Arguing For an Integrated Annual Report: Too Much Data, Too much Irrelevance?

Yesterday, the Conference Board hosted a webcast on the Global Reporting Initiative (GRI) and the Future of Integrated Reporting. The panel included Mike Wallace, the director of the sustainability reporting framework with GRI; Intel's Director of CSR Strategy and Communications, Suzanne Fallender; Doug Kangos, a partner with PricewaterhouseCoopers' National Professional Services unit; and Rina Levy, an environmental and social governance (ESG) analyst with Bloomberg. The topic: the future of integrated reporting, and how much data is too much? (For those unfamiliar with GRI and integrated reporting, please see footnote for a quick refresher.)

The central theme of the discussion was two-fold: evaluating existing GRI guidelines; and debating the future of the annual report. Also debated in the process was the question of how much data was too much. While the panel was in agreement over the eventual replacement of the annual report with an integrated report, they all highlighted contextual differences on the relevance of data. It's worth noting that until January's announcement by the SEC—which mandated that businesses disclose the impact of climate change on their businesses—public companies in the U.S. have, by law, only been required to disclose financial results. Companies who do report on their corporate responsibility (CR) initiatives do so voluntarily.

Key highlights from the panel:

Brand Management and CSR Reporting: Finance Industry in top spot

Noting that reputational issues are increasingly driving reporting in the financial services industry, GRI's Mike Wallace added that 80% of the Global Fortune 250 companies today release their CR data now. Wallace also commented that most of this was being driven by economic concerns, including trust, brand management and risk analysis. Citing findings from a 2008 KPMG Fortune 250 Survey, he pointed out that 70% of companies reporting their CSR reported being driven by ethical considerations, with an additional 50% citing direct economic factors as the leading reason.(See graph below for a breakdown by industry)

Wallace also noted many more attendees from the finance industry this year at the recently concluded GRI conference in Amsterdam, attributing it to a growing understanding that social issues will not be easily incorporated into future integrated reports. The challenge, he said, is how to make sure that the right kind of stakeholder involvement is maintained, especially with hard to quantify data, such as social issues.

The recent credit crunch has left much of the finance industry's reputation in shreds. PwC's Doug Kangos advised that traditional reporting on many of the standard elements (remuneration, performance measurement, etc) was no longer going to be enough and that these elements were not well linked. He emphasized that with the current financial reporting model still evolving, factors like remuneration structure, culture and values, performance measurement, and business models are going to be important considerations.

Remapping the Annual Report

Pointing to an extremely granular graph of an integrated report, Kangos illustrated how it is indeed possible to target all possible stakeholders within one report. The accompanying graph should help provide necessary perspective to anyone looking for a component analysis for their own integrated report (see below).

Intel's 2009 CR Report: The Influence of Social Media

Intel's Suzanne Fallender took the conversation further by discussing Intel's ninth CSR Report, which spans over 100 pages and highlights initiatives in corporate governance and ethics, environmental investments, supply chain accounting, workplace development, educational benefits, and community outreach. Highlighting the increasing influence of social media, she said that Intel's extensive social media presence along with a deliberately interactive PDF report, had ensured a wide dissemination of their CSR messages.

Discussing present GRI guidelines, in conclusion, she advocated for a standard on integrated reporting. "There is interest in this information from several different stakeholders, all of whom are looking for specific components. It's a daunting task to try to address them all in the absence of a standard," Fallender said, adding that a consensus-driven global standard could help address the wide inconsistency of the present guidelines, application levels as well as relevance of core issues.

What Does This Data Mean? "Numbers Need Context"

Fallender's observations brought the panelists to the ultimate question: How much data is enough? According to Kangos, data without context is not helpful. He added that moving toward a 300-page annual report was not the solution, rather identifying which KPIs were most useful for companies and investors and refining those was a better way forward. Fallender also stressed that more data was not better. She emphasized that the bigger challenge was catering to the different audiences (especially regarding integrated reporting) and prioritizing indicators with the greatest likelihood of impact for companies. "We will continue to get requests for more information, which is not necessarily that relevant. The challenge is the difference in how materially for ESG is defined vs. materially for financials, especially regarding the movement toward integrated reporting."

Wallace added that while everyone wants useful data, which with the help of financial aggregators like Bloomberg become stacked files of searchable, and therefore, useful data, and "help us fine tune the world a little bit," drilling down and getting granular must eventually put it in context.

Materiality of the data at the end, they all agreed, must dictate how much is enough.

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GRI is a network-based organization that formulated a sustainability reporting framework used by companies as guiding principles in reporting on their CSR initiatives and progress. To ensure that this framework led to inclusive, relevant and reliable data, they developed the principles through a global consensus, drawing from participants representing a cross-section of industries and professions. It is because of this network that the GRI remains to date hugely popular among CSR advocates as well as practitioners.

Integrated Reporting is the term for a holistic annual report that includes the company's financial and non-financial results. The latter would include all aspects typically noted under the CSR umbrella: sustainability initiatives, conservation benchmarks, data on diversity and minority leadership, environmental progress, social good, philanthropy, pro bono, etc. As knowledge and awareness of socially responsible investment (SRI) grows, companies are turning to GRI guidelines and integrated annual reports.