Report Tackles the Upside and Downside of Integrated Reporting

Integrated Reporting <IR> is doubtless one of the most debated topics in the corporate reporting community. Why all the hype? Internationally, numerous corporations are considering the adoption of <IR>. Yet what benefits can they expect? To find out, the Center for Corporate Reporting (CCR) and the University of Leipzig initiated a joint research project on the benefits and challenges of <IR> implementation.

The study shows that <IR> implementation is tackled on two levels: as a managerial change process at the strategic level, and as a reporting process at the operational level. On both levels there are arguments for and against implementation.

Arguments for and against the implementation of <IR> as a management approach

From a management perspective, <IR> implementation is driven by the adoption of Integrated Thinking.

Corporations can benefit from improved information and data access, advanced decision support systems – and a more holistic view of the company. These insights facilitate a forward-looking stance and sound strategic decision-making. Risk management can be improved by highlighting interdependencies in the value process. As increased transparency leads to better assessments of opportunities and risks, management finds it easier to align strategic objectives.

Businesses report a renewed appreciation and improved internal understanding of the value process as well as employee identification with the company. By disclosing value drivers and analyzing the value chain, individual contributions of each function and department are highlighted and appreciated.

By linking financial and non-financial capitals, <IR> enables a holistic presentation of the company, which in turn elucidates the value drivers for stakeholders.

The status as an <IR> pioneer combined with increased transparency can enhance the public image of the corporation and improve stakeholder trust – including investor trust.

Arguments against implementation include internal resistance by individual departments and individual employees, particularly resistance to the changes resulting from the implementation.

Another downside is recognized in higher costs and resource requirements at every level of the corporation, primarily due to lack of experience and an increase in guidelines.

Furthermore, a greater degree of transparency leads to potential new risks for the company due to the disclosure of negatives and the corresponding responsibilities.

Arguments for and against <IR> as a reporting format

An integrated report can optimize reporting, e.g. enable multiple departments to collaborate on an interdisciplinary level, share information and create synergies. It can broaden the understanding and knowledge of the overall corporation and different departments.

A positive outcome of the implementation process is a strengthening of the internal dialogue beyond departmental boundaries.

<IR> implementation can also enhance resource efficiency as financial, sustainability and governance reports are merged (up to and including production and distribution costs).

Operational decision-making processes are expedited due to an improved consistency in individual reports on the corporation’s value chain.

The integrated report can also facilitate external communication by providing a consistent tool applicable to various stakeholders, and through disclosure of relevant information and linkages to the financial community.

The integrated report satisfies investors’ need for a holistic picture of the company to enable easier, more comprehensive assessments.

On the down side, the introduction of <IR> can cause sweeping changes and a lengthy implementation period. It may well take several years from the initial implementation decision to the publication of the first report. A tremendous coordination effort is needed when there is lack of experience in interdepartmental cooperation.

Generally, the resource requirements are perceived as high, although each corporation can actively shape the process and edit the report according to distinct requirements.

To enable a step-by-step implementation of integrated reporting, it is possible to draw and build on existing reporting structures and processes which are then adapted and extended incrementally. However, respondents agreed that they would embark on the journey again if they had to do it all over again.

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