the arguments of White and Solstice, we argued that integrated reporting was an important mechanism for helping companies develop and implement a sustainable strategy, which we defined as "a commitment to corporate social responsibility that is contributing to a sustainable society that takes into account the needs of all stakeholders, of which shareholders are one type."56

We recognized the important transformation function of integrated reporting. Although the difficulty of trade-offs between financial and nonfinancial performance inherent in resource allocation decisions can be reduced or even reversed through innovation, a sustainable strategy requires a company to face them head-on.57 Making these decisions assumes the company has a good understanding of the different relationships between the many dimensions of financial and nonfinancial performance. Answering the question asked by Solstice about the relationship between holistic management and integrated reporting, we saw integrated reporting as providing the discipline for developing this understanding and laying the groundwork for reporting on performance in an integrated way. Our view, then and now, is that the information and transformation functions of integrated reporting are mutually reinforcing.58

Since integrated reporting was still in its very early stages at the time, we framed our discussion of the information function in the institutional context of current financial and sustainability reporting practices. How integrated reporting builds on and/or conflicts with financial and sustainability reporting remains a core topic of debate today. While some companies, like UTC, have claimed integrated reporting saves money by turning two reports into one, we think this benefit is relatively trivial compared with its organizational change potential as a catalyst for integrated thinking. Furthermore, although we titled our book One Report, we made it clear that integrated reporting was not simply about producing a single document that contained both financial and nonfinancial information:

One Report doesn't mean Only One Report. It simply means that there should be one report that integrates the company's key financial and nonfinancial information. It by no means precludes the company providing other information in many different ways that are targeted to specific users. Rather, One Report provides a conceptual platform that is supplemented by the technology platform of the company's Web site, from which much more detailed data can and should be provided to meet the information needs of a company's many stakeholders.

Based on the experiences of pioneering companies, we identified four major benefits of integrated reporting that form a self-reinforcing cycle. The first is greater clarity about the relationships between financial and nonfinancial performance and the commitments the company is making to specific performance targets. Second, it spawns better internal decision making for a sustainable strategy. Third is deeper engagement with stakeholders and reducing the distinction between shareholders and stakeholders by providing a common message to both. And fourth is lower reputational risk, which now ranks as the top risk, followed by regulatory risk and human capital risk (tied).59 We also argued that the adoption of sustainable strategies by companies is necessary both for the long-term survival of those companies and for ensuring a sustainable society. Thus, we posited a societal level benefit from the broad scale adoption of integrated reporting.

Recognizing that the integrated reporting movement faces a collective action problem, in the last chapter we addressed the challenges to this form of reporting becoming a common practice. We identified the responsibilities of all key movement actors (companies, investors, standard setters, NGOs representing civil society, and regulators) to make this happen. Noting that success requires commitment from all groups, we argued that companies, as the reporting entities, must take the lead, with the support of their boards and auditors. Our view here has changed somewhat, and in Chapter 5 we will argue instead that the ultimate responsibility for integrated reporting lies with the board of directors, with support from executive management and the company's auditor. Finally, we also emphasized the importance of innovation and experimentation as the basis for principles-based "comply or explain" regulation, which we felt would ultimately be necessary but which would inevitably proceed at a different pace in different countries. This is still our position as discussed in Chapter 10.