Integrated Reporting a building block for more transparency

18 December 2020 Consultancy.in

The new buzzword on the block: integrated reporting is a holistic approach to reporting a company’s financial performance, accounting for its sustainability profile. In a new report, Grant Thornton presents the fundamentals.

The context is an ever-tightening regulatory framework that puts privacy, sustainability and governance imperatives on companies. While higher standards of financial reporting and disclosure have been on the agenda for many years, a company’s environmental, social and corporate governance (ESG) profile has become a core differentiator in recent years.

Grant Thornton presents integrated reporting as a way of streamlining these myriad considerations. “Integrated reporting is conducted to communicate how their strategy, governance and performance has led to the creation of sustainable value in the short, medium and long term,” explained CEO at Grant Thornton Bharat Vishesh Chandiok.

Key benefits of integrated reporting

“In other words, it is a holistic representation of financial and non-financial performance of an organisation.” The new reporting technique gives equal weight to all stakeholders in a business – the organisation itself, investors and society as a whole – all of whom benefit from a more comprehensive approach. 

A Grant Thornton survey among businesses revealed a belief in the power of integrated reporting. Most appreciate its value for transparency and governance in a business, which helps enhance communication with external stakeholders as well. For more than 10%, integrated reporting can also bring a more holistic approach to business within an organisation.

Against this backdrop, adoption rates are picking up momentum. Many businesses now have mention of integrated reporting within their governance codes, while similar references can be found in broader governance regulations as well. According to the researchers, this growing presence is a key driver of growth for half of all businesses.

Drivers for adoption of integrated reporting

Indeed, similar regulatory pressures in India have driven a boom in corporate social responsibility (CSR) spending as well. That being said, the compliance angle is not the only factor at play. Nearly a third of organisations adopt integrated reporting because of what it represents – a comprehensive approach to business that includes multiple stakeholders. 

Even investors of today are interested in more than just the financials of a company. ESG factors could make or break an organisation’s success, and investors appreciate a full overview of activities. For around 10% of businesses, investor interest is among the driving factors for adopting integrated reporting.

“Lately, organisations have realised that the current form of annual financial reporting takes a short-term approach and is inadequate to meet the needs of investors and other stakeholders. Therefore, the need for integrated reporting has been gaining momentum,” noted Chandiok.

Global best practices that can promote greater adoption of integrated reporting

Yet, integrated reporting remains a relatively undercooked phenomenon in the Indian market. Nearly 60% of businesses highlight that there is inadequate awareness around the new concept, which is among the core barriers to widespread adoption. Other roadblocks include: a lack of understanding and regulatory preparedness; a preference for simpler reporting forms such as CSR; lack of a regulatory framework; and an absence of investor interest so far.

According to Grant Thornton, similar barriers have been met and overcome by several key markets that have a strong integrated reporting landscape – including the UK, US, France, South Africa and Japan. In these markets, the silver bullet proved to be a clear regulatory framework, combined with targeted efforts to build investor interest via incentives and other support measures.