COMMIT!Forum Highlights Future of Integrated Reporting

NEW YORK — Addressing the COMMIT!Forum on Wall Street yesterday, Ernst Ligteringen, Chief Executive of the Global Reporting Initiative (GRI), suggested that the GRI's upcoming G4 Sustainability Reporting Guidelines will offer greater guidance for companies seeking to integrate sustainability performance data into their annual financial reporting.

This process, referred to as "integrated reporting," has been touted as a way to emphasize the interrelationship of sustainability and profitability, and to render non-financial performance data more relevant to investors.

Investors are increasingly likely to consider sustainability data when making financial decisions. Bloomberg recently began incorporating sustainability data into its financial terminals, Google Finance lists a company's Carbon Disclosure Rating alongside its net profit margin and other key financial indicators, and Thomson Reuters just launched a website dedicated to sustainability news.

Nevertheless, U.S. companies are several years away from regularly issuing integrated reports. The SEC is against mandating non-financial disclosure, and many traders have expressed little interest in non-financial data.

Moreover, only ten percent of sustainability reports issued in the United States include assurance statements, according to Ltd. This means that the vast majority of publically available non-financial reporting data in the U.S. has not been audited by an independent certified public accountant (CPA).

While consultancies and certification bodies do provide third-party "verification," a panel of representatives from the big four accounting firms (Deloitte, Ernst & Young, KPMG, and PwC) insisted today that only independent CPAs are able to provide non-financial assurance with a degree of rigor acceptable to investors and other key stakeholders.

American Electric Power (NYSE:AEP), one of the largest electric utilities in the United States, issued its third integrated report this year. Both the financial and sustainability data is audited internally, which means that no third party provides assurance of the data.

Still, investors and other stakeholders have responded positively to the integrated report, said Sandra Nessing, Managing Director of Sustainability at AEP. Integrating the financial and sustainability reports has also reduced duplication in the data collection process.

UPS (NYSE:UPS) has issued a sustainability report every year since 2003. Recently, the investor relations department decided that the information contained in the sustainability reports was material to investors, so the sustainability team must now wait to issue the sustainability report until after the company files its financials.

UPS's latest sustainability report received assurance from Deloitte, the largest of the big four, and was also checked by GRI, which gave the report an A+ for its level of disclosure.

But UPS has no plans to issue an integrated report in the near future. "Integrated reporting isn't technically defined yet," explained Steve Leffin, Director, Global Sustainability at UPS. Absent the development of a widely accepted standard for integrated reporting, UPS prefers to keep their financial and sustainability reports separate.

A standard may be forthcoming. The International Integrated Reporting Council (IIRC), of which GRI is a founding member, is developing a framework for integrated reporting and has launched a pilot program to be tested by 80 businesses and 25 institutional investors.

IIRC plans to issue a draft integrated reporting framework before the end of 2013, which should encourage more companies to adopt an integrated reporting approach in coming years.

Image credit: Daniel Spiess