Sunday, June 24, 2012

Rio and the Future of Corporate Reporting


Bullish reading at Ipanema beach, Rio de Janeiro
While least common denominator agreements from the Rio+20 conference may not have been as bullish as many hoped for, the event among others served to raise the profile of calls for "Report / Comply / Apply or Explain / Else" approaches to sustainability and integrated reporting.

The fact that negotiations addressed both more mandatory approaches to reporting and capacity building to boost reporting standards in developing economies, signal a new chapter in the life of corporate reporting. It confirms growing sentiment that annual financial and sustainability reporting today does not meet expectations and that the connection between financial performance and sustainability actions needs to be captured and communicated more effectively. This sentiment provides a mirror image of debates at governmental level on improved models ("pathways") and indicators to track performance against sustainable development goals.

New trends in capturing and communicating strategic value is the focus of "Making Investment Grade: The Future of Corporate Reporting", a new report published by UNEP, Deloitte and the Centre for Corporate Governance in Africa this month. It provides a collection of contributions from 20 internationally recognised experts in reporting, governance and investment - including latest thinking from the GRI and IIRC.

The overview by Making Investment Grade makes it clear that those imagining the emerging Integrated Report (IR) to become a one-stop-shop that replaces all other reports will be disappointed. Emerging rather is a corporate communications pyramid, with the IR as strategic executive summary at the top, followed by annual financial and sustainability reports at a second level, and broader sustainability communications including digital and online innovations at a third level. With this comes greater clarity about target audience, which in the case of the IR points to the institutional investment community (and indirectly all pension holders as "owners"). Another key message is one about quality of governance and the need for board directors to take greater care in overseeing the corporate communications pyramid.

In addition to target audience or stakeholder group, any discussion on reporting needs to keep two distinctions in mind:
  1. The difference between the report and reporting as process, one that needs to be inherently linked to strategic decision-making and governance, and 
  2. The difference between reporting format and reporting content. 
The former (1) puts the spotlight on the role of executive management and board directors in the process, as well as the ability of managers from different departments (eg investor relations and sustainability) to speak the same language. The latter (2) puts the spotlight on hard copy versus digital communications as well as different types (e.g. qualitative versus quantitative) information, including a business logic discussion of how all this connects, materially and sustainably.

What IR and SR have in common is an interest in more strategic and forward-looking information. Where they will continue to differ is the amount of financial versus ESG data covered, catering for investor versus broader stakeholder interests. There is not a right or wrong in this difference of approach. What is at stake is our ability, as the sustainability agenda mainstreams, to seriously engage multiple audiences. And as contributors such as Bob Eccles and Elisabeth Laville point out, there are many innovative ways of embracing the digital revolution and doing 360-degree communications, feeding in information based on recognised performance indicators such as the ones produced by the GRI network. It will make corporate lawyers nervous, but impress more bullish readers in Rio and beyond.



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