Financial and sustainability reports to merge – GRI

Brett Chulu (BC) spoke to Ernst Ligteringen (EL), the Chief Executive of Global Reporting  Initiative (GRI) on a number of issues regarding sustainability and integrated reporting. GRI is based in Amsterdam. Last week Ernst revealed that GRI believes that by 2015 regulators worldwide should have adopted the ‘‘report or explain’’ approach to reporting ‘‘Environmental, social and governance factors’’ (ESG).

In the words of Ernst, “This means that regulators should ask companies to report their ESG performance or, if they have a good reason not to, explicitly state what that reason is.” 

From a human re-sources perspective, ESG reflects a cultural capability called social responsibility. Cultural capability is what an organisation is known for, what it is good at. HR, more than any other business function has the expertise to turn ESG into a desired culture which creates value for the firm’s internal and external customers. Highly effective HR professionals are architects and enactors of desired culture.

Here are the remaining excerpts of the interview which started last week.

BC: The sustainability reports are classified into different levels. The PPC sustainability report I read was classified as a Level C report. What are these levels and what is their significance?
EL: The ‘Application Levels’ GRI uses indicate the sort of content to expect in a report, and to what extent the Guidelines have been followed. The Application Levels are also intended to provide GRI reporters with a pathway to follow to improve their reporting.
There are three Application Levels: A, B and C. C is the starting level, appropriate for first-time reporters and smaller companies, and A is the most extensive, for larger and more experienced companies.
The levels can be self-declared or checked, either by GRI or a third party. Reports that have been checked can also be assured by an external assurance service, which would result in published conclusions on the quality of the report and the information contained within it. GRI recommends the use of external assurance for sustainability reports in order to achieve a thorough and comprehensive evaluation.
BC: Of late you have been promoting ‘‘integrated reporting’’. What is an ‘‘integrated report’’ and how does it differ from the sustainability report and the traditional financial report?
EL: The aim of ‘‘integrated reporting’’ is to provide a single report combining the financial and the Environmental, Social and Governance (ESG) information about a company. Integrated reporting examines the environment and the community in which the company operates, and how the environment and community impact on the company’s business. The King III Code on Governance, a report that aims to promote good corporate governance in South Africa, defines an integrated report as “a holistic and integrated representation of the company’s performance in terms of both its finance and its sustainability”.
An integrated report combines a financial report with an ESG report and as such it has the qualities of both. Like a financial report, an integrated report looks back at and evaluates the previous year, but an integrated report also looks forwards, like an ESG report, to reveal prospects for future success.
A report that integrates the business strategy and the general performance of the company in a much more correlated approach can embed sustainability into an organisation. Accountants, assurance providers and risk managers could get more involved in the process.
Integrated reporting involves a more connected and holistic process than producing sustainability and financial reports separately. This kind of integrated approach will provide better tools for evaluating businesses, and for building business models for companies of the future, which will ultimately help drive a sustainable economy.
The recently established International Integrated Reporting Committee (IIRC) leads current discussions on  ‘‘integrated reporting’’. The aim of the IIRC is to create a globally accepted framework for integrated reporting. GRI is playing a central role in the establishment of the IIRC’s committee.
BC: Zimbabwe is currently emerging from a decade long economic crisis. We are seeing heightened efforts to strengthen corporate governance in both the public and private sectors. Soon a national governance code will be launched. In your view who should spearhead integrated reporting? Should it be the stock exchange company, the security exchanges regulator or an independent national governance code committee?
EL: At an international level, integrated reporting is being spearheaded by the International Integrated Reporting Committee, of which GRI is a member. Integrated Reporting is an emerging practice; who should be pushing it in a particular country depends entirely on the specific regulatory context. Reporting requirements are determined by different bodies in different countries.
Integrated reporting is being pioneered by a handful of companies globally. An increasing number of companies are also considering how they could use integrated reporting, particularly experienced ESG reporters. In South Africa, the 450 companies listed on the Johannesburg Stock Exchange are required to produce an integrated financial and sustainability report from 1 June 2010, as a result of the King III Corporate Governance Code that was adopted recently.
BC:   What will be role of human capital performance disclosures in integrated reporting and what sort of information on human capital will be required to be disclosed?
EL: The International Integrated Reporting Committee (IIRC), which is composed of leading experts and standard-setters in the field of financial and ESG reporting, including GRI, will develop a framework for integrated reporting and will explore how this framework should be fleshed out. There is currently no detail about
what specific information will be required.
Human capital indicators are an important aspect of ESG reporting and are already included in the GRI Guidelines. GRI will therefore make the case for the inclusion of human capital indicators as a key part in the development of any framework for integrated reporting produced by the IIRC.
BC: In your records do you have any Zimbabwean company or organisation that has submitted any sustainability reports to GRI?
EL: We are not currently aware of any Zimbabwean companies that have issued sustainability reports based on the GRI Guidelines, but we hope that this will change soon.
Is Zimbabwe ready for integrated reporting?
Share at brettchulu@consultant.com.