Corporations have failed to undertake serious reporting for accountability and sustainability

Will a new consultation paper advance efforts to improve accountability and sustainability? Rob Gray thinks not…

New accounting and reporting systems are essential if organisations and society are to address the serious conflicts which lie along the road towards sustainability. The latest step, apparently in this direction, was the publication in September 2011 of a consultation paper: Towards Integrated Reporting: Communicating value in the 21^st Century, by the newly formed International Integrated Reporting Committee (IIRC).

The IIRC was launched by the Prince of Wales with the hope that “…Integrated Reporting will support the necessary changes in individual and corporate behaviour which could stimulate the creation of wealth and jobs, and at the same time safeguard our environment for future generations”.

Voluntary initiatives simply do not work

Being the natural successor to the Prince of Wales’ innovative Accounting for Sustainability Project (A4S) and the ambitious and influential Global Reporting Initiative (GRI), the IIRC would, it was hoped, advance two of the most critical issues facing society and the planet: those of accountability and sustainability, and (in some mysterious way) integrate these with the organisation’s economic activities. The unfortunate truth is that the consultation paper has nothing useful to say about either accountability or sustainability.

In fact, despite the consultation paper’s promise of a “clear, concise picture of performance, impacts and interdependencies” (p5), it is very difficult to work out what the paper is really seeking to achieve.

Information for investors

The focus of the consultation paper is clearly on investors and their concern for “sustained value creation and long term economic stability” (p5). Investors have long been dissatisfied with corporate disclosure and generally want more information than corporations want to supply. Despite all its talk of additional information and integration, the consultation paper is unlikely to change that.

Towards Integrated Reporting does not appear to have anything substantive to do with either accountability or sustainability

Investors are principally concerned with financial returns so the only information they will wish to ‘integrate’ is that which will help in making investment decisions. This is what financial accounting information – linked with data on risk and reputation management – does now to varying degrees. Equally any additional and ‘integrated’ information will only be of relevance to investors, broader society and sustainability to the extent that there is a convergence of interests between self-interested investors, the stewardship of our planet and the development of a just society. There clearly is not.

So the IIRC’s claim that “Organizations that adopt Integrated Reporting will display their stewardship not only of financial capital, but also of human, natural, social and other capitals, which is likely to align with the interests of many civil society interest groups” (p24) is bewildering. Why would an investor be interested in these matters except to the extent that it will affect financial returns? If that is the limit of the interest, why might civil society be especially interested?

Finally, one should note that the consultation paper ignores the long, inglorious history of attempts to integrate social and environmental matters into financial statements. It has never previously worked and is unlikely to be successful in the future: the basis of the numbers one ends up trying to integrate are simply too disparate.

But this initiative sells itself as informing society as well as investors.

Accountability and sustainability

Towards Integrated Reporting does not appear to have anything substantive to do with either accountability or sustainability. Accountability is mentioned only twice despite its promise that “An Integrated Report enhances transparency and accountability” (p13). Sustainability may be mentioned 13 times but none of them talks about sustainability and/or seeks to explore how, if at all, it links with normal business activity.

The International Integrated Reporting Committee was launched by the Prince of Wales

Accountability comprises information that helps stakeholders judge to what extent an organisation has performed to its responsibilities. It is a perfectly practicable activity (although virtually no business reports in this way). Similarly, accountability for sustainability requires that civil society can judge the extent of an organisation’s (un-)sustainability. These are approximated through a range of sustainability accounting approaches. Few business organisations attempt this either.

So, corporations have manifestly failed to undertake serious reporting for accountability and sustainability. The consultation paper itself says that “voluntary sustainability reporting, in absolute numbers, is still low” (p9). The current voluntary regime has failed to substantially advance the case of either accountability or sustainability. So, the discussion paper’s appeals to the current voluntary regime are perplexing at best. Voluntary initiatives simply do not work in this area. We do not advance any substantial agenda by pretending otherwise.

Conclusions?

Despite the undoubtedly well-intentioned efforts of a wide range of talented and relatively informed individuals, there is nothing as yet in the IIRC’s consultation paper that would allow a sceptical reader to gain reassurance that the obviously difficult but as yet unfulfilled struggles towards accountability and sustainability reporting are not now being abandoned.

Towards Integrated Reporting lacks any clear communication of what integration will actually look like; there is a conspicuous absence of any notion that it is investors and financial markets that may be the key components in financial instability, social injustice and environmental un-sustainability; the experiences of history plus substantial bodies of relevant research have been ignored; the framework is based implausibly upon an interesting but impracticable heuristic of types of capital. It all looks a lot like a step backwards for A4S and GRI.

Without either irony or deference I would like to leave the last word to HRH Prince of Wales.

“I find it very difficult to sit idly by while certain aspects of conventional economic theory persist in jeopardising [our children and grandchildren’s] chances of a reasonable existence on this planet. To fail to see the urgency of our situation, to fail to reconsider the way in which we account for our natural resources and to fail to have the courage and the vision to take a precautionary approach, is to fail our descendants. The chances are they would never forgive us.”

HRH The Prince of Wales on BBC1 Television and quoted in RadioTimes 19 May 1990 p4