Reporting information is critical for a company as stakeholders assess the position of a business by conducting detailed analysis. These reports are useful to identify the weaknesses and strengths of any business and where the business should focus on attaining maximum profitability. Let’s understand detailed aspects of sustainability reporting and integrated reporting.
The sustainability report’s main focus is on non-financial data. It measures the performance of a business in terms of non-financial information. Further, these reports are published annually and give details about a business’s goals, initiatives, plans, actions, and achievements. These reports are prepared to assess what:
- the entity takes initiatives for the reduction of carbon
- corporate awareness level of a local community
- recycling measures used by business
- the level of employee satisfaction,
- Social and natural environment benefits and risks contributed by company operations.
These reports also explain any initiatives taken by management to manage and mitigate business risks. One of the main purposes of these reports is to inform stakeholders about how the information demonstrates the effective application of corporate principles and values.
Sustainability reports present detailed information about a company’s achievements and strategies as it is one of the main purposes of these reports. The deadline for publishing sustainability reports is more flexible than other reports. This report is beneficial for those stakeholders who are not only interested in financial information but also non-financial information. The stakeholders who are only interested in sustainability information may find this report easier as it represents the whole focus of an organization on this subject.
Benefits of sustainability reporting
There are many internal and external benefits associated with sustainability reporting. Some of the benefits are discussed here:
- Companies (private or public) produce integrated reports to pursue and support their missions and values. Such reports are significant to acknowledge and measure the impact of business activities on social, economic, environmental factors. Further, these reports are used as a baseline to set goals and develop strategies to make an organization sustainable and efficient in a long run.
- Sustainability reports aim to express the information in a systematic way regarding its exchange relationship with other companies and its shareholders.
- Sustainability reports enable organizations to measure their performance impacts on a wide range of sustainability issues. It allows them to understand the risks and opportunities a business might face in the future.
Integrated Reporting (IR)
The integrated report gives information on how financial and non-financial data of a company are linked together and gives us the interpretation of data to enhance future profitability. IR suggests measures that a company can take to obtain profits by engaging in such programs that improve the social and natural environment. In simpler words, an integrated report is a combination of annual financials and sustainability reports.
The integrated report is a report that talks about both financial and non-financial information. The stakeholders who want a single report that lists all relevant information usually go for integrated reports. However, the preparation of integrated reports is a tough task, and it may stress the organization as it requires both financial and sustainability data to prepare a comprehensive, integrated report.
Objectives of Integrated Reporting
Now we will talk about the objectives of integrated reporting.
- Integrated reporting focuses on an efficient and productive distribution of capital by enhancing the information available to financial capital providers.
- To create value throughout the short, medium, and long term is the main objective of integrated reporting. It can be achieved by integrated thinking, actions, and decisions. Integrated reporting offers a more organized and efficient approach to improving the quality of corporate reporting, and it enables an organization to create its value over time.
- Integrated reporting aims to tell how a company interacts with the external environment and capital to generate the value of a business over time. Capitals are classified into different categories such as intellectual, financial, human, social, manufactured, natural, and relationships.
- Integrated reporting helps a business understand how a business can develop new strategies to allocate resources to improve the profitability of a business.
Integrated reports are best suitable for those stakeholders who want one report that gives them the overall picture of an entity’s position in all material aspects. As this report contains financial as well as sustainable information, it allows ease to stakeholders. There is no regulatory timeline as such for publishing integrated reports.
Integrated reports have both financial and non-financial information that may stress the organization due to more workload because they have to work on both financial and sustainability data. The costs and resources required by an organization to produce integrated reports are high. However, there are greater benefits for the stakeholders who want to understand business operations in more detail.
Strategy and resource allocation as a component of the integrated reporting
The business may be willing to expand the production floor, launch a new product, or maybe make some strategic level decision. This section of the report can provide report users ground for the decision making. For instance, the business may have used BCG Matrix, Porter’s chain analysis, or some other management model to decide if an idea is operationally feasible for expansion and how they intend to manage new challenges.
So, users of the reports can monitor if the business is directed in certain direction. In other words, if the policies and acts of the business are in line with the vision.
Integrated reporting vs Sustainability reporting
|Sustainability Reporting||Integrated Reporting|
|Sustainability reports are prepared for a wide range of users such as customers, the general community, business suppliers, employees, investors, etc.||The main target audience for which integrated reporting is important are shareholders, debt finance institutions, and stockbrokers.|
|The materiality of sustainability reports helps decide whether the relevant information is useful and whether it meets the various interest of its intended users.||Integrated reports’ materiality helps decide whether the information could influence the debt-providing institutions to give or withhold capital to the organization.|
|The focus of sustainability reports is on past, present, and upcoming periods.||Integrated reports are prepared with the main focus on current and future periods.|
|Assurance of sustainability reports is not a mandatory requirement for businesses, however, the business must remain fair in all of its communications with the stakeholders.||Integrated reporting data can be assured according to the standards/framework applied to the business.|
|Sustainability reports are prepared by following global standards of non-financial reporting or the Global Reporting Initiatives.||A descriptive framework formulated by International Integrated Reporting Council is used for the preparation of integrated reports.|
The sustainability report aims to provide detailed information regarding non-financial aspects of the business. It’s about business strategies, plans, social initiatives, and other operational aspects of the business. It’s focused on the long-term sustainability of the business in terms of social and natural resources. This type of reporting helps the business sustain itself in the long term and adds value for the business owners.
Further, there are multiple advantages of sustainability reporting; these advantages include a concise strategy for achieving business strategy and directing the business in a certain way to achieve the business vision.
On the other hand, integrated reporting is more focused on connecting aspects of finance and business operations. It’s about integrating business operations with value-adding activities. Further, it helps enhance the spectrum of financial reporting for a better business understanding of financial statement users.
In addition to this, there are different components of the IR report that include an overview of the organization, the impact of an external environment, business risks, opportunities, performance, business model, and the future outlooks of the business.
Frequently asked questions
Why is sustainability reporting important for the reporting purpose?
It gives an impression that the organization considers sustainability aspects of the business and is committed to social, governance, and environmental initiatives.
What’s included in a good sustainability report?
A good sustainability report focuses on the ambitious vision oriented towards the future and achievement of the organizational mission.
What are the key elements of the sustainability report?
There are four main components of the sustainability report. These components include environment, community, mission, and economic benefits. Although, the business can decide to provide a varying length of information depending on the need/importance of the component.
What are the main components of the integrated reporting content elements?
The following content is relevant for the integrated reporting.
- External environment and organizational overview.
- Future outlook.
- Business performance.
- Resource allocation
- Strategy setting
- Risk and opportunities.
What types of risks are identified in the integrated reporting?
Major risks faced by the business are included in the integrated reporting under risk allocation. For instance, regulatory, marketing, and operational risk can be identified as a major business risk. The details regarding intensity and exposure of the business to the risk are provided, along with controls implemented by the business.
What should be discussed under the business model content of the integrated reporting?
The main components of the business model include key resources implied by the business, key value-adding activities, key outcomes, and social impact, etc.