SUSTAINABILITY REPORTING &
INTEGRATED REPORTING
WHAT IS SUSTAINABILITY 3.2 REPORTING?
‘Sustainability reporting, as promoted by the GRI Standards, is an organization’s practice of reporting
publicly on its economic, environmental, and/or social impacts, and hence its contributions – positive
or negative – towards the goal of sustainable development’(Global Reporting Initiative, 2016).
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GRI – GLOBAL REPORTING INITIATIVE
According to the Global Reporting Initiative, sustainability reporting integrates environmental, social
and economic performance data and measures. Sustainability reporting is often now considered to
incorporate reporting on corporate governance.
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WHAT IS SUSTAINABILITY 3.2 REPORTING?
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WHAT IS SUSTAINABILITY 3.2 REPORTING?
The growing awareness of the part that business has to play in sustainable development has led to stakeholder
expectations that quoted organisations will make these disclosures.
Sustainability reporting is key part of a company’s dialogue with its stakeholders. In fact, the stakeholder desire
for and expectation of such information is so strong, companies that fail to make sustainability disclosure will
likely now be at a significant disadvantage.
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ENVIRONMENTAL ACCOUNTABILITY
Stakeholders expect businesses to be environmentally responsible. This means not only being aware
of the effects of business activities on the environment and how to mitigate them, but now
increasingly to be developing business strategy that is environmentally sustainable.
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CLIMATE-RELATED DISCLOSURE
Climate change is one of the key environmental issues of our time.
Businesses and their investors need to understand the risks and opportunities presented by climate
change. Businesses also need to comply with regulations on climate-related issues, such as reducing
carbon emissions.
There is much research at present into how climate-related issues should be disclosed by companies.
For example, the European Commission’s Technical Expert Group on Sustainable
Finance has recently released guidance for preparers of financial statements on climate-related
disclosures.
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SOCIAL ACCOUNTABILITY
Investors expect businesses to be socially responsible in their business practices. Reporting on social
accountability now often incorporates how a business is addressing issues such as human rights and modern
slavery, for example within the business’s value chain.
The aim of reporting on social accountability is to measure and disclose the social impact of a business’s
activities. Examples of social measures include:
1. Philanthropic donations, whether of corporate resources, profit based donations or allowing employees time to
support charitable causes;
2. Employee satisfaction levels and remuneration issues;
3. Community support; and • Stakeholder consultation information.
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BENEFITS OF SUSTAINABILITY REPORTING
Internal benefits include:
a) Increased understanding of risks and opportunities facing the business
b) Benchmarking and assessing sustainability performance with respect to laws, norms, codes, performance
standards, and voluntary initiatives
c) Avoiding being implicated in publicised environmental, social and governance failures
External benefits include:
a) Mitigating – or reversing – negative environmental, social and governance impacts
b) Enabling external stakeholders to understand the organisation’s true value, and tangible and intangible assets
c) Demonstrating how the organisation influences, and is influenced by, expectations about sustainable
development
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INTEGRATED REPORTING
The aim of integrated reporting (known as ‘<IR>’) is to demonstrate the linkage between strategy,
governance and financial performance and the social, environmental and economic context
within which the business operates.
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INTEGRATED REPORTING
Integrated reporting combines financial reporting and sustainability reporting with the aim of
helping readers to understand three discrete elements of the value of a business (KPMG, 2012):
1. Business as usual - the current shape and performance of the business
2. The likely effect of management’s plans, external issues and opportunities
3. The long-term value of a business
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INTEGRATED REPORTING
Integrated reporting: A process founded on integrated thinking that results in a periodic integrated report by an
organisation about value creation over time and related communications regarding aspects of value creation.
(International <IR>
Integrated report: A concise communication about how an organisation’s strategy, governance, performance and
prospects, in the context of its external environment, lead to the creation of value over the short, medium and
long term.
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INTERNATIONAL <IR> FRAMEWORK
The purpose of the International <IR> Framework is to establish guiding principles and content elements for the
preparation of an integrated report, and to explain the concepts that underpin them (IIRC, 2013).
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FUNDAMENTAL CONCEPTS OF <IR>
1. Value Creation - Value is created when there are increases, decreases or transformations of an entity's capitals
caused by its business activities and outputs. Value may be created for the entity itself (which in turn should
lead to returns for investors) or for other external stakeholders.
2. The Capital The capitals are stocks of value that are increased, decreased or transformed through the activities
and outputs of the organisation. The capitals comprise financial, manufactured, intellectual, human, social and
relationship and natural
3. Value Creation Process - The value creation process is the process by which an entity uses its capitals as inputs
and converts them to outputs. An entity's outputs include its products, services, by-products and waste.
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THE CAPITALS
Financial capital - The source of fund available to an entity such as share capital, loans and other sources of
finance.
Manufactured capital - The equipment and tools used in an entity's production process. Manufactured capital is
man-made and does not include natural resources.
Intellectual capital - Includes an entity's formal research and development and the less formal knowledge that is
gathered, used and managed by the entity.
Natural capital - Includes water, fish, trees and timber and other similar resources that occur in nature.
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THE CAPITALS
Social and relationship capital - Refers to the relationships in place within an entity and between an entity and its
external stakeholders such as suppliers, customers, governments and the community in which the entity
operates.
Human capital - Refers to an entity’s management and its employees and the skills they have developed through
education, training and experience.
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GUIDING PRINCIPLES OF <IR> FRAMEWORK
There are seven guiding principles that the <IR> Framework requires an organisation’s reporting to demonstrate
in order to be seen as meaningful (IIRC, 2013: p.16-23).
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GUIDING PRINCIPLES
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CONTENT ELEMENTS
The content elements describe what an integrated report should include. They are presented in the <IR> Framework
as questions that the integrated report should answer
1. Governance
2. Business model
3. Risks and opportunities
4. Strategy and resource allocation
5. Performance
6. Outlook
7. Basis of preparation and presentation
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MATERIALITY AND INTEGRATED REPORTING
In traditional financial reporting, ‘information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that primary users of financial statements make on the basis of those financial
statements’ (IAS 1: para. 7).
Integrated reporting considers transactions and events to be material if they impact an entity’s ability to create
value for its owners in the short, medium and long term. The IAS 1 definition of materiality is too narrow to be
applied to an integrated report as its sole focus is the financial statements.
The Integrated Reporting framework would also consider an item material if it helped to demonstrate that senior
management was discharging its responsibilities, regardless of the financial value of that item.
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MANAGEMENT COMMENTARY
Management commentary: A narrative report that relates to financial statements that have been prepared in
accordance with IFRSs. Management commentary provides users with historical explanations of the amounts
presented in the financial statements, specifically the entity’s financial position, financial performance and cash
flows. It also provides commentary on an entity’s prospects and other information not presented in the financial
statements.
Management commentary also serves as a basis for understanding management’s objectives and its strategies
for achieving those objectives. (IRFS Practice Statement 1: Appendix)
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MANAGEMENT COMMENTARY
IFRS Practice Statement 1 - Management Commentary
IFRS Practice Statement 1 Management Commentary is non-binding guidance issued by the IASB.
Presentation
The form and content of management commentary will vary between entities, reflecting the nature of their
business, the strategies adopted by management and the regulatory environment in which they operate (IFRS
Practice Statement 1: para. 22).
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ELEMENTS OF MANAGEMENT COMMENTARY
The particular focus of management commentary will depend on the facts and circumstances of the entity. However,
Practice Statement 1 requires a management commentary to include information that is essential to an
understanding of
a) The nature of the business
b) Management’s objectives and its strategies for meeting those objectives
c) The entity’s most significant resources, risks and relationships
d) The results of operations and prospects
e) The critical performance measures and indicators that management uses to evaluate the entity’s performance
against stated objectives
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