By John Maddocks | 11 November 2013
Can sustainability and integrated reporting address concerns about the complexity and relevance of annual reporting?
Sustainability reporting comes in many guises, ranging from a brief one- or two-page summary of an organisation’s key environmental drivers and impacts to more lengthy tomes on a par with War and Peace. These cover a wide range of topics such as governance, procurement, stakeholder relationships, the workplace, and economic and environmental impacts. Whatever the content, the basic idea is that organisations will be better off with a more rounded picture of the resources they use (be they social, environmental or economic).
If an organisation only considers its financial performance, it may fail to take full account of the roles played by non-financial resources in delivering services, improving performance, and responding to opportunities and risks.
A good sustainability report can support strategic thinking and help to build a more sustainable organisation.
Public service organisations’ activities are strongly linked to sustainability. Local government responsibilities embrace a wide range of social, environmental and economic development issues. However, an integrated sustainability strategy linked to reporting is not a standard feature of public sector organisations.
This is not to omit developments within sustainability reporting, including: the Treasury’s sustainability reporting guidance, which is mandatory for many central government bodies; the Scottish Government’s Public Sector Sustainability Reporting guidance; the Welsh Government’s reporting of performance against sustainable indicators; the NHS Foundation Trust Annual Reporting Manual’s support for sustainability reporting; sustainability reports produced by some local authorities; and reporting by CRC energy-efficiency scheme participants.
The best sustainability reports make the connections between policy, governance, strategic direction, financial performance and sustainability. They are also concise and useful for the reader. As this is not an easy task, perhaps we should keep in mind Blaise Pascal’s famous comment: ‘I have made this longer than usual because I have not had time to make it shorter.’
A Financial Reporting Council 2009 report on corporate reporting states: ‘Many people point to the increasing length and detail of annual reports – and the regulations that govern them – as evidence that we have a problem. Others are more worried that reports no longer reflect the reality of the underlying businesses, with key messages lost in the clutter of lengthy disclosures and regulatory jargon.’
The good news is that the sustainability reporting guidance produced by the Treasury and the Scottish Government promotes a concise form of reporting, with a small number of key non-financial indicators linked to relevant financial information, and a brief narrative.
Along with developments in sustainability reporting, the International Integrated Reporting Council is publishing its integrated reporting framework in December 2013.
Part of the argument for IR is that financial reporting fails to fully capture the value created by an organisation’s activities. IR seeks to address this by bringing together diverse but currently disconnected strands of reporting into a coherent, integrated whole. IR draws on existing financial, narrative, governance and sustainability reporting. The potential benefits are improved effectiveness and efficiency through a more comprehensive overview of an organisation’s activities.
An important element of the IR approach is the organisation’s creation of ‘value’ through a number of ‘capitals’ (financial, manufactured, intellectual, human, social and relationship, and natural). IR seeks to clarify the relationships between these ‘capitals’ (in a public sector context, ‘resources’ may be a better word), and the organisation’s business model and external factors.
IR can help organisations identify the likely future risks and drivers, and clarify the options to ensure they are better equipped to respond to change. This has particular relevance for public sector organisations and the financial and service delivery challenges they currently face. IR also offers a way to review complex multi-service delivery and identify preferred outcomes across a range of connected activities.
But perhaps the critical factor is that both the Treasury sustainability reporting model and IR offer the promise of addressing concerns about existing forms of reporting by providing more concise output combined with a more complete picture of the organisation’s activities.
John Maddocks is technical manager at CIPFA. CIPFA is supporting a public sector perspective on IR. For more information on CIPFA’s IR engagement and how to produce a sustainability report, see www.cipfa.org
This opinion piece was first published in the November issue of Public Finance magazine
