As business models evolve and advance, companies are expected to engage in more effective communication with stakeholders and present information about much more than just their financial results. The need for integrated reporting is becoming more pressing and businesses should act quickly to have the early advantage of gaining stakeholders´ trust.
According to Financial Director website, businesses should disclose information regarding six categories of capital: financial, manufactured, human, intellectual, natural and social. However, reporting on categories that are so different from one another and require different metrics and methodology can be challenging. In a bid to facilitate integrated reporting, the International Integrated Reporting Council (IIRC) is expected to release a formal framework by the end of 2013.
Businesses should remember that only about 20% of their capital is tangible and a company can better be represented by a more holistic picture of its performance, Financial Director noted. The first step towards achieving this balanced picture is to understand how a company uses natural, social, knowledge and financial capital and how those affect the environment and communities, explained Tim Haywood, group finance director of Interserve, a FTSE 250 construction company. After they have been thoroughly analysed, measurable targets could be set to reduce the impact, he added.
According to PwC´s head of sustainability Alan McGill, integrated reporting can only start when businesses realise that they do not function in a vacuum or as a standalone unit. Instead, companies should acknowledge the fact that they operate as a whole and in relation to various surroundings, making an impact on each of them.