AUDIENCE

Perhaps the broadest category of actor, the integrated reporting audience includes shareholders and other providers of financial capital (e.g., bond holders and bank lenders), sell-side analysts, rating agencies, stakeholders of various kinds (including employees, customers, suppliers, andNGOs), potential acquirers, and joint venture partners. In the next chapter, we will simplify the treatment of this group by distinguishing between the "direct audience" of providers of financial capital and the "indirect audience" that includes everyone else. However, this chapter requires more nuanced audience segmentation. For the audience, the significance of an integrated report lies in its potential to help them make better resource allocation decisions or better provide advice that influences the resource allocation decisions of others. For a profit-driven audience, these decisions will be made based on an economic calculus. For the mission-driven audience of NGOs and concerned citizens, these decisions will be in terms of whether to support or confront the company on their issues of concern.

Since integrated reporting is still in its early stages of adoption, it is difficult to assess its impact on audience resource allocation decisions, just as it is difficult to assess its impact on company resource allocation decisions through the integrated thinking that it engenders. The Black Sun survey described above provides some data on companies' perceptions of audience benefits. Here too the results were modest: 21% of respondents believed integrated reporting benefits analysts and investors and 23% for employees, but only 8% of respondents said private shareholders.10 Respondents were more bullish about the future benefits of integrated reporting as it develops, with 64% citing benefits to analysts, 49% to institutional investors, and an impressive 95% to employees. The present and future data on employees are consistent with the conversations we have had with executives who said that of all their different stakeholders, employees are among the first to benefit when a company starts practicing integrated reporting because it gives them a better understanding of the company. Executives also believed that this benefits the company since better understanding leads to greater employee engagement and, in turn, more efficient and effective employees.

Two surveys queried investors on whether and how they use non-financial information, including data likely to be in an integrated report. E&Y released "Tomorrow's investment rules: Global survey of institutional investors on non-financial performance" in 2014.11 Investors rated the sources for nonfmancial information used in investment decision-making and concluded that annual reports (77%), corporate websites (62%), and integrated reports (61%) are "essential" or "important." Specific issues that emerged as essential or important to investors are business impact of regulation (86%), minimizing risk (83%), and evidence of improved future valuation with business forecast (71%).12 Investors were also asked to rate disclosures considered to be "beneficial" to investment decisions. The three highest-scoring disclosures were sector or industry-specific reporting criteria and key performance indicators (65%), statements and metrics on expected future performance and links to nonfmancial risks (64%), and company disclosures based on what they feel is most material to their value creation story (60%).13 The importance of focusing on issues that are material to a given audience is underscored by the revelation that 50% of investors who do consider ESG issues when making decisions cite lack of clarity in corporate disclosures about whether information is material.

A November 2012 survey by SustainAbility,14 Rate the Raters Phase 5, The Investor View,15 looked into how often investors considered environmental, governance, and social (ESG) data and ranked the importance of ESG issues. Sixty percent of investors considered governance issues "always" or "often," followed by social (40%) and environmental (35%) issues. The highest rated ("important/very important") governance issue was ethics (79%). About 75% of the respondents chose customer relationship management as the highest rated social issue, and energy efficiency (59%) was the top rated environmental issue.16

Despite the limitations on rigorous research into the benefits of integrated reporting to companies and their audience, we can suggest hypotheses, largely taken from the arguments of those who support integrated reporting, about the benefits for different audiences and how this leads to company benefits. An integrated report can provide information to investors interested in a company's ability to create value over the long term based on all relevant capitals, resulting in the company having a greater proportion of stable, long-term investors.17 Sell-side analysts seeking to provide useful research to such investors will be able to provide better insights based on the information in an integrated report, potentially making them more bullish on the company.18 Similarly, rating agencies may find an integrated report useful in doing credit analysis for the providers of financial capital who use these ratings to make resource allocation decisions. More accurate credit ratings can result in either a higher or lower cost of capital to the company. Largely based on an economic calculus, employees, customers, and suppliers can use an integrated report to make their own resource allocation decisions, potentially in favor of the company.

A company issuing an integrated report may attract higher quality employees or even equally skilled employees for a lower wage. This can be attributed to both the symbolic value of issuing an integrated report and the information it contains if it provides evidence of the company's ability to create value over the long term, thereby reducing the risk of accepting a job at the company. Integrated reporting, especially when it includes high levels of stakeholder engagement, can increase the overall level of engagement of employees. Research has shown a strong relationship between engagement and productivity.19

Similarly, customers are unlikely to accept a higher price, and suppliers, a lower price simply due to integrated reporting. However, it can "break the tie" for the same reason as employees, especially if the company significantly engages with them in putting its integrated report together. Customers may give an integrated reporting company a greater "share of wallet," and suppliers may give the company priority in times of demand shortages. We admit that these arguments make a heroic assumption about corporate reporting as an input into decision-making by employees, customers, and suppliers. That is, they assume that these audience members will take the time and effort to access and understand the information provided in an integrated report.

In contrast, it is not a heroic assumption to posit that potential acquirers and joint venture partners would be influenced by the information contained in an integrated report. These decisions involve substantial, long-term resource commitments. Today, acquirers, including private equity firms, have already made ESG issues an important part of their due diligence process.20 An integrated report would not only place these issues in a financial performance context, but it would also address other issues based on all six capitals that affect a company's ability to create value over the short-, medium-, and long-term. Since the success of the partnership will depend upon how well the partner will be able to perform over these periods of time, such information is equally useful to potential joint venture partners.21 In turn, a strong integrated report can make a company attractive to an acquirer or joint venture partner. It can also make it attractive as a buyer of another company.

While providers of financial capital comprise the primary audience of an integrated report, NGOs focused on environmental and social issues can also find it valuable. The report will enable them to see the company's view on whether their issue is part of its value creation strategy and how it is managing the capitals of interest to the NGO. Based upon the report, an NGO can decide if and how it wants to engage with the company, including shaping the content of the integrated report itself and the process by which it is constructed. Since NGOs' focus tends to be fairly narrow, they have a tendency to ignore the fact that companies are subject to multiple, often-conflicting, pressures from providers of financial capital and their many stakeholders. By having a more holistic understanding of the company's strategy and performance, the NGO can engage more effectively with the company, whether in private or through a public campaign.22 Given the severe resource limitations typical of most NGOs, this is important. While an integrated report can provide these NGOs with useful information, NGOs must develop the skills to read and understand it in order to reap this benefit. From the company's perspective, it will be able to engage more effectively with NGOs to understand and address their agenda if the NGO has a holistic view of the company and is practicing some degree of integrated thinking itself.

More generally, we hypothesize that any member of the audience can achieve the same benefits of integrated thinking gained by a company during its report production process by learning how to understand an integrated report. Whatever its motives or the nature of its relationship with the company, the report audience will have a deeper understanding of how to meet its own long-term objectives. In fact, integrated reporting can be the basis of greater engagement to the benefit of both the company and its audience. Trade-offs will always remain, but at least they will be mutually understood. For this reason, companies practicing integrated reporting are well-served by making an effort to help their audience understand how to use and benefit from their integrated report. They should not assume this will automatically happen—an assumption being made by companies when they complain, "we aren't getting any credit from our investors for our integrated report."