The difference between Sustainability and Integrated Reporting
With the recent Singapore Exchange (SGX) consultation on its proposed “comply or explain” regulation to Sustainability Reporting, and an increasing number of companies locally producing Sustainability Reports, we felt there’s a need to clarify the difference between Sustainability Reporting and Integrated Reporting.
Sustainability Reporting is about communicating the organisation’s approach to managing its key environmental and social issues. It is about communicating publicly how the company assesses which environmental and social issues are most significant to the company (“materiality”), how these issues are managed and how the company is performing against each of these key issues (performance data). At Paia, we approach these issues as business risks, and opportunities. Climate change, talent retention and employee diversity, for example, can pose both risks and opportunities for companies, so it is about communicating how the organisation is identifying and managing these risks and opportunities.
Integrated reporting is one step further – about communicating, how the company manages its long term value creation by taking an integrated approach to both traditional risks and these wider sustainability risks. Instead of reporting on financial performance and sustainability performance separately, or even within the same AR, Integrated Reporting intends to show how the company integrates environmental & social thinking into its business.
So for example, an integrated report goes beyond financial, employee, environmental and social data, to also demonstrate how the company integrates these broader risks and opportunities into its long term strategy, into its risk management, into operating policies and procedures, and what the trade offs between these issues are.
This means Integrated reporting pulls together information that sits in separate reporting strands to explain how the firm creates value. In the Singapore context, these reporting strands will include the i) Corporate Governance Statement, ii) Operating and Financial Review, iii) Financial Statements and more recently, iv) Sustainability Reporting.
“Sustainability reporting relates to one important aspect of a company’s performance, without which an integrated report would be incomplete.”
– Ian Ball, International Integrated Reporting Council (IIRC) Board member & Principal Advisor and ex-CEO of International Federation of Accountants (IFAC)
In Singapore, and the region, it is often the sustainability reporting which is the weakest link to integrated reporting. Many companies in this region are only just beginning to develop their sustainability reporting practices.
So should companies just leapfrog to Integrated Reporting, and bypass Sustainability Reporting? Companies don’t necessarially need to publish sustainability reports, but they do need to put in place the sustainability fundamentals, for which GRI provides clear guidance. Paia’s experience of having worked with over 25 companies in Southeast Asia on both their sustainability and/or integrated reporting programmes, has taught us that it is fundamental for companies starting out in their reporting journeys to firstly identify what their key environmental and social risks and opportunities are, create management programmes to manage these risks and maximise the opportunities and develop KPIs to track environmental and social performance. These are the fundamentals of sustainability reporting.
It takes time
To embed these systems takes a couple of years. It takes time for companies to really grasp the business benefits of sustainability and develop appropriate systems to manage these risks in a way that is appropriate for the individual company. It is only then that companies are ready to embrace integrated thinking and integrated reporting in a meaningful way.
We are a great supporter of integrated thinking; that has always been our approach. We’ve had the please of working closely with many clients to integrate environmental and social risks into their ERMs, business strategy, policies, procedures and contract agreements, and this experience has taught us that it takes time to achieve this integration, as it requires some level of change management – for example to include environmental and social risks within business investment decisions.
Conclusion: get the sustainability part right first
Sustainability reporting tends to be the part of Integrated Reporting that Southeast Asian companies are weakest one, hence we recommend companies take time to embed sustainability, before proceeding to Integrated Reporting.
Paia Consulting Pte Ltd
21 May 2015