Internet Disclosure: Part I
Taking sustainability reporting to the next level in coming years will have to be about "Materialnet". This was evident during an international reporting workshop and my meeting with managers from reporting companies in Europe this April. It brought to mind an old debate, Internet-based reporting, albeit with the realisation of how far we are from having it reach its full potential. Related were two historical events reported in business news headlines:
First, the European Parliament adopted a Directive on the Disclosure of Non-Financial Information that makes it mandatory for large public-interest companies with over 500 employees to annually report information on specified environmental, social and governance issues. Where such information is to be published – in an annual, sustainability or integrated report – was left open. The European Commission refers first and foremost to having the "non financial statement" included in the "annual report", but adds that it leaves companies "significant flexibility… (in what) they consider most useful".
Second, the US Supreme Court started hearings on the Aereo Online-TV Service case, one that is said will have far reaching implications for communications and copyright laws written before the Internet existed. Debates on the consequences of small antennas able to capture TV broadcast signals, bypassing paid cable television connections, was reminiscent of the struggle of old company laws and accounting standards to keep up with developments in information and communication technologies (ICTs).
Debates since the mid-2000s on sustainability reporting have increasingly featured complaints from report preparers about the apparent lack of use of sustainability reports. This came amidst confirmation from annual studies by the likes of KPMG that the numbers of corporate reporters globally continue to rise, notably in emerging markets, though not at exponential rates and often due to the introduction (or threat) of regulatory requirements. Still, reporting debates often include questions such as: Who reads sustainability reports? When last did you read a sustainability report? Regulators ask for sustainability reporting, but do they read the reports?
Asking these questions today is a bit like asking some-one "When last have you read a book, or a novel?". Many of us would have to admit "not recently". This does not mean we don't read. Most office workers are faced with information overload and read a mass of information daily in various forms, increasingly of the electronic and online kind.
Innovations in electronic communications question the conventional meanings and established hierarchies of old concepts such as "book", "report", "cover" and "annex". It may therefore be appropriate to revisit French philosopher Jacques Derrida and his call to deconstruct the boundaries of the "text". Building on his critical wisdom, it is high time we deconstruct the opposition of "printed versus online" and overthrow the ongoing assumption that electronic or online information is by definition something of lower hierarchy, simply an add-on to printed information. This hierarchy needs to be turned upside down, and reconstructed in a manner with underlying assumptions (such as target audience / reader / user) clearly defined.
Current standards in accounting and reporting are still fixated with the printed text and stand-alone reports. Consider the following:
- The Integrated Reporting Framework of the International Integrated Reporting Council (IIRC) states as purpose the objective to "establish Guiding Principles and Content Elements that govern the overall content of an integrated report". While the logo <IR> is said to refer to "integrated reporting" as activity, the key output is the integrated report as "concise communication", a "designated, identifiable communication". It requires eight Content Elements to be covered, though not necessarily implying a standard structure (content index).
- The G4 Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI) describes its purpose as offering "Reporting Principles, Standard Disclosures and an Implementation Manual for the preparation of sustainability reports". It requires seven General Standard Disclosures, two Specific Standard Disclosures and the provision of a GRI Content Index. It allows for a combination of web and paper-based reports or use of only one medium, while ensuring users have access to a complete set of information for the reporting period.
- In its Conceptual Framework for Financial Reporting (2010), the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) focuses on financial statements, which it defines as having three classes of elements (documents): elements directly related to financial position (Balance Sheet), elements directly related to performance (Income Statement) and elements from both the former as captured in the Cash Flow Statement. These are included in the "Annual Report", along with other information – as required by legislation – such as an Operating Review, Management Discussion & Analysis and Remuneration Report. The financial statements are the core focus of financial auditing, assuring users of the confidence they can place in a company's financial statements.
- The International Framework and Standard on Assurance Engagements 3000 (2013) of the International Auditing and Assurance Standards Board (IAASB) refers only to "underlying subject matter" (such as a GHG emissions statement) when listing requirements for "assurance engagements other than audits or reviews of historical financial information". The subject matter can take "many forms", including future financial performance (prospectives), non-financial performance, physical characteristics, systems and processes as well as behaviour.
- The AA1000 Accountability Principles Standard (2008) states its purpose as providing organisations with an "internationally accepted, freely available set of principles to frame and structure the way in which they understand… and communicate their accountability". Its accompanying AA1000 Assurance Standard (2008) sets out requirements for assurance in accordance with the standard in order to evaluate adherence to the Principles as well as "where applicable, the quality of publicly disclosed information on sustainability performance". The sustainability performance information covered is agreed to between the "reporting organisation" and the "assurance provider" in specifying the "scope" of the assurance engagement.
The terminology used in the AA1000 standards, with its more inclusive and participatory approach to "assurance" compared to that of the IAASB and International Federation of Accountants (IFAC), shows a keen awareness of the importance of frame and structure in the way things are understood and communicated. It reflects a key finding from the cognitive and brain sciences, namely that humans tend to think in terms of typically unconscious structures called "frames"(cf the work of neural theorists such as George Lakoff). Accountability specialists and accountants accordingly think of different frames and systems when they hear words such as "values" (moral? financial?), "qualitative / qualitative", "engagement", "dialogue" and "statement".
In our recent study of leading corporate sustainability reports from OECD and emerging market countries - entitled Sustainability Reporting at Crossroads (Utopies 2012) - "digital reporting" was identified alongside integration and new actors as one of three key macro trends. Digital reporting has various subcomponents, including what Elisabeth Laville and her team call "360-degrees reporting" (including social media, smart phone apps), open data (e.g. Excel files made available online), data visualisation (without oversimplification) and reporting in context (global to local, globalising localism). As an example, multinational AkzoNobel provides its key performance indicators (KPIs) data in open format for download and an active data visualisation interface.
The concept of "360-degrees reporting" takes one beyond online reporting to online communications (including two-way dialogue). All of this involves using information and communication technology (ICT) to move beyond information exchange to engagement, participation and collaboration. Critically, it requires different disciplines or departments within the reporting organisation – such as production, sustainability, finance and marketing – to communicate effectively with one another. At the same time, avoiding online spaghetti calls for careful demarcation of more formalistic "reporting" versus more informal "interaction" via the Internet. Mindful of different target audiences and functions, corporate communications need all of the above. But online communications need to be structured in a way that includes a menu for those with no appetite for spaghetti.
The idea of Internet-based reporting is nothing new. It became topical in the 1990s, was the theme of a study by SustainAbility and UNEP (The Internet Reporting Report 1999), and became a subject of management research in subsequent years by academics such as Ralf Isenmann from Germany. In 2001 John Elkington and David Wheeler called it the birth of "cybernetic sustainability reporting".
Research has identified different degrees of using the Internet and its benefits related to the purpose of reporting, the reporting process, report content and report design (e.g. moving from linear and hierarchical to hypertext and complex links). Benefits recognised by the GRI and others included greater flexibility, timeliness with ease of ongoing information upload, improved visibility and accessibility irrespective of location, speedier processing and integration, standardised data transfer and mass customisation through diverse, interactive communication channels.
So if the idea of Internet-based reporting is nothing new, what is really different today? See "Internet Disclosure: Part II" next week on this and the meaning of "Materialnet".
- When you visit that section, do you find a menu with a logical structure similar to what may be expected in an IIRC / GRI-based printed report?
- The innovation versus standardisation balancing act: Reporting sections on the websites of SAP Global and AkzoNobel Corporate, showing innovative features such as creating your own combination of PDF downloads and an interactive data visualisation interface.
- When you click on subsections, do you get bits and pieces of text, some badly edited, feeling the substance presents a superficial snapshot?
- Do you find clear reference to the relevant GRI indicators? (in HTML, PDF and/or XBRL)
- Do you find clear tables that present performance data of 5 years showing trends in what you view as material topics?
- Does the combination of HTML text and downloads give you a sense of "the whole picture"? Can you judge "comprehensiveness" and easily compare with the online disclosure of a peer?