School, has been a driving force on the topic of reforming corporate
sustainability reporting over many years.
I asked him, in an email Q&A, about what’s happening today, and what the future may hold
for integrated sustainability reporting.
Bob Eccles: I have been studying and trying to change corporate reporting for over 20
years. It started with a 1995 paper I published in the Sloan Management
Review with Sarah Mavrinac called “Improving the Corporate Disclosure
In this paper, based on a survey of companies, sell-side analysts, and
investors, we showed that the market was interested in nonfinancial information
but that companies, by their own admission, weren’t reporting much of it.
I then published two books written with various partners at PwC that provided
further evidence on the need to supplement financial reporting with information
on nonfinancial factors that were leading indicators of financial results, such
as product development, customer satisfaction and the development of intangible
In these books I also suggested an “action strategy” for how corporate
reporting could be improved. The first book (2001) was called The
ValueReporting Revolution: Moving Beyond the Earnings Game and the second
(2002) was Building Public Trust: The Future of Corporate Reporting.
While these books were well-received in concept, very little changed.
Both of these books were focused on shareholders and treated environmental,
social, and governance (ESG) sustainability issues as a somewhat separate, but legitimate,
I then got busy with other things and didn’t think much about corporate
reporting until after returning to HBS. In 2009 I started thinking about
corporate reporting again but this time with a much more explicit focus on sustainability.
The world had changed in terms of the effects of globalization, increasing
scientific data about the effects of climate change, and a continuing series of
global financial crises.
I had changed as well and, with Mike Krzus, I wrote the book One Report:
Integrated Reporting for a Sustainable Strategy which was published in
2010. We had the germ of the idea of “integrated reporting” although we weren’t
originally calling it that. But in doing our research we learned about
companies doing integrated reporting—like Natura, Novo Nordisk, Philips and
United Technologies—and it all came together.
The idea of integrated reporting had popped up simultaneously in practice
and academic theory independently of each other, showing that it is an idea
whose time had come.
The fact that our book came out about the same week that Southwest Airlines
published its first “Southwest Airlines One Report” was further evidence of
this. I didn’t know Southwest was working on this and they didn’t know I was
writing a book until the received it in the mail.
What’s the latest?
reporting. It is the first year all listed companies on the Johannesburg Stock
Exchange have filed their integrated reports on an “apply or explain why not”
basis and most have.
Ernst & Young in South Africa recognized the top 10 companies
through their “Excellence
in Integrated Reporting Awards 2012.” My colleague, Professor George
Serafeim, and I attended the awards ceremony in Johannesburg a few weeks ago and
gave a talk on integrated reporting.
The 10 award winners are doing some very interesting things and are worthwhile
checking out by any company interested in integrated reporting.
Just a few
weeks later, the International Integrated
Reporting Council published a “Pilot
Programme 2012 Yearbook” commemorating its first anniversary and reporting
on the results of its pilot program involving over 80 companies.
in the pilot program are working with the Draft Framework “Towards
Integrated Reporting: Communicating Value in the 21st Century”
that was published in September 2011. Most recently, on October 4, the Sustainability Accounting Standards Board was
launched issuing a Press Release, a video explaining its mission, and a video of
comments by its board
members. SASB was founded by Jean Rogers, Executive Director, and John
Katovich and Steve Lydenberg, both of whom are on the board.
I am privileged to be the first Chairman of SASB. SASB is focused on giving
investors the information they need on a company’s ESG performance in order to
make their decisions. We are taking a sector-specific approach because which
ESG issues are truly material to investors varies by sector.
We have published a Materiality Map We will do this through Technical
Working Groups (TWGs) that will involve companies, investors, analysts,
accounting firms, NGOs and others who are interested in an open and transparent
point of view our focus is on companies who file in the U.S. under SEC
reporting requirements. Each country will have to decide for itself if and how
it wants to use the SASB standards.
by distinguishing between investors and other stakeholders. It is true that the
vast majority of investors aren’t interested in sustainability reports. This is
not surprising since they are not the target audience for them. Sustainability
reports are meant for a broad range of stakeholders, most of whom have a very
particular environmental, social, or governance interest.
In contrast, integrated reports are intended for
investors, as well as for those stakeholders who want a more holistic view of
the company’s performance. The IIRC and SASB are very investor-focused and
working to ensure that their work will satisfy the information needs of this
for reporting on ESG performance, will be ignored. What makes it useful? Even
so-called mainstream investors are increasingly recognizing that a company’s ESG
performance increasingly affects its ability to create value for shareholders
over the long term, and can even put its license to operate at risk. That is
one of the reasons so many asset owners and asset managers are becoming members
of the Principles for
That said, I think it’s fair to say that investors
are behind companies when it comes to integrating sustainability into their
capital allocation decisions.
One big reason for this is the lack of relevant information—something SASB will
help fix. Other reasons are how asset owners select, evaluate and reward their
asset managers. But that too can change with better information on ESG
coming up the agenda?
integrated reporting. We’ll see another year of reporting by South Africa
companies who will build on their previous years’ experience to produce even better
in April of 2013 with the final “version 1.0” expected for a December 2013
publication. While the IIRC is producing an overall architecture for integrated
reporting, SASB will be busy developing the standards that can be used for
reporting on the nonfinancial portion of the integrated report.
Care in the fourth quarter of 2012, followed in 2013 by Financials (Q1),
Technology & Communications (Q2), Non-Renewable Resources (Q3), and
Transportation (Q4). There are potentially a few other exciting things that
will happen next year but I can’t really talk about them at this point. When I
can, I’ll let you know and perhaps we can do a follow-up blog on this.
Looking forward beyond 2013, where will we be in 2015 on reporting, will
further disclosures beyond carbon be mandatory in some nations?
about a comment made by the famous American philosopher Yogi Berra who observed
that “Making predictions is very difficult, especially about the future.”
Mandating disclosures is something that needs to be done by the State. I don’t
expect this to happen in the U.S. anytime soon.
I keep hearing that the EU has passed
legislation requiring ESG disclosures but it is yet to be implemented. Perhaps
it will be. But I think it will be at a high level. I don’t expect to see much
in the way of mandating specific disclosures in any country. I also don’t think
that this should happen.
the spirit of integrated reporting and ignores the fact that what should be
disclosed is a function of a company’s sector and strategy. But following the
Yogi’s good advice, let me not answer the question of where we will be in 2015
and tell you where I’d like us to be and could be. Maybe another country or two
will have mandated integrated reporting.
reports on a voluntary basis. A global consensus will be emerging around the
IIRC’s Draft Framework and SASB’s sector-specific standards. Investors will be
paying more than lip service to ESG integration and will be doing it for real
since they will have better data. And something else we haven’t talked
about—again worth another blog—is that companies will be increasingly
sophisticated in how they are leveraging the Internet to make integrated
reporting an active and engaging exercise with shareholders and other
stakeholders where they listen as well as talk.
published a sequel to our book and hope to be able to report even more progress
for integrated reporting over the next two years.
Robert G. Eccles is Professor of Management Practice at Harvard Business
Ethical Corporation’s annual best practice in CR Reporting conference takes place on November 20-21 2012 in London. The conference website is here. Integrated reporting in practice will be one of the topics discussed in detail.