Divestment backlash shows companies need to improve sustainability reporting

The Conversation

Greedy businessman shutterstock_197605076By Carol A Adams

Tony Abbott’s criticisms of the ANU’s divestment decision will come back to bite him. The tide of change is such that Vice-Chancellor Ian Young and the ANU Council will be seen as leaders. Others will follow.

Abbott has added his voice to a growing chorus condemning the decision by ANU to divest from seven resource companies, including treasurer Joe Hockey, education minister Christopher Pyne, and blacklisted companies Santos, Iluka Resources and Sandfire Resources.

But if these companies are unhappy with the analysis of their environmental and social performance, they should take responsibility for better valuing and reporting their environmental and social impacts.

The risk of fossil fuels

Abbott’s claim that divesting deprives fund members of a good investment could ultimately be proven incorrect. Even the generally conservative accounting profession is making an increasing amount of noise about the impact of climate change on asset valuations (or stranded carbon assets).

This is a particular issue in the fossil fuel sector.

“Fossil fuel companies should start accounting for the risk that their vast reserves may ultimately end up as stranded assets.” That’s the title of an article published by the Association of Chartered Certified Accountants (ACCA) earlier this year.

A report published last year by the ACCA and the Carbon Tracker (with a foreword by the president of the International Federation of Accountants) found that companies typically do not disclose information that is material to investors on carbon risk.

Why isn’t the Prime Minister of Australia outraged about that rather than a about university taking action?

The ACCA/Carbon Tracker report argues that to integrate climate risk into their business, companies need to consider potential CO2 emissions of reserves, and risks to valuations of reserves if demand for fossil fuel energy falls.

Moves towards more disclosure

The Australian Government position is in stark contrast to the mood of recent events in Europe looking at the role of corporate reporting in sustainable development and incorporating the sustainable development goals.

The events, attended by a wide range of stakeholders, concluded that reporting by companies and mandatory reporting requirements were not providing sustainability information needed by investors to assess risk and long term performance.

This is where the focus of policy makers should be — not on a report prepared for ANU highlighting gaps in management and governance by companies of social and environmental sustainability issues.

Assessing environmental value

I know of companies which are starting to develop what they refer to as a “social and environmental profit and loss account” or “net impact statement”. Essentially they are evaluating what they are contributing to society and the environment, and setting against that their negative impacts.

This sort of information attracts ethical investors looking for long term returns. Some are starting to calculate how this impacts on financial profit.

KPMG released a report last month outlining what they refer to as a “true value” approach assessing how social and environmental risks and opportunities will impact on future financial profit. The report uses hypothetical case studies to measure the impact of this value created (or lost) by companies on profit.

A report in Australian Mining complaining about “sloppy criteria” for the divestment by ANU misses the point. It is up to companies to provide adequate information on their risks, policies and activities for investors.

And, at the end of the day, if the fundamental nature of a company’s business is unsustainable, other criteria for divestment, however “sloppy” are somewhat irrelevant.

Universities led charge against Nike…

Universities have a history of being a force for good. The complete turnaround by Nike on corporate social responsibility was due to widespread boycott of its sports products by US universities in the 1990s.

Nike had contracted with factories throughout Asia (which became known as Nike sweatshops) that were found out for using child labour, poor working conditions, excessive overtime, sexually harassing female workers and paying below the minimum wage.

This was widely publicised by CorpWatch (a US based research group), Naomi Klein in her book “No Logo”, Michael Moore and the BBC in documentaries and various anti-globalisation and anti-sweatshop groups.

Nike originally denied the claims and expressed a view that what happened in supplier factories weren’t its concern. This only served to increase the campaign against it. Nike now takes transparency, accountability and corporate responsibility seriously and has restored its reputation.

And social and environmental sustainability practises in the supply chain are of increasing interest to large corporate customers concerned about reputation risk.

… and tobacco

The British Universities Superannuation Scheme (USS), at the time the third largest fund in the UK, made a significant response, through a campaign for responsible investment led by academics through “Ethics for USS” and students through “People and Planet” in the 1990s.

They questioned the morality of investing in tobacco which was dropped by the Australian Sovereign Wealth Fund last year. As a result of the academic and student led campaigns, the USS became the first large UK pension fund to adopt a socially responsible investment policy.

The approach included engaging with companies in which they invested to drive change towards more responsible behaviour. The USS sets out its proactive approach and explains its rationale for not divesting in companies on moral and ethical grounds only and legal advice that it is not permitted to make decisions purely on a moral or ethical stance here.

Students taking the lead?

In any case there is a strong and increasing link between some “moral and ethical grounds” and financial returns. In recognition of this Australian superfunds have also called for greater disclosure on Environmental, Social and Governance risk.

This is not to say that universities themselves should not being doing much more to develop future leaders able to respond to climate change and sustainability challenges. But that is another issue.

Of course, we must not forget that in making the decision to divest, Ian Young and the ANU Council were responding to student protests. They are the true leaders in all of this.

The Conversation

Carol A Adams is a part time Professor at Monash University and consults through Integrated Horizons. She writes on her website ‘Towards Sustainable Business’ at www.drcaroladams.net

This article was originally published on The Conversation.
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Corporate reporting for sustainable development – and innovation from Germany

Head in the sand shutterstock_2541043(How) can corporate reporting fix global issues such as poverty and climate change?

The conferences[i] I attended in Berlin this week identified some issues to be overcome, some questions to address and a few innovative solutions.

Reporting was not the main focus of the Humboldt Uni conference (which attracted a large proportion of people working in practice), but the link between CSR, sustainability and corporate reporting, until recently pursued as separate academic fields by management and accounting academics[ii], was strongly made.   I chaired a panel of experts[iii] who provided important insights.

Challenges to overcome

Two challenges particularly emphasised in the sessions I attended at the Reporting 3.0 conference were:

  • Sustainability reports are not about sustainability – they don’t say enough about the sustainability context (Bill Baue, Co-Founder of the Sustainability Context Group).
  • Changing attitudes about what growth is and having growth, as traditionally conceived, being the goal for large companies (Geoff Kendall, 3D Investment Foundation).  Growth in economic welfare and natural resources is desirable and that production and consumption could grow to service this, but we must find ways of doing this without increasing use of natural resources.

Questions to address

The Reporting 3.0 conference raised a number of questions about the future of reporting and in particular the role of sustainability reporting – its impact on the world, the company and other stakeholders.  These were articulated by Beat Grüninger, founding partner of BSD Consulting, with input from stakeholders in Brazil as follows:

Impacting the world

  • How to reconcile growth of consumption of the growing middle class with sustainable use of resources?
  • How to get sustainability commitment of the government and alignment with public policies?

Impacting the company

  • How to integrate materiality into strategy and management?
  • Are discourse and practice aligned?
  • How to improve comparability between companies and incentivise a positive competition?

Impacting the stakeholders

  • Does engagement in reporting create real benefits or changes for the involved stakeholders?

Speakers at Humboldt University (and I gather speakers in other streams in Reporting 3.0) in addition raised questions about comparability[iv] and different approaches to materiality in reporting frameworks.

Innovative solutions

Innovations in reporting discussed were:

SAP’s online integrated report and particularly the interactive model showing the relationship between its ‘non-financial indicators’ or material capitals.

Pants to Poverty’s 3D approach to calculating social, environmental and financial profit.

BASF’s approach to materiality and interactive materiality matrix.

Key take-aways – How reporting can facilitate corporate innovation towards sustainability more broadly

The key messages from both events that I latched onto were that reporting processes and approaches have a significant impact on behaviour and we need reporting approaches which will facilitate:

  • the achievement of the Sustainable Development Goals;
  • changing attitudes about what growth is and having growth, as traditionally conceived, being the goal for large companies;
  • identifying the value created by social and environmental resources and initiatives;
  • decoupling growth from increased use of natural resources;
  • focussing on the sustainability context;
  • using scientific measures to inform non financial KPIs and targets.

The following elements of reporting were identified as helping to deliver change:

  • Supply chain reporting
  • Product reporting
  • Setting targets and reporting against them
  • Materiality determination.

The events highlighted that we are short of answers and we need to move beyond describing problems and hearing about single examples of corporate innovation to articulating what is needed for transformative change.

Post script

In a related development, the International Integrated Reporting Council issued a press release yesterday in advance of annual meetings of the World Bank Group and International Monetary Fund emphasising the role of integrated reporting in the public sector which significantly lags the private sector in sustainability performance management[v]

Mark Carney, Governor of the Bank of England said, “Integrated Reporting can bring additional information, in particular about the longer-term costs of climate change, to feed into markets and inform decision-making and policy-formulation by institutions. If achieved, it will lead to better-informed and more sustainable long-term investment, for the benefit of society.”

Betrand Badré World Bank Group Chief Financial Officer said, “Public sector entities are one of the largest, if not the largest, reporting entities in the world, so the transparency of their financial information is of importance to us all. Integrated Reporting would enable governments and their stakeholders to gain a better understanding of resources available and help them to manage these more effectively.”

[i] The aims of the Reporting 3.0 conference organised by BSD Consulting and the 6th International conference on corporate social responsibility and sustainability organised by Humboldt Universität zu Berlin here.

[ii] see Gray, Adams and Owen 2014 Accountability, Social Responsibility and Sustainability: Accounting for Society and the Environment for a discussion of the connections between these two fields.

[iii] Robert Eccles,  Professor at Harvard and Member of the International Integrated Reporting Council; Elaine Cohen, author and consultant; Sonia Favaretto, MD, BM&FBOVESPA S.A.; Thorsten Pinkepank, Director Corporate Sustainability Relations, BASF; Daniel Schmid, Chief Sustainability Officer, SAP SE; Birgit Spießhofer, Lawyer, Dentons  &  Chair of the CSR Committee of the Council of Bars and Law Societies of Europe (CCBE)

[iv] The new EU Directive on non-financial disclosure will achieve limited comparability due to the large number of Member State options

[v] See Adams CA, Muir S and Hoque Z (2014) Measurement of sustainability performance in the public sector,  Sustainability Accounting, Management and Policy Journal 5(1): 46-67.  Y

Europe focuses on the role of corporate reporting in transition towards sustainable development

Brandenburg Gate in BerlinHaving advocated for many years that corporate reporting could, should and must play a significant role in the transition towards sustainability, it is pleasing to see the topic at centre stage during a fortnight in Europe at workshops, conferences and other meetings in Amsterdam, Glasgow, Berlin and Geneva including the UNCTAD workshop on the Future Direction of the Corporate Reporting Model, the Reporting 3.0 conference and the 6th International conference on corporate social responsibility and sustainability.

It is also a fortnight in which the Council of the European Union issued a press release announcing that on the 29th September the Council approved the Directive setting out new transparency rules on social responsibility for large companies.  EU listed companies, and some unlisted public interest companies with more than 500 employees, will have to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues and diversity on boards of directors.  This is an important step.

My research has consistently demonstrated that corporate accountability for key social and environmental impacts would not be achieved unless mandated (see, for example, Adams, 2004 on the corporate reporting-performance portrayal gap).

The announcement came as I joined other GRI Stakeholder Council members for a biannual meeting in Amsterdam.  The GRI Sustainability Reporting Guidelines, along with the frameworks of the United Nations Global Compact, the UN Guiding Principles on Business and Human Rights, OECD Guidelines, International Organization for Standardization (ISO) 26000 and the International Labour Organization (ILO) Tripartite Declaration are referenced in the Directive.

This week I’m in Berlin for the Reporting 3.0 organised by BSD Consulting and the 6th International conference on corporate social responsibility and sustainability organised by Humboldt Universität zu Berlin.

Reporting 3.0 will consider the future of sustainability reporting, the conference brochure noting the “need for consolidation and convergence in a fragmented sustainability reporting market.”  International speakers from different stakeholder groups in the reporting landscape will consider the role of sustainability reporting and its impact on the world, the company and other stakeholders.  A team of rapporteurs, of which I’m one, will document the obstacles, drivers and innovations for change coming out of the presentations.

The theme of the 6th International conference on corporate social responsibility and sustainability is ‘innovating for sustainability’.  Professor Dr Joachim Schwalbach notes in the conference brochure: “Given the challenge to global sustainability incremental improvements are not enough. Instead, sustainability driven creative destruction improves the likelihood of improving companies’ and societies’ value creation.”  I’m chairing a panel of expert speakers which will consider: the contribution of reporting standards and frameworks to making companies more socially and environmentally responsible; and, how reporting frameworks contribute to realising business benefits from social and environmental sustainability initiatives, management and governance processes.

Perhaps, most promising in terms of potential for change outside as well as within Europe, the objectives of UNCTAD workshop on the Future Direction of the Corporate Reporting Model  are: “To share perspectives on recent developments in corporate reporting models with a view to promoting a cohesive approach to corporate financial and non-financial reporting and enhancing its positive impact on sustainable development.”  Speakers include senior representatives from key standard setting bodies, the accounting profession, the World Bank and UNEP.   The questions debated will consider the challenges for corporate reporting in the post-2015 development agenda and the role of reporting in achieving Sustainable Development Goals. I look forward to moderating the final debate on the future direction of the corporate reporting model.

Companies have played a significant part in global inequality of wealth distribution and environmental degradation and corporate reporting has not held them to account.  These are therefore important developments occurring now as a result of many individuals and initiatives working for change over the last few decades.

New research finds benefits to companies doing integrated reporting

steps shutterstock_204656347It is no surprise that research just released by the International Integrated Reporting Council (IIRC) and Black Sun finds that the majority (92%) of IIRC pilot programme participants responding to a survey found that moving towards integrated reporting increased their understanding of how they create value.  They understand better how relationships, intellectual capital, the natural environment and other forms of capital contribute to value creation.  Suresh Gooneratne from DIMA, Asia Pacific is quoted in the report as saying: “Previously when we did sustainability reporting we primarily talked about stakeholders from a ‘licence to operate’ perspective.  That has changed.  Now stakeholders represent something much more integral to our business – a capital stock.”

It makes intuitive sense that the journey towards integrated reporting would result in internal benefits as a result of integrated thinking and the research confirms it with 96% of respondents saying there was internal change, particularly the breaking down of silos, greater collaboration including better understanding among finance teams of the financial impacts of non financial performance.  Other benefits reported from integrated thinking are improvements in decision making (79%) and better collaborative thinking by the board about goals and targets (78%).

Benefits not quite so widely experienced include those making moderate to significant changes in strategy and resource allocation (67%), those with a better understanding of risks and opportunities (68%) and those experiencing moderate to significant changes in their thinking about their business model (64%).  I would expect more companies to see these benefits as the International <IR> Framework released at the end of 2013 is more fully adhered to and as companies become more experienced integrated reporters.   Those already on on that journey are also benefiting from improved relationships with investors and better understanding by investors about their strategy.

Of particular note is that 54% of respondents came from sustainability/CR teams, 25% from finance and 21% from other areas of the business. Given that the reports states that 62% of respondents were report owners, 18% contributors and 5% editors, this appears to indicate that integrated reporting is predominantly led by sustainability/CR teams.  This suggests that professional accounting bodies, already behind <IR>, have work to do in engaging their members on it.

In my book Understanding integrated reporting: the concise guide to integrated thinking and the future of corporate reporting I argue that <IR> brings benefits through:

  • emphasising the need for long-term planning;
  • encouraging thinking about the business model in much broader terms than flows of money;
  • focusing on creating value across all six capitals;
  • developing a culture of collaboration, breaking down silos;
  • getting senior execs and the board involved in considering these issues.

The IIRC/Black Sun research shows that companies who are working towards integrated reporting are already realising these benefits – and more – with potential for deeper benefits as they progress.  The CEO and Chair in statements in the reports of companies such as Unilever and the RBS Group indicate that the influence of integrated reporting and integrated thinking , whether labelled that or not, will also bring benefits to society and the environment as companies see their success as dependent on it relationships and communities.  But that will require all of us as consumers, employees, etc to continue to hold companies to account on these matters.

For information on integrated reporting contact Integrated Horizons

Are Indian companies ready for integrated reporting?

by Carol A Adams

I have it on good authority that there are those in India who think that integrated reporting is doomed to failure, that companies need to choose between sustainability and integrated reporting and that sustainability reporting is the go.  I have no reason to doubt this for two reasons: 1) India is a big country and there will be many different views; 2) it is a view I’ve heard in other parts of the world too.  But it may be wise not to jump to conclusions.

This article was first published on sustainabilityzero.com and is republished with permission.

Indian businessman shutterstock_146700338The International Integrated Reporting Council’s (IIRC) August newsletter announces a new multi-stakeholder <IR> lab in India brought about through a collaboration of the IIRC and the Confederation of Indian industry.  It is chaired by Koushik Chatterjee, CFO of Tata Steel and includes CFOs of leading Indian companies, academics and regulators. The “lab” will facilitate knowledge sharing.  This is an influential group of leaders not used to failing.  They plan to hold events and webinars and develop a handbook to support the practical implementation of integrated reporting.

Back to those who hold the view that sustainability reporting will win over integrated reporting…  Integrated and sustainability reporting are not competing.  It is not a case of either/or. It is not the purpose of integrated reporting to measure social and environmental sustainability impacts. Rather, I believe we are witnessing the early stages of widespread promulgation of a different way of thinking about corporate success and reporting (see Adams, forthcoming).

What integrated reporting becomes as time passes is, to a large extent, dependent on those who find fault with it, speaking out and getting involved in the process.   Its potential to create profound change comes from its call to senior executives and Board members to think long-term about their business model and how they create value and to whom, as well as disclosing their forward looking strategy.

The fact that Chief Financial Officers (CFOs) are supporting a form of reporting which considers value and the business model in ways that is not purely monetary is significant – in the past CFOs have often been the last of senior leaders to see the value in anything which can’t be measured in monetary terms.  CFOs focussing on short term financial gains and cost have seen social and environmental sustainability initiatives as an unnecessary cost rather than something which can add value to the business and reduce risks.

Financial reporting has been capturing a decreasing proportion of what is of value.  The emphasis in integrated reporting on thinking long term and its encouragement of broader thinking of the value creation process and the business model is an important one for CFOs to understand.

“At the very core of the concept of Integrated Reporting (IR), is the growing recognition that a number of factors determine the value of an organisation – some of these are financial or tangible in nature and are easy to account for in financial statements. However others, like people, natural resources, intellectual capital, markets, competition, etc., are harder to measure.” Tata Steel’s Integrated Report 2013

Anant Nadkarni recently retired as Vice-President, Group Corporate Sustainability at Tata says: “The priority for us is to develop new systems to capture and present value…  Accountants should join in to contribute, rather than inhibit this development…  In 1868 the founder of Tata said something like, “in a free enterprise, the community is not just another stakeholder, but in fact, it is the very purpose of our enterprise…   According to R M Lala, biographer of Tata, the word Wealth signifies Well-being!”

I would like to see business embrace this notion of wealth as well-being and the notion of ‘value for society’.  It probably won’t happen though unless ‘value for society’ is seen as being aligned to ‘value for investors’ – and this is where integrated reporting has the potential to help.


Adams CA (forthcoming) The International Integrated Reporting Council: a call to action Critical Perspectives on Accounting.  You can view the author’s copy here

The International Integrated Reporting Council: a call to action

by Carol A Adams

Board of Directors

Integrated reporting has the potential to shift corporate thinking

This paper sets out the case for integrated reporting and its potential to change the thinking of corporate actors leading to the further integration of sustainability actions and impacts into corporate strategic planning and decision making. It calls for academics to engage with the process and to contribute to the development of new forms of accountings to help ensure this potential is reached. It suggests areas of further research to facilitate this. The paper was written in response to John Flower’s paper titled “The International Integrated Reporting Council: a story of failure.”

The citation for this paper is: Adams, C A (forthcoming), “The International Integrated Reporting Council: a call to action”, Critical Perspectives on Accounting, DOI 10.1016/j.cpa.2014.07.001     The article was submitted on 30th April 2014 and accepted on 2nd July 2014.


Implementing integrated reporting requires the development of new accountings and management processes. And at the time of writing scarcely enough time has passed for the first reports to be prepared which follow it. So whilst it may be of interest to assess the content of the International <IR> Framework (IIRC, 2013a) released in December 2013 against previously stated objectives, it is certainly much too early to assess its success or failure, however that might be measured.

Flower’s focus in critiquing integrated reporting is on the limited extent to which it explicitly addresses sustainability. Yet it is not the main purpose of integrated reporting to do this. Rather, we are perhaps witnessing the early stages of widespread promulgation of a different way of thinking about corporate success and reporting. What integrated reporting becomes as time passes is, to a large extent, dependent on (critical and sustainability) accounting academics as actors in a process that has the potential to lead to profound change.

Adams and Whelan (2009) suggest that research concerned with corporate social disclosure should take as given that changes in disclosure patterns are governed by a concern with profit maximization. The paper suggests that the potential of integrated reporting (or any other driver) to effect change depends on the extent to which it creates a source of dissonance significant enough to change the way managers think within the constraints imposed on managers to maximise profit.

Without idealism (something Flower, appears to be critical of) and worthy intentions integrated reporting would not have got off the ground. Its attempt to encourage mainstream accountants to think longer term, consider what value means, to whom and to acknowledge the role of staff, broader society and the environment in creating it, is bold and surely worthy. There is a role for critical accounting researchers in providing a counter force to those who would try to ensure such efforts result in nothing more than business as usual. Talking amongst ourselves will not do it, yet only a handful of academics submitted responses to the IIRC’s consultation draft. (See http://www.theiirc.org/consultationdraft2013/.  Academic respondents are few in number, but include John Flower and myself.)

The extent of support of the professional accounting bodies for a form of reporting which considers value and the business model in anything other than monetary terms is perhaps a little surprising, and itself worthy of further research. The ACCA, CIMA and CPA Australia have already produced integrated reports and the ACCA and CIMA have announced that they are including integrated reporting in their professional syllabi. Following the arguments of Adams and Whelan (2009) this support of professional bodies in itself has the potential to change the way CFOs think, encouraged perhaps by a desire to be respected professionals.

At the time that the IIRC was established, the governing bodies of the Global Reporting Initiative (GRI) did not include investors who were first allocated places on the Stakeholder Council in 2013. (Note: the author is a member of the GRI Stakeholder Council and was a member of the IIRC’s Technical Collaboration Group.) Whilst the GRI had made some progress in encouraging companies to measure historical impacts on the environment, society and economies, it did not set out to encourage businesses or investors to consider the value to business or its stakeholders, of doing so. Further, seventeen years after the formation of the GRI, the integration of sustainability considerations into mainstream decision making, reporting and performance management has arguably been limited or at best slow and patchy (Adams and Frost, 2006; 2008). Corporate initiatives on sustainability were gaining limited traction at senior levels and there is a view, which I share, that integrated reporting can help. For example, the United Nations Global Compact LEAD submission to the Consultation Draft of the International Integrated Reporting <IR> Framework noted:

“The business case for sustainability can often be difficult to measure and share… integrated reporting has the potential to connect financial disclosures with sustainability in a way that makes them more relevant for a broader audience… and that this greater level of integration of reporting practices encourages and supports the integration of sustainability in strategic planning, decision-making and operations.”

To my mind it is the necessity of getting senior executives and Board members to think (long term) about their business model, how they create value and to whom, material issues, risks and strategy together which gives integrated reporting the potential to effect change.

Chief Financial Officers focussing on short term financial gains and cost cutting, supported by accounting and reporting requirements that privilege financially quantified information, have been a stumbling block. They have tended to see social and environmental sustainability initiatives as an unnecessary cost rather than as a moral obligation or a benefit. Further, they have ignored sustainability risks with potentially significant (often long term) financial consequences. At the same time, financial reporting has been capturing a decreasing proportion of what is of value. I recall a speech at a CIMA Global Business Week conference in 2001 by Douglas Flint, then Chief Financial Officer (now Chairman) of HSBC where he recognised the competitive advantage of First Direct, the bank without branches, was in its people, culture and relationships and couldn’t be copied by showing other bankers around their premises. What was of value was intangible. Indeed, Standard and Poor’s stock market index of the top 500 US listed companies in the 1970’s around 80% of a company’s market value could be traced through to the financial statements whereas by 2010 only around 20% can be accounted for by its financial and physical assets (IIRC, 2011). Further KPMG (2012) have argued that there is a mismatch between what is being reported and factors that influence value.

It is in this context that the IIRC was formed.

Much has been written about the role of accountants in making things visible – or not. Critical researchers and social and environmental accountability researchers have argued that accounting can hide and reveal (see, for example Cooper and Puxty, 1996; Hines, 1991; Williams and Adams, 2013). Whilst accountants might not be willing or able to “save the world” (Flower, page XX), if we (or those other accountants) are part of the problem, how will it be saved without our (or their) involvement?

Whilst Flower criticises the composition of the IIRC, those involved believe it would be difficult to argue that they have not run a transparent process (conversation with Paul Druckman, CEO, IIRC). In addition to publishing submissions to the consultation draft on their website, the IIRC published a summary of responses, discussed how they were dealt with and why in documents title Basis for Conclusions (IIRC, 2013b) and Summary of Significant Issues (IIRC, 2013c). They have also published a series of Background Papers developed by Technical Collaboration Teams guided by multi-stakeholder Steering Committees covering a range of topics including the Capitals (IIRC, 2013d), the Business Model (IIRC, 2013e) and Value Creation (IIRC, 2013f). [Note: This author was on the Technical Collaboration Team for the Capitals Background Paper (IIRC, 2013d)] Flower (forthcoming) has not referred to any of these documents, yet they are important in understanding how different voices have contributed to the process.

Flower links a declining focus on sustainability accounting and reporting in IIRC documents to the dominance of accountants on the Council. This is plausible, but the role of the various other organisations concerned with aspects of sustainability accounting and reporting is also worthy of consideration. It might be unwise to assume that accounting firms and professional bodies are the only players acting out of self-interest and self-preservation.

I am puzzled by Flower’s claims that the IIRC has abandoned sustainability accounting and reporting. I do not see this as a significant component of Discussion Paper (IIRC, 2011) and in any case I am unclear why the IIRC would have set, as its core mission, tasks already undertaken by other organisations or why, assuming it did so, it would be criticised for avoiding duplicating such tasks.

Having briefly considered the link between integrated reporting and sustainability accounting and reporting (which Flower argues the IIRC has abandoned), this paper goes on to consider further: the key features of integrated reporting which have the potential (if critical voices engage in its further development) to shift corporate thinking; areas for further academic research; and the role of academics in facilitating change (Adams and Larrinaga González, 2007; Adams and Whelan, 2009; Cooper, 2005).

This article is © Elsevier and permission has been granted for this version to appear here (www.drcaroladams.net). Elsevier does not grant permission for this article to be further copied/distributed or hosted elsewhere without express permission from Elsevier.

The potential to shift corporate thinking

The features of integrated reporting which have the potential to shift the thinking of corporate actors to better align notions of profit maximisation with the wellbeing of society and the environment (following Adams and Whelan, 2009) are its emphasis on thinking long term and encouragement of broader thinking of what is value, the value creation process and the business model. Whilst I would like to see this thinking go much further, it is already a long way from traditional Anglo-American thinking of value as something which can be measured in monetary terms and the business model in terms of money flows. Integrated reports published compulsorily in South Africa (although not yet following the Framework) provide a more holistic way of thinking about the business, than an array of unconnected reports (see EY, 2012).

Flower raises the issue of the integrated report not being the primary report or even necessarily a separate report. I would think it quite possible that this may still be a long term aim of the IIRC, but the Summary of Significant Issues (IIRC, 2013c) points to there being different views amongst responses to the consultation draft.

  • The meaning of value and value to whom?

The meaning attributed to ‘value’ and value to whom is critical in shifting the extent to which business, society and the environment co-exist in a mutually beneficial way. Flower is critical of the IIRC’s concept of value because it is ‘value for investors’ and not ‘value for society’. Like Flower, I would also prefer it if business embraced the notion of ‘value for society’, but this will not happen unless it is seen as being aligned to ‘value for investors’. The International <IR> Framework links the two in paragraphs 2.4 – 2.7:

“2.4 Value created by an organization over time manifests itself in increases, decreases and transformations of the capitals caused by the organization’s business activities and outputs. That value has two interrelated aspects – value created for: The organisation itself which enables financial returns to the providers of capital; Others (i.e. stakeholders and society at large).
2.5 Providers of financial capital are… also interested in the value an organization creates for others when it affects the ability of the organization to create value for itself…
2.6 The ability of an organization to create value for itself is linked to the value it creates for others…
2.7 …This includes taking account of the extent to which the effect on the capitals have been externalised…”

The IIRC’s Value Creation Background Paper (IIRC, 2013f) prepared by EY with guidance from a multi-stakeholder expert steering committee reveals differences, tensions and contradictions in the meaning of value. A range of perspectives are considered with the perspective of providers of financial capital considered in noting (page 11):

“Providers of financial capital equate value creation with the potential for future cash flows and sustainable financial returns, but this also takes into account the importance and limitations of different forms of capital for value creation.”

In the context of climate change it is surely clear that it would be unacceptable not to publicly report material emissions (whether in an integrated report or elsewhere). Global failure to reduce emissions to a point which will avoid a situation where the planet becomes uninhabitable to people, including providers of capital, would mean zero financial returns. At points in time prior to this the impact of climate change on financial returns to providers of capital of any one particular company might be very difficult to predict. It is reasonable to expect that strategies of corporations with material emissions will increasingly be influenced by the global necessity of reducing them.

Elsewhere the IIRC’s Value Creation Background Paper states that an integrated report should explain the increases and decreases in the pool of capitals and how and to what extent value has been created for others. Unfortunately this clarity is not reflected in the final Framework, but opposition to such a requirement is hard to fend off given the underdevelopment of accounting approaches.

The IIRC’s Value Creation Background Paper (IIRC, 2013f) acknowledges that stakeholder concerns and actions can influence financial returns and that the impacts may not be immediate or direct. The fact is that the impact of stakeholder actions and concerns may not be measureable in financial terms for a long time if at all. Nevertheless, countless examples have demonstrated that they present a considerable risk if not addressed. By requiring the disclosure (para 4.23) of risks affecting the organisations ability to create value over the short, medium and long-term the Framework at least encourages the consideration of such impacts and how they are dealt with.

The IIRC’s Value Creation Background Paper (page 11) goes on to say: “Integrated reports should enable providers of financial capital to assess whether, to what extent and how an organization’s use of, and outcomes for, all of the capitals adds to financial value.” This will be interpreted by some as meaning business as usual – if you can’t measure it in monetary terms, it’s not important.

Perhaps rather than focussing on blaming the dominance of the accounting profession in the process, we should consider our failure as accounting academics, critical of current accountings, to engage with organisations to help develop new accountings (see Adams and Larrinaga González, 2007; Adams and Whelan, 2009).

Unilever, an IIRC pilot company, is an example of a seemingly increasing number of companies acknowledging the need to think differently about business success:
“… the biggest challenge is the continuing threat to ‘planetary boundaries’; resulting in extreme weather patterns and growing resource constraints. These have increasing impact on our business… We remain convinced that businesses that both address the concerns of citizens and the needs of the environment will prosper over the long term… As… [the Unilever Sustainable Living Plan] becomes embedded, there is growing evidence that it is also accelerating our growth.”
Unilever, Annual report and accounts 2012 p 4.

As I note in Adams (2013, p 52), in order to credibly articulate their value creation story, organisations should: “disclose how they define value and the relevance of stakeholder views and the six capitals to their concept of value; disclose what steps they have taken to maximise value creation according to their definition; seek external assurance to demonstrate that they are working to create value as they define it”.

  • The role of the capitals

I share Flower’s disappointment with the limited disclosure requirements concerning movements of the capitals in the Framework (IIRC 2013a), but it is difficult to see how it could have been achieved in a meaningful way given the current underdevelopment of such accountings. The focus of integrated reporting is to consider how an organisation creates value – rather than on measuring impacts – and accountants and sustainability practitioners and researchers have to date given little attention to how this might be done under a multiple capital model. Part of the work of the IIRC’s Capitals Technical Collaboration group was to identify innovative examples of reporting on the capitals and it was clear that reporting was not yet sufficiently developed to be able to identify best practice. How would you put a value on, or disclose transformations of say, social and relationship capital or natural capital? This might be something for researchers to consider. In the meantime, the capitals are intended to broaden thinking about the value creation processes and risks. Measuring impacts of the organisation on the capitals should be addressed in its sustainability report or online sustainability disclosures (GRI, 2013).

As to Flower’s concern that integrated reporting is not sustainability reporting, the Capitals background paper (IIRC 2013d) explains the difference between the two as follows (page 17):

“5.12 While experience in sustainability reporting may prove invaluable to some on their journey toward <IR>, there are key differences between the two forms of reporting, particularly in the context of the capitals. It is worth noting that sustainability reporting:

• targets a wider stakeholder audience than does <IR>, which focuses primarily on providers of financial capital, particularly those with a long term view
• focuses on impacts on the environment, society and the economy, rather than on the effects of the capitals on value creation over time, as in <IR>.

As such, sustainability reporting is less likely to focus on the connectivity between various capitals or the strategic relevance of the capitals to value creation, and is more likely to include many disclosures that would not be material for inclusion in an integrated report.”

Credibility of integrated reports and the role of assurance

An issue which does need to be addressed is the assurance of integrated reports. As Flower points out (referring to Adams, 2004 and Boiral, 2013), there is a degree of incompleteness with respect to material issues in sustainability reports, something G4 (GRI, 2013) seeks to address. Without assurance standards which address materiality processes, this will incompleteness will occur in integrated reports too. For example, Sasol’s 2012 integrated report was ranked 5th in EY’s Excellence in Integrated Reporting Awards 2013 (EY 2013) but, despite being in the extractive industry, there is no mention of contemporary concern about a carbon bubble – the potential for devaluation of companies due to being unable to extract carbon in the future. This raises questions about the credibility of Sasol’s apparently highly regarded integrated report.

Potential avenues for research

The decision to prepare a first integrated report should lead to changes in: decision making processes; informal and formal communication processes; materiality and risk identification processes amongst others. Understanding the extent of these changes is important in considering the value of integrated reporting – itself an important factor in determining future guidance, policy and regulation. Understanding the factors which impact on the take up of integrated reporting is also important. Further research might explore:

  • Process of determining materiality and identifying risks for integrated reports.
  • Internal communications/ “integrated thinking”/ breaking down silos.
  • Factors that determine uptake of <IR> including qualitative factors such as role of leadership/ leadership style.
  • Changes to internal systems, processes and decision making on adoption of <IR>.
  • Accounting for transformations in the capitals.
  • The role of the multiple capitals concept in identifying risks and opportunities.
  • Implications of <IR> uptake for sustainability management and reporting practices.
  • Role and take up of <IR> in public and not-for-profit sectors.
  • The political landscape – relationships with other frameworks, Stock Exchange requirements, national regulation.
  • The impact of <IR> on decision making and outcomes.
  • Analyst responses to integrated reports.
  • Approaches to assurance of integrated reports.


This paper has discussed some key distinctions between sustainability reporting/disclosure and integrated reporting. It has outlined the case for integrated reporting and benefits to organisations and other stakeholders of the integrated thinking needed to develop an integrated report. It supports the current non-mandatory status of integrated reporting given that the accountings involved are insufficiently developed. It notes that Flower’s concerns about regulation relate to material sustainability impacts which are covered in a sustainability report, rather than an integrated report. This author agrees that reporting on material sustainability impacts should be mandatory (see for example Adams, 2004).

Flower argues that the IIRC’s proposals will have little impact on reporting practice, yet they already are having an impact. Over a hundred businesses have paid to be involved in the pilot programme, many others are adopting elements of integrated reporting and internationally regulation is increasingly requiring disclosure of, for example, strategy, risks and business model information in annual reports and Operating and Financial Reviews. The ideas in integrated reporting will evolve. I believe that to a large extent, their impact on reporting practice depends on those critical of the status quo both engaging with practice and ensuring their voices are raised and heard – as Flower is doing.

This article is © Elsevier and permission has been granted for this version to appear here (www.drcaroladams.net). Elsevier does not grant permission for this article to be further copied/distributed or hosted elsewhere without  express permission from Elsevier.

NOTICE: this is the author’s version of a work that was accepted for publication in Critical Perspectives on Accounting. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version will be published in Critical Perspectives on Accounting  DOI 10.1016/j.cpa.2014.07.001 


Adams, C. A. (2013). Understanding Integrated Reporting: The Concise Guide to Integrated Thinking and the Future of Corporate Reporting. Oxford: Dō Sustainability.

Adams, C. A. (2013). Resources for integrated report preparers and topics for researchers http://drcaroladams.net accessed 31st March 2014.

Adams, C. A. (2004). The ethical, social and environmental reporting-performance portrayal gap. Accounting, Auditing and Accountability Journal, 17(5): 731-757.

Adams, C. A. & Frost, G. (2006). CSR Reporting. Financial Management, June: 34–36.

Adams, C. A. & Frost, G. (2008). Integrating sustainability reporting into management practices. Accounting Forum, 32(4): 288–302.

Adams, C. & Larrinaga González, C. (2007). Engaging with organisations in pursuit of improved sustainability accountability and performance. Accounting, Auditing and Accountability Journal 20(3): 333–355.

Adams, C. A. & Whelan, G. (2009). Conceptualising future change in corporate sustainability reporting. Accounting Auditing and Accountability Journal, 22(1): 118–143.

Boiral, O. (2013). Sustainability reports as simulacra? A counter account of A and A+ GRI reports. Accounting, Auditing and Accountability Journal 26(7).

Cooper, C. (2005). Accounting for the public interest: public ineffectuals or public intellectuals?
Accounting, Auditing & Accountability Journal, Vol. 18 No. 5, pp. 592-607.

Cooper, C. & Puxty, A. (1996). On the proliferation of accounting (his)stories. Critical Perspectives on Accounting, 7, 285-313.

EY. (2012). Excellence in Integrated Reporting Awards.

Flower, J. (XXXX). The International Integrated Reporting Council: a story of failure. Critical Perspectives on Accounting.  This is available here.

Global Reporting Initiative (2014). G4 Reporting Principles and Standard Disclosures.

Hines, R. (1991). On valuing nature. Accounting Auditing and Accountability Journal, Vol. 4, No. 3, 27–29.

IIRC. 2011. Towards integrated reporting: communicating value in the 21st century.

IIRC. 2013a. International <IR> Framework.

IIRC. 2013b. Basis for Conclusions

IIRC. 2013c. Summary of Significant Issues

IIRC. 2013d. Capitals Background Paper for <IR>.

IIRC. 2013e. Business Model Background Paper for <IR>.

IIRC. 2013f. Value Creation Background Paper for <IR>.

KPMG. (2012). Integrated reporting: performance insight through better business reporting. Issue 2.

Sasol. (2014) Annual Integrated Report 2013.

Unilever. (2013). Annual report and accounts 2012: Making sustainable living commonplace.

Unilever Sustainable Living Plan.

Williams, S. J. & Adams, C. A. (2013). Moral accounting? Employee disclosures from a stakeholder accountability perspective. Accounting, Auditing & Accountability Journal, 26 (3), 449-495.

Stockland’s progress on integrated reporting

prepared by Carol Adams

Source: www.stockland.com.au

This analysis of Stockland’s reporting for 2013 focuses on the principles and content elements of <IR> which make integrated reporting distinctive.


Stockland’s Annual Review 2013 demonstrates connectivity through:

  • setting out briefly the contents of each report in its reporting suite  – this would be a good place to also mention the intended audience for each report;
  • the choice of non-financial KPIs included – they reflect Stockland’s long history of leadership in sustainability initiatives and sustainability reporting (page 7);
  • linking past performance, challenges, opportunities and strategy (pages 16-17);
  • setting the context and linking the various content elements of reporting (see the exemplary business snapshot, showing types of property and location on page 15);
  • setting out the respective roles of management and the Board with regard to performance and strategy (pages 22-23).

But social and environmental trends are not discussed in ‘challenges and opportunities’ on page 15. What are the big social and environmental issues creating challenges and opportunities for Stockland’s future?  And, difficult as it may be to do, it would be nice to see more explicit discussion of the changes and trade-offs made between the capitals relevant to Stockland.

Material issues

A description of the process of determining material issues is important in assessing the credibility of the issues identified. Stockland does this well.  The Annual Review (page 19) identifies key stakeholders and sets out the objectives and principles of its stakeholder engagement processes.  The reporting approach is carefully articulated on page 53.

But more could be done to justify the choice of non-financial performance measures in the report, linking them to the value creation story (and not just cost savings as has been done in the case of energy consumption).

Value creation story

Stockland misses an opportunity here.  The reader is not really told how Stockland defines value, though the relevance of the customer experience is hinted at.  The notion of creating value through a range of capitals is barely addressed.

Reference is made to making “a worthwhile contribution to the development of our cities and great country” on page 14, but the reader is not explicitly told what Stockland considers a “worthwhile contribution” to be.  The Liveability Index (page 44) is perhaps Stockland’s measure of that contribution and part of its value creation story.

On a positive note the Shareholder Review notes upfront that “the company’s vision is to be a great Australian property company that delivers value to all its stakeholders”.  Whilst <IR> is aimed primarily at  providers of financial capital, creating value for them requires delivering value to a broader range of stakeholders. Stockland acknowledges this.

Stockland’s Chairman, Graham Bradley, links being a socially concerned and environmentally responsible organisation with employee pride.  But the report misses the opportunity to go further in more explicitly linking this with long term value creation.  What is it about Stockland’s people and its investment in people that creates values?

A loose link is made between community partnerships, customer satisfaction and creating value, but more work needs to be done to link the various components of customer satisfaction with long term value creation.

Operational efficiency and cost savings are cited as the key driver for environmental initiatives.  At Stockland these focus on Green Star assets and energy reduction.

Very few companies do tell their value creation story well.  A good start would be to define value and disclose the steps taken to maximise value creation according to that definition. Much of this is already in the report, but could be more coherently brought together.

The business model

Similarly, there is enough information for the reader to get the gist of the business model but it isn’t explicitly articulated.  The report does not provide a clear and concise identification of the main inputs, activities, outputs and outcomes.  Business inputs need to be considered in terms of people, infrastructure, relationships, natural resources etc as well as funds.  They are mentioned in the report but not brought together.


The report is an excellent early integrated report which demonstrates a long history of embedding sustainability and proactively addressing sustainability issues.  The report pulls together social, environmental and financial information, but the seams are visible and some of the key components of an International <IR> Framework integrated report are missing.  Similarly, a rationale is given for Stockland’s customer focus, but it is not developed into a value creation story which flows from a concisely articulated business model describing the relevant capital inputs.

Related articles on this website

Changing the way business is done? South African integrated reports 

RBS Sustainability Review 2013: building trust and developing integrated thinking

Towards integrated thinking at Unilever

The banking sector and integrated reporting: focus on HSBC

Key reporting standard setters in dialogue

Responding to calls for better alignment in corporate reporting, the International Integrated Reporting Council (IIRC) yesterday introduced The Corporate Reporting Dialogue (CRD).

The stated aim of the CRD is to promote greater coherence, consistency and comparability between corporate reporting frameworks, standards and related requirements, leading to improved efficiency and effectiveness.

The organizations participating in the CRD, which was launched at the International Corporate Governance Network Annual Conference in Amsterdam, are:

  • Climate Disclosure Standards Board (CDSB)
  • Financial Accounting Standards Board (FASB)
  • Global Reporting Initiative (GRI)
  • International Accounting Standards Board (IASB)
  • International Integrated Reporting Council (IIRC)
  • International Public Sector Accounting Standards Board (IPSASB)
  • International Organization for Standardization (ISO)
  • Sustainability Accounting Standards Board (SASB)

The reality is that there is also concern, perhaps even insecurity, amongst some that some of these organisations will lose relevance unless there is greater connectivity between their aims and standards/frameworks.  That is not to say that their aims need to be the same. Indeed they serve different stakeholders as alluded to by the Chair of the CRD, Huguette Labelle, also Chair of Transparency International and a member of the IIRC Council.

She stated, “The corporate reporting landscape is changing. For too long, reporting has been fragmented and disconnected from the strategic drivers of value. In an interconnected world, isolated change is insufficient to reflect the complexities of modern business and investment practice. The CRD is a collaboration that will promote greater cohesion and efficiency, rebalancing reporting in favour of the reader, helping to re-establish the connection between a business and its principal stakeholders.”

Hopefully this means that a focus on accountability for impacts on people, communities and the environment will not be lost and instead be increasingly seen as essential to creating value.  What many readers want is change in the way business is done and reporting has a critical role in this – something that should not be lost in ‘rebalancing reporting in favour of the reader’.

According to the IIRC, the CRD will develop practical ways to bring alignment to the direction, content and ongoing development of reporting frameworks, standards and related requirements. Participants will share information, express a common voice on areas of mutual interest, and as the initiative progresses, will reach out to the broader corporate reporting landscape. The initial deliverable will be to develop a ‘Corporate Reporting Landscape’ highlighting the connectivity of the various reporting frameworks and standards and their relevance to Integrated Reporting.

Paul Druckman, CEO, IIRC

Paul Druckman, CEO, IIRC

The CRD could then become a powerful catalyst for change.  Indeed Paul Druckman, CEO of the IIRC has pointed to the importance of the dialogue in furthering change stating: “At the creation of the IIRC we set out to be a catalyst for an evolution in corporate reporting – the formation of the CRD is at the heart of this, and is a significant step towards achieving our goal.”

Related articles on this website

Changing the way business is done? South African integrated reports 

RBS Sustainability Review 2013: building trust and developing integrated thinking

What is integrated reporting? And how do you do it?

How stakeholders drive accountability in corporate sustainability reporting

Towards integrated thinking at Unilever

Changing the way business is done – South African integrated reports

written by Carol Adams

Changing the way business leaders and their investors think is a prerequisite for real change towards social, environmental and economic sustainability.  A focus on the longer term and thinking about value in non-monetary terms, means thinking about people, relationships, know-how and the natural environment and how they create value, rather than just what they cost or how we impact on them. And a reading of the best South African integrated reports reveals a concerted effort to think about the business differently.

Citation for this article:  Adams, C A (2014) “Changing the way business is done: A critical review of two South African integrated reports”, The Sustainability and Integrated Reporting Handbook, Alive2Green Available here

The potential of integrated reporting to drive changes in the way business does business lies in its focus on long term strategic planning, the multiple capital concept and its potential to change how we define value.  A focus on short term financial value is increasingly being seen as bad for business, let alone society and our natural resources.

It is pleasing to see reports which highlight key non-financial performance indicators, along with financial indicators right up front.  For example, in Sasol’s case these include environment, safety and equity measures and, in the case of greenhouse gas emissions (only) a quantified long term (2020) target.  It is also exciting to see reports which talk about values and goals in broad terms and analyse the context in which the business is operating, its risks, including reputation risk, and opportunities.

Some of the reports available, such as Sasol’s 2013 annual integrated report, attempt to follow the IIRC’s consultation draft, but they all predate the recently released International <IR> Framework (IIRC, 2013 and Adams 2013).  Yet they provide many learnings for companies new to integrated reporting.

Sasol explicitly acknowledges the link between values and behaviour: Our shared values define what we stand for as an organisation and inform our actions and our behaviour. They determine the way in which we interpret and respond to business opportunities and challenges.” Sasol Annual Integrated Report 2013 p 7.

So what behaviours is Sasol aiming to nurture?  A focus on people, relationships and long term value for those connected with the company:

To grow profitably, sustainably and inclusively, while delivering value to stakeholders through technology and the talent of our people in the energy and chemical markets in Southern Africa and worldwide…our common goal To make Sasol a great company that delivers long-term value to its shareholders and employees; a company that has a positive association for all stakeholders”. (Sasol Annual Integrated Report 2013 p 6)

‘Sustainably’ in this case might mean both environmental sustainability and longevity:

We also remain acutely aware of the environmental impact of extending our operations to 2050. We are working on initiatives to mitigate greenhouse gas and carbon dioxide (CO2) emissions as well as on those related to air quality and water stewardship.” (Sasol Annual Integrated Report 2013 p 27.)

Social and environmental issues feature prominently in ‘top issues impacting our business’ (page 30), but neither here, nor in ‘Looking towards 2050’ (page 27) is there any mention of the carbon bubble.  Should there be?  Well, it has been getting quite a lot of attention, it may impact on value to investors (and employees and stakeholders) and integrated reporting requires identification of material issues and discussion of the context in which a company is operating including risks and opportunities.  So, yes, I think there should be a discussion on the likelihood of a carbon bubble impacting on future value.

Sasol appears to see the fight as being with regulators.

“Risk of climate change and related policies impacting Sasol’s operations growth strategy and earnings” is identified as a regulatory risk (page 47) with possible regulatory interventions identified as carbon taxes, product carbon labelling, carbon budgets and carbon-related border tax adjustments linked to bilateral agreements. Sasol discusses efforts to reduce Greenhouse Gas emissions, but also notes it is engaging in “co-ordinated regulatory intervention” (page 47).  In the context of its concern about the cost of such interventions, this would appear to mean trying to stop them, a move unlikely to be in the interests of protecting natural capital.

The report has been ranked highly (see EY, 2013) and indeed, I did get the feeling that there had been some considerable ‘integrated thinking’, demonstrated by the discussion on value, strategy and the business model.  But I was left wondering if all the reported activity around reducing carbon emissions was an attempt to hide the elephant in the room (the carbon bubble) and delay regulation.  Of course, I should not be surprised by this (see Adams, 2004 and Adams and Whelan, 2009), but I am disappointed to see integrated reporting used in this way.

On the positive side, Sasol has identified how each stakeholder contributes to value creation (pages 38-9) along with more commonly provided information on how they engage with each stakeholder group, what their expectations are etc.  The process of determining materiality set out at the front of the report involved consulting stakeholders amongst other steps.

The Standard Bank Group (SBG) does not suffer the same perception that the nature of its business is fundamentally unsustainable as some would have of Sasol, but banks come up against scrutiny with regard to the nature of the projects they fund.  And they are generally mistrusted by many.  Demonstrating a contribution to creating value for the societies they depend on and diligence with regard to the environmental impacts of the projects they fund is therefore critical for their long term success.  The Standard Bank Group appears to do this better than many.  The real proof of course comes in information about the nature of loans made.

The reader of SBG’s annual integrated report is left with the feeling that the bank sees its success as inextricably linked with its relationship to society.  For example, socioeconomic development and provision of sustainable and responsible financial services are identified as material issues.  The bank aims to embed sustainability thinking into its business processes, there are a number of determinants of materiality, including the bank’s values and accountability and responsibility for sustainable development rests with the board (page 46). The report includes a value added statement (page 49), information on stakeholder engagement processes and explains it approach to environmental and social risk screening.  Sustainability risk is explicitly mentioned alongside other operational risks (page 90).

Another strength of the SBG report is its disclosure on remuneration of it executives. Some are not so bold.

One of the Guiding Principles of the International <IR> Framework is ‘concisenes’.  At around 130 (Sasol) and 180 (SBG) pages, neither report examined here can be said to fulfil that, but they contain information, including financial and governance information which goes beyond the Framework’s content elements.


Adams, CA (2004). The ethical, social and environmental reporting – performance portrayal gap Accounting, Auditing and Accountability Journal (Volume 17, Issue 5): 731–757.

Adams CA (2013) Understanding Integrated Reporting:  The Concise Guide to Integrated Thinking and the Future of Corporate Reporting Dō Sustainability ISBN 9781909293847.

Adams CA and Whelan G (2009) Conceptualising future change in corporate sustainability reporting Accounting Auditing and Accountability Journal 22(1): 118–143.

EY (2013) Excellence in Integrated Reporting Awards 2013. Download here: http://www.ey.com/Publication/vwLUAssets/EYs_Excellence_in_Integrated_Reporting_Awards_2013/$FILE/EY%20Excellence%20in%20Integrated%20Reporting.pdf

IIRC (2013) International <IR> Framework. Download here: http://theiirc.org

Citation for this article:  Adams, C A (2014) “Changing the way business is done: A critical review of two South African integrated reports”, The Sustainability and Integrated Reporting Handbook, Alive2Green Available here

Sustainability reporting: A tool for improving returns to shareholders?

written by Carol Adams

Can reporting on Environment, Social & Governance (ESG) issues increase returns to shareholders?

Surveys conducted by consulting firms have found that the majority of CEOs link social responsibility initiatives with profitability.   Academic research has consistently found a positive link between social performance and financial performance.

But making that link at an individual corporate level is challenging. This post looks at five key things you can do to enhance the value created by your social responsibility and sustainability initiatives.

Sustainability reporting tends to focus on measuring historical impacts, rather than on the value created by social and environmental initiatives.  Information of great interest to investors, such as the quality of management and governance processes, has often been overlooked.

Areas of major risk such as the management of ESG (Environment, Social & Governance) issues in the supply chain, tensions in stakeholder relationships, human rights abuses and lack of diversity at senior levels are often glossed over and put in the too hard basket. Yet addressing these issues can really add value.

Getting traction and change at an individual corporate level can seem incredibly slow and hard work.  It often comes in the wake of a serious breach of stakeholder trust resulting in the whole company is mobilised right from the top.   Shell and Nike are prominent examples, both moving on from reputational damage resulting from stakeholder action to winning awards and recognition for reporting/social responsibility.

So how can ESG reporting contribute to improved returns to shareholders?

There are a few steps you can take to ensure your ESG reporting adds value.

  1. Develop a corporate reporting strategy

As a key communication medium, corporate reporting is too important to forget about until you need to start collecting data again.  It is an investment.  Have a strategy for developing your reporting at least three to five years into the future.  There will always be things that get in the way, so changing your approach needs to be planned. It takes time.

Questions to consider include: How do you want your reporting to develop? What reports will you produce? How will they be connected? Who is the audience for each? How much (and which) information will you put on line? What will you disclose about strategy?  How will you depict your business model? What does sustainability mean to (the success of) your organisation?

  1. Report all impacts material to stakeholders and all material risks

Not all material impacts fall neatly into an E, S or G box and approaches to materiality and stakeholder engagement need to ensure that issues which present financial or operational risks and opportunities don’t get overlooked.

Fuji Xerox Australia and the RBS Group have increased the range of stakeholders consulted to include the senior exec.  The RBS Board level Group Sustainability Committee expanded the scope of issues considered in the materiality approach for its sustainability report consistent with its own recently expanded role to cover matters not traditionally covered in ESG reporting.  The issues raised by the 26 advocacy groups that the Committee met during 2013 included: customer trust; governance and accountability; regulatory reform and compliance.  These issues sit alongside the more usual ESG issues which arise from a sustainability reporting stakeholder engagement process such as human rights, diversity and inclusion.

  1. Put impacts and activities on material issues into context

Don’t take report readers for fools.  It’s meaningless for a bank, for example, to talk about how much it is investing in renewable energy or lending to small businesses, both of which are important issues for that sector, without providing information on overall energy investment and lending, how this compares with the rest of the sector or how it compares with what’s been done on previous years.

Sasol’s otherwise exemplary 2013 annual integrated report might leave the reader wondering if all the reported activity around reducing carbon emissions was an attempt to hide the elephant in the room (the carbon bubble) and delay regulation.

  1. Demonstrate how ESG matters

It’s important to say how and why managing social and environmental sustainability issues creates value for your stakeholders.

Demonstrate how new partnerships and initiatives are linked to corporate strategy and hence create value.

Demonstrate how your ESG initiatives create value to your stakeholders and how this is connected to adding value to your investors.

The Royal Bank of Scotland Group’s RBS Sustainability Review 2013 begins with the words “In 2013, we were the least trusted company in the least trusted sector of the economy. That must change”. And the bank’s sustainability review is clearly intended to rebuild lost trust.  It explicitly recognises the link between financial success and serving customers and society.   The bank emphasises its desire to be accountable.  This must be genuine.  If it is, it goes a long way to building trust.  If it’s not it becomes a risk in itself…    The press, NGOs and social media are quick to pick up on green wash and have an immediate international audience.

Unilever have directly linked growth and product success with their Sustainable Living Plan which they depict as being central to their business model.

Another way to make it matter is to say how stakeholders contribute to overall value creation.  Sasol’s 2013 Integrated Report does just that identifying how each stakeholder contributes to value creation along with more commonly provided information on how they engage with each stakeholder group, what their expectations are etc.

  1. Demonstrate sound management and governance processes

Investors make judgements about the quality of management.  Corporate reporting is an opportunity to demonstrate sound management and governance processes.  Your approach to engaging stakeholders and determining material issues gives investors confidence that you are identifying and managing risks.  The extent of senior exec and Board oversight of the sustainability reporting process and outcomes gives investors confidence that you are managing performance.

Reporting quantified targets with dates by which they are to be achieved gives investors confidence that you are serious about improving performance.  Reporting performance against those targets shows that you are managing performance particularly if you say what corrective action is being undertaken where they aren’t achieved.

This post is based on my contribution to the CTQ Investing in Responsibility Conference Sydney 15th May.

For information on our advisory services see our Integrated Horizons website.

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RBS Sustainability Review 2013: building trust and developing integrated thinking

Ten steps to integrated reporting

Five essentials to embedding sustainability

The role of the (bank) CFO in value creation: an interview with Mark Joiner, NAB

Integrated Reporting: the Guiding Principle of ‘Connectivity of Information’ made simple

ESG issues and business responses: an interview with Ian Woods, AMP Capital