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[This is an Accepted Manuscript of an article published by Taylor & Francis in the Social

and Environmental Accountability Journal on 2nd February, 2015, available

online: http://dx.doi.org/10.1080/0969160X.2015.1007466]

Entitlements and time: Integrated Reporting’s double-edged

agenda

Dale Tweedie and Nonna Martinov-Bennie.

Macquarie University, Sydney

ABSTRACT

This paper argues that the Integrated Reporting (IR) framework developed by the

International Integrated Reporting Council (IIRC) is double-edged from a critical

sustainability perspective. The paper is based on qualitative content analysis of public

documents from four leading non-financial reporting organisations: the IIRC, the Accounting

for Sustainability Project, the Global Reporting Initiative and the King Committee on

Corporate Governance in South Africa. This analysis shows that IR moves away from three

key tenets of prior social and environmental reporting frameworks by privileging: (i)

communication over holding organisations accountable; (ii) organisational over social

sustainability; and (iii) the entitlements of providers of financial capital over other

stakeholders. Yet IR is also a practical attempt to shift financial capital from a short-term to

long-term investment horizon. As critical social and accounting theorists have argued,

extensive short-term investment is a threat to environmental and social sustainability. Hence,

IR has the potential to progress sustainability goals if it forms part of a broader re-

organisation of capital markets to reward longer-term perspectives.

KEYWORDS: Accounting for Sustainability, Global Reporting Initiative, Integrated

Reporting, King Committee, social and environmental accounting, sustainability

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Entitlements and Time: Integrated Reporting’s double-edged

agenda

Introduction

This paper argues that the Integrated Reporting (IR) framework developed by the

International Integrated Reporting Council (IIRC) is double-edged from a critical

sustainability perspective. For present purposes, a sustainability perspective views social and

environmental reporting as a means towards more sustainable societies, rather than as about

improving reporting quality to support financial investment decisions. In turn, a sustainable

society refers to a replicable and just use of shared resources. Take, for example, the World

Commission on Environment and Development’s (WCED, 1987: 15) well-known definition

of sustainability as ‘meet[ing] the needs of the present without compromising the ability of

future generations to meet their own needs’. Here, sustainable societies are defined as: (i)

able to reproduce their material and social conditions; and (ii) equitably distributing resources

between generations (Anand and Sen, 2000).

Although there are many alternative concepts of sustainability in social and environmental

reporting and research (e.g. Brown and Dillard, 2013; Burritt and Schaltegger, 2010; Samkin,

Schneider and Tappin, 2014), the idea that reporting should contribute to sustainability as

defined above has been consistently influential. For instance, one aim of early sustainability

reporting initiatives in Europe was to encourage organisations to fulfil social and

environmental responsibilities that were being ignored or overlooked by the state (Ioannou

and Serafeim, 2011a). The Global Reporting Initiative (GRI, 2000: 2) has explicitly endorsed

the World Commission on Environment and Development’s definition of sustainability, and

so has by implication endorsed its environmental and equity goals. In academic research, the

importance of a replicable and just use of resources is indirectly seen in recurrent criticisms

of social and environmental reporting for failing to make organisations either more

environmentally sustainable or equitable in practice (e.g. Brown and Dillard, 2013; Correa

and Laine, 2013; Gray, 2013; 2010; Aras and Crowther, 2009).

An integrated report is not a sustainability report (Druckman, 2013; IIRC, 2013b: 18; GRI,

2013: 85). However, since the IIRC is an institutional product of the sustainability reporting

tradition, its IR framework is legitimately subject to critique on sustainability grounds. The

IIRC was founded by the GRI and the Accounting for Sustainability Project (A4S) in 2010.

Whereas a stated aim of sustainability reports like the GRI is to document how organisations

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impact natural and social environments, the stated aim of IR is to provide a concise

description of how organisations create value using six types of capital: financial, intellectual,

human, social and relationships, manufactured and natural. One of the more controversial

features of IR is that its intended audience is providers of financial capital (IIRC, 2013d: 7).

Thus, while IR draws concepts like natural capital from sustainability reporting, IR adopts its

aim and target audience from mainstream corporate reporting. The IIRC has also set out

ambitious objectives for IR’s dissemination and use: originally that IR should become

organisations’ ‘primary reporting vehicle’ (IIRC, 2011: 6), and more recently that IR should

become ‘the corporate reporting norm’ (IIRC, 2014a: 5).

This paper aims to clarify the IIRC’s agenda and to evaluate its implications for

sustainability. IR research is expanding rapidly, but IR remains under-explored compared to

the extensive analysis of preceding non-financial reporting frameworks (e.g. Barton, 2011;

Parker, 2005; Gray, Kouhy, and Lavers, 1995). Moreover, extant IR research has focused on

IR’s development (Adams and Simnett, 2011; Rowbottom and Locke, 2013) and impact

within organisations (Stubbs and Higgins, 2014; Higgins, Stubbs and Love, 2014), rather than

on the IIRC’s underlying philosophy and strategy. In response, this paper systematically

investigates the IIRC’s agenda, in four main sections. Section 1 develops the research

questions and method: Comparative content analysis of public releases from four major

standard-setters in non-financial reporting. Section 2 uses the research results to elucidate the

IIRC’s goals and strategies. Section 3 draws on critical research in both social and

environmental reporting and social theory to draw out IR’s double-edged implications for

sustainability. On one hand, IR moves non-financial reporting away from characteristic

sustainability goals by privileging the entitlements of financial capital and weakening formal

accountability to other stakeholders. On the other hand, IR aims to re-focus capital markets

on the longer-term time frame that more sustainable corporate practice requires. Hence, IR

has the potential to contribute to sustainability if it forms part of a broader re-organisation of

capital markets to prioritise longer-term investment.

1. Research approach and method

Despite releasing its first International IR Framework in December, 2013, the IIRC’s

underlying reporting philosophy remains opaque for three main reasons. First, the IIRC

explains IR as a development in corporate rather than sustainability reporting, and so as

providing a distinct agenda from conventional sustainability reporting frameworks. However,

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and second, there is no agreed theory of IR. Although the broad concept of integrating

financial and non-financial information has been referred to in social and environmental

reporting research for some time (e.g. Gray, 2010; Ranganathan, 1998), the only extended

discussion of IR’s justification and approach in the academic literature is Eccles and Krzus’s

(2010) One Report. Since this text largely pre-dates the IIRC, and since IR has been

developed through the IIRC’s own extended process of internal discussion and consultation,

One Report cannot be assumed to represent either the IIRC’s concept of IR or define the

IIRC’s agenda. Third, the academic literature that does analyse the IIRC’s version of IR has

been more focused on IR’s development and impact, rather than on its philosophy and

strategy. For example, Adams and Simnett (2011) outline drivers behind IR’s development

and its usefulness for not-for-profit organisations, while Rowbottom and Locke (2013)

analyse the IIRC’s growth and likely future. Higgins, Stubbs and Love (2014) and Stubbs and

Higgins (2014) evaluate IR’s effect on organisations, such as who is preparing IRs and why.

Yet as Wild and van Staden (2013) illustrate in South Africa, how organisations use IR may

not reflect the IIRC’s own intent or principles. While the IIRC’s principles are becoming

clearer through emerging critiques of its framework (e.g. Brown and Dillard, 2014, Milne and

Gray, 2013), these critiques do not set out to systematically elucidate IR’s distinguishing

features.

The paper explores two research questions:

1. What is distinctive about the IIRC’s reporting philosophy, especially in its

objectives and strategy?

2. What implications does the IIRC’s reporting approach have for sustainability,

defined as including a replicable and just use of resources?

The findings are based on comparative analysis of public releases and frameworks from four

organisations that issue non-financial reporting frameworks: the IIRC, GRI, A4S and the

King Committee on Corporate Governance in South Africa (henceforth, the ‘King

Committee’). The GRI and A4S were selected as the IIRC’s founders, and as the most

influential social and environmental reporting frameworks in the Anglo-American tradition.

The King Committee was selected as the IIRC’s most direct precedent and as the first IR

framework to gain regulatory support. The period of analysis was from 2000 to 2013, which

captured major revisions in each of the frameworks, including the IIRC’s entire development

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up until its first framework release, and two iterations of the GRI, A4S and King Committee

reports (see: Appendix A).

The research method was qualitative content analysis, meaning 'subjective interpretation of

the content of text data through the systematic classification process of coding and

identifying themes or patterns’ (Hsieh and Shannon, 2005: 1278). This qualitative content

analysis had three stages. First, all documents were open-coded (in NVIVO 10) to generate

an independent hierarchy of goals and strategies for each standard-setter. Second, similar

codes that emerged for each organisation’s goals (e.g. sustainability) and strategies (e.g.

stakeholder engagement) were compared to identify similarities and differences in how each

organisation interpreted these concepts. Third, the overall hierarchy of goals and meanings

was compared and critically assessed. Coding was conducted by author one and reviewed by

author two, with differences in interpretation identified and discussed. Although open-coding

is more subjective than quantitative coding within a pre-determined scheme, this paper adopts

the hermeneutic view that social scientific research is always interpretative (e.g. Taylor,

1985), including when choosing a quantitative coding framework. More concretely, a key

assumption of quantitative content analysis – that a word’s frequency indicates its

significance (Guthrie et al., 2004) – is not met in this case, because standard settors had

different interpretations of key terms (e.g. sustainability). The method of qualitative content

analysis enabled the coding framework to be iteratively adapted to capture these differences.

2. Research results

How does the IIRC envisage IR improving reporting practice, and through what

mechanisms? This section elucidates the IIRC’s agenda by clarifying the ideas that underpin

its reporting goals (Section 2.1) and strategies (Section 2.2), and which emerged from the

coding process.

2.1 IR’s distinctive goals

1. Prioritising communication over holding organisations accountable

One recurrent issue in social and environmental reporting research is whether non-financial

reports promote organisational accountability (e.g. Gray, 2013; Unerman, Bebbington and

O'Dwyer, 2007). Accountability has numerous meanings, one of which is transparency or

openness (e.g. McKearnen, 2012; Kamuf, 2007). However, the social and environmental

accounting literature has emphasised a second sense of accountability, which focuses on

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whether organisations’ reports enable them to be held accountable for their social and

environmental impacts. For example, Gray (1996: 38) defines accountability as ‘the duty to

provide an account (by no means necessarily a financial account) or reckoning of those

actions for which one is held responsible’ (emphasis added). From this perspective, a key

requirement of non-financial reporting is to determine what information stakeholders need to

hold organisations responsible for their actions, and then to ensure that organisations provide

this information.

Since IR’s stated aim is to enable organisations to better communicate how they create value,

it is primarily concerned with accountability in the more limited sense of open

communication. For example, IIRC chairman Mervyn King defines IR as:

The language evidencing sustainable business. It is the means by which companies

communicate how value is created and will be enhanced over the short, medium and

long term (IIRC and Black Sun, 2012: 1).

This quote highlights how the intended function of IR is to provide a new channel through

which organisations can conceptualise and explain their activities, rather than to create a set

of reporting criteria that compels organisations to respond to stakeholders’ concerns. The

IIRC briefly cites Porter’s and Kramer’s (2011) theory of ‘shared-value’, but a fuller

explanation of the implicit logic of their communicative approach can be drawn from R.

Edward Freeman’s pragmatic model of organisational theory (Freeman et al., 2010; 2004).

For Freeman, the principal function of a new organisational concept, such as stakeholder,

natural capital or IR, is to enable organisations to tell more diverse and compelling stories

about how they create value. In turn, new forms of communication enable new actions. For

example, Freeman, Wicks and Parmar (2004: 365) claim that the stakeholder concept enables

value-creating collaboration between managers and other stakeholders by providing

‘language and action to show that they [managers] value relationships with other groups and

work to advance their interests over time’. Freeman does not claim that such value-creation is

always possible. Nor does he ignore inequities in organisational power. Rather, Freeman’s

point is that thinking of organisations as networks of stakeholders enables people to

collaborate in new and potential productive ways. The IIRC’s understanding of IR can be

explained in similar terms. That is, the IIRC contends that organisations that conceptualise

themselves as managing six inter-related capitals will think differently about how

organisations functions, and act and as well as report differently on this basis.

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2. Organisational not social sustainability

A second distinctive feature of the IIRC’s approach is IR’s focus on reporting what makes

organisations sustainable, rather than on what makes societies more broadly sustainable. For

example, the IIRC’s (2011: 11) early releases describe IR as ‘support[ing] resource allocation

decisions that are consistent with sustained value creation’ (emphasis added). In this quote,

what is being sustained is an organisation’s capacity to continue its value-creating activities,

rather than a society’s capacity to replicate and equitably distribute its resources. Of course,

since organisations are social sub-systems, it is tautologically true that organisations require a

society, such that sustainable organisations logically entail sustainable societies over the long

term. However, the well-known point of the ‘tragedy of the commons’ (Hardin, 1968) is that

the efficient extraction of value from shared resources by any particular individual or

organization need not coincide with an efficient, sustainable or just use of resources by all

individuals. Hence, sustainable organisations and sustainable societies are distinct in both

theory and practice (see also: Gray, 2006; Milne and Gray, 2013).

More recent IIRC releases gesture towards a ‘thicker’ concept of social sustainability, but

retain a practical focus on sustainable organisations. For example, the IIRC’s (2013a: iii)

sustainability-themed yearbook quotes – without directly endorsing – a United Nation’s

definition of sustainability as ‘about recognizing, understanding and acting on

interconnections, above all, those between the economy, society and the natural

environment’. This United Nation’s definition encompasses environmental and social

sustainability. However, the IIRC’s discussion focuses on organisational sustainability. For

example, the report describes IR as a force for ‘financial stability and sustainability (IIRC,

2013a: iv, emphasis added), and repeatedly quotes organisations describing their ‘sustainable

value-creation story’ (IIRC, 2013a: 19). Similarly, although the IIRC (e.g. 2011: 18)

describes organisations as ‘stewards’ of non-financial capital, within a value-creation

framework stewardship essentially refers to the successful extraction of financial returns from

organisational assets over time.

By contrast, the King Committee, GRI and A4S all place greater emphasis on social and

environmental sustainability. GRI 3.1 (2000: 11) clearly distinguished sustainability reporting

from reporting on organisations’ long-term performance:

The underlying question of sustainability reporting is how an organization

contributes…to the improvement or deterioration of economic, environmental, and

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social conditions…Reporting only on trends in individual performance (or the

efficiency of the organization) will fail to respond to this underlying question.

GRI 4 introduces a more strategic focus by providing organisations with greater flexibility to

choose which categories of information are material to it. Yet the categories themselves

emphasise how organisations impact environments and societies; for example, in their regard

for human rights and in taking responsibility for consumers’ health (GRI, 2013). A4S’s

underlying objective is also to promote sustainability, which they define as ‘considering what

we do not only in terms of ourselves and today, but also of others and tomorrow’ (A4S, 2007:

1). Although A4S (2012: 5) does maintain that sustainability reporting can create value for

organisations, its strategy is to promote sustainable action by making the business case for

doing so (A4S, 2012: 3). The IIRC’s agenda is precisely the opposite. That is, where A4S

promotes the value of social and environmental reporting to organisations to encourage

sustainability, the IIRC incorporates sustainability reporting into IR only insofar as it creates

value for organisations.

3. Capturing financial value

A third distinctive feature of IR is the IIRC’s aim to report changes in just those non-financial

capitals that affect financial value over the long term. The IIRC (2013d: 10) explains value-

creation as any increase or decrease in the six capitals. As noted above, changes in value are

material to IR only if they affect an ‘organization's ability to create value for itself’ (IIRC,

2013d: 4). In theory, organisations may be interested in capturing numerous different kinds of

value depending on its stakeholders’ objectives and interests. However, the IIRC (2012: 22)

has previously stated that value is material to IR only where it eventually affects financial

capital:

IR encourages companies to communicate both tangible and intangible value, even

where value is not currently captured by financial statements, but could affect

financial performance (emphasis added).

The IIRC’s emphasis on financial value that is not currently captured by financial statements

highlights its objective of taking a longer-term perspective than conventional financial

reporting, because IR includes non-financial capital that may convert into financial capital in

future reporting periods. For example, training costs can be recorded as human capital where

they contribute to future revenue. However, the above quote also implies that IRs should

exclude changes in non-financial capital that will not eventually affect organisations’

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financial capital. Thus, changes to workplace health and safety policies that shift risks to

employees would be material to IR’s value-creation framework only insofar as this shift

benefited an organisation, such as by lowering future financing costs. The impacts of these

changes on workers are not material in themselves.

The King Code of Corporate Governance in South Africa provides an instructive contrast to

the IIRC’s approach. The King Committee (2009: 11) also views IR as a better measure of

companies’ long-term financial value than conventional financial reporting. However, this

concept of IR does not limit reporting to organisational activities that affect financial value:

Sustainability considerations are rooted in the South African Constitution which is

the basic social contract that South Africans have entered into. The Constitution

imposes responsibilities upon individuals and juristic persons for the realisation of

the most fundamental rights (King Committee, 2009: 10).

Although couched in the legalistic language of social contract theory, this statement reflects

the uniquely African form of communitarianism embodied in the concept of ‘Ubuntu’, which

the King Committee (2009: 9, 61) explicitly endorses. Inter alia, Ubuntu stresses the value of

reciprocity and social co-operation (Andreasson, 2011; West, 2006), which the King

Committee extends to corporations as well as individuals. From their perspective, companies

are citizens of the South African community with a consequent ethical responsibility to

disclose their impacts on ‘other’ South African citizens. The practical implication is that

changes in non-financial capital that impact stakeholders may be material to IR even if they

have no long-term effect on financial capital. For instance, if safety at work is a fundamental

right, then it is ipso facto material irrespective of its impact on financial value.

2.2 Integrated Reporting strategies

1. Integrated thinking

Integrated thinking is the central concept of integrated reporting, because the IIRC defines IR

as ‘a process founded on integrated thinking’ (2013d: 33). In turn, the IIRC defines integrated

thinking as ‘the active consideration by an organisation of the relationships between its

various operating and functional units and the capitals that the organization uses or affects’

(IIRC, 2013d: 2). Thus, integrated thinking has two dimensions. First, it refers to

understanding and dialogue that spans across an organization’s operating units. For example,

reporting on natural capital might facilitate integrated thinking by requiring the accounting

team to collaborate with scientific experts in operational divisions. Second, integrated

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thinking refers to a more holistic understanding of an organization’s interactions with

external stakeholders. For instance, the IIRC (2013d: 18) claims that integrated thinking

promotes a ‘fuller consideration of stakeholders’ legitimate needs and interests’.

The IIRC’s emphasis on integrated thinking is consistent with its focus on communication

over holding organisations accountable. On one hand, both dimensions of integrated thinking

describe an increase in communication, either within organisations or between organisations

and external stakeholders. Yet integrated thinking is a relatively weak accountability

mechanism because the extent to which integrated thinking is occurring cannot be directly

disclosed, measured or audited. On this issue, the absence of the integrated thinking concept

from either GRI 41 or the King Code is indicative of the stronger concept of accountability in

these frameworks. For instance, the King Code requires South African organizations to report

on concrete governance processes, rather than on how they think about governance.

Similarly, GRI 4 (2013: 64-66) provides external benchmarks against which organisations’

performance can be evaluated, such as International Labour Organization’s labour standards,

rather than only requiring organisations to conceptualise human capital more holistically.

2. Stakeholder ‘responsiveness’

Although the primary purpose of IR is to communicate to investors, the IR framework also

requires organisations to ‘provide insight’ into how they respond to other stakeholders’

‘legitimate needs and interests’ (IIRC, 2013d: 17-18). Consistent with its emphasis on

integrated thinking, the IIRC does not stipulate external benchmarks against which

stakeholder responsiveness might be measured. Since the legitimate needs of stakeholders are

not defined, there is also no requirement for organisations to report on specific issues with

which stakeholders are typically concerned, such as work, health and safety. The IIRC’s

(2013e: 5-6) justification for this approach is that the interests of investors and stakeholders

are likely to align over the long-term, because ‘both are focused on the creation of value’. For

example, an IIRC (2013: 7-8) report suggests that work, health and safety is almost always

material to IR because a high-risk workplace will eventually have financial costs. By

contrast, the King Committee (2009: 12) does not assume that the interests of shareholders

and other stakeholders align, and so requires directors to give stakeholders’ interests

independent weight in governance and reporting.

1 Except for one reference to the IIRC’s concept of integrated thinking when discussing the relationship between

IR and GRI 4; see (GRI, 2013, p. 85)

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3. Governing value, not values.

The IR framework requires each organisation to explain how its ‘governance structure

support[s] its ability to create value in the short, medium and long term’ (IIRC, 2013d: 25).

The IIRC therefore views governance as a cog in the value-creation process. By contrast, the

King Committee (2009: 9) defines governance as about values (i.e. ethics) rather than value-

creation:

Good governance is essentially about effective leadership. Leaders should rise to the

challenges of modern governance. Such leadership is characterized by the ethical

values of responsibility, accountability, fairness and transparency (emphasis added).

The King Committee’s concept of governance is closer to the mainstream academic position.

Ever since Berle and Means (1934), the primary function of governance has been viewed as

ensuring that management meet their obligation to shareholders rather than pursuing their

own agenda. More abstractly, the mainstream view of the function of governance is ensuring

a fair distribution of value between stakeholders, rather than creating value as such. Although

formal governance structures are also under-emphasized in A4S’s reporting framework, the

requirements in A4S and the GRI for organisations to report against external performance

benchmarks (e.g. labour standards) is consistent with the King Committee’s concept of

governance as about ‘responsibility, accountability, fairness and transparency’. By

comparison, the IIRC’s value-centric governance model reinforces its prioritisation of

financial interests over other stakeholders. Interestingly though, since IR does not stress the

accountability of managers to shareholders like mainstream governance theory (e.g. Jensen

and Meckling, 1976), it also subtly privileges the interests of managers over owners of

financial capital.

4. Voluntary external assurance

Although all four organisations supported some degree of external assurance, the IIRC’s

endorsement in its draft and final frameworks is the most qualified. The IR Framework

(IIRC, 2013: 32) mentions assurance as the last of five processes that can enhance a report’s

reliability, while their preceding consultation draft stated that:

organisations may seek independent, external assurance to enhance the credibility of

their reports. Independent, external assurance may also provide comfort, in addition

to the internal mechanisms, to those charged with governance (IIRC, 2013c: 32).

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Thus, while the IR framework states that external assurance can benefit providers of financial

capital and directors, it neither requires nor recommends such assurance. Recent releases

suggest that the IIRC (2014a, b) is now focusing more closely on assurance. However,

although these releases stress that assurance can improve the credibility of an IR, the IIRC

stops short of recommending or requiring such assurance. GRI 4’s (2013: 13) position is

marginally stronger; it recommends external assurance, but does not require assurance to be

‘in accordance’ with the Guidelines. The King Committee (2009: 49) provides the strongest

guidance, stating that: ‘sustainability reporting and disclosure should be independently

assured’. The gap between the IIRC’s and the King Committee’s statements on assurance are

consistent with the underlying conceptual difference between their frameworks. On the

IIRC’s value-creation framework, assurance is indirectly valuable insofar as it increases

investors’ confidence in organizations’ performance. By contrast, the King Committee’s

accountability-based framework views external assurance as constitutive of good governance.

3. Discussion and Conclusion: Evaluating Integrated Reporting’s double-edged agenda.

Section 2 has drawn out three key shifts in how the IIRC represents social and environmental

information, with the IIRC privileging: (i) communication over holding organisations

accountable; (ii) organisational over social sustainability; and, (iii) providers of financial

capital over other stakeholders. This final section evaluates implications of the IIRC’s agenda

for sustainability. In assessing this transition, one foundational question is whether the IIRC

is justified in its contention that the interests of investors and other stakeholders tend to align

over the long term. If this claim is plausible, then the IIRC can legitimately argue that a

rigorous application of IR will incorporate the interests of non-financial stakeholders as a by-

product.

However, although there is some evidence that corporate social responsibility can improve

organisations’ long-term performance (e.g. Garcia-Castro, Ariño and Canela, 2011; Ioannou

and Serafeim, 2011b), more critical accounting and social theory has persistently highlighted

structural conflicts between financial and other interests. For example, it is axiomatic in

deep-green theories that natural systems have intrinsic rather than solely instrumental value

(Gray, 1992; Samkin, Schneider and Tappin, 2014), such that a singular focus on creating

capital for humans threatens non-human values or ecosystems. Critical social and accounting

theorists identify structurally similar conflicts between human stakeholders. For instance,

given the influence of Marxist theories in social and critical accounting (Parker, 2005, Gray,

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1992), it can be argued that while investors and employees have a shared interest in value-

creation, they have opposing interests in how value is distributed between profit and wages.

Stakeholder perspectives are typically more managerial than critical in orientation (Gray,

1992), but even moderate stakeholder theorists like Freeman argue only that stakeholder

theory provides a vocabulary with which common ground between shareholders and other

groups can be sought, not that these interests are aligned. Thus, even a thorough application

of IR cannot be relied on to automatically incorporate organisations’ social and

environmental impacts, even if IR has the reporting categories to do so.2

Nonetheless, there are three ways that IR might contribute to sustainability even granting

structural conflicts between investors and other stakeholders. First, IR might engage

organisations that would not otherwise disclose any social and environmental information.

For example, the GRI has been criticised for only engaging a low proportion of companies,

despite a sharp rate of growth in users (Levy et al., 2010). One strategic response to this poor

take-up is to align social and environmental reporting more closely to investor and

management interests, and thereby trade-off sustainability reporting rigor for greater use of

frameworks that include some sustainability information. This strategic trade-off may explain

why GRI and A4S endorse IR despite their different reporting philosophies.

Second, IR might enable non-financial stakeholders to informally advance sustainability

goals within organisations. As outlined above, the IIRC conceptualises its six capitals model

as a means of better communicating how organizations affect different stakeholder groups,

both internally and externally. Consequently, IR might allow stakeholders to raise

sustainability issues at management or board level that would otherwise be excluded from

organisational discourse, by providing a vocabulary and format in which these conversations

can occur. Since abstract internal processes like integrated thinking are difficult to disclose or

audit, external stakeholders have only a weak capacity to insist on accountability on

sustainability issues. But by the same token, focusing only on stronger forms of formal

accountability risks missing the pragmatic potential IR might offer for internal and external

stakeholders to advance social and environmental issues ‘on the ground’ in organisational

discourse.

2 Although the concept of ‘capitals’ would of course be too anthropocentric for deep-green model. This issue

was also raised in public feedback to the IIRC.

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Third, IR might improve sustainability outcomes if it forms part of a broader shift in

corporate reporting and investment towards a longer-term perspective. In particular, while the

IIRC (2013d: 2) insists that IR ‘supports value creation over the short, medium and long

term’, it also acknowledges that IRs are most useful over the longer term (IIRC, 2013c: 29;

2013d: 33), and it is also over the longer term that interests of investors and other

stakeholders are most likely to intersect. For example, the financial risks that the IIRC

associates with poor work, health and safety practices, such as lost-time injuries and

reputational damage (IIRC, 2013e: 1-2; 2013d: 11) are most likely to occur over the medium

and long term. Conversely, IR is likely to be least useful to investors with a short-term

horizon. For example, the sustainability of natural capital and organizations’ relationships

with local communities are of little interest to the quantitative day-trader or hedge fund.

Hence, the IIRC’s objective for IR to become the corporate reporting norm constitutes an

active agenda to ‘shift the primary focus of providers of financial capital from the short term

to the long term’ (IIRC, 2013e: 11, emphasis added).

The significance of the IIRC’s longer-term and interventionist agenda is that critical

sustainability theorists have persistently implicated short-term investment in unsustainable

social and environmental practices. For example, Peetz’s and Murray’s (2012) analysis of

international share ownership and climate disclosures found that longer term ‘climate-

interested’ investors could exert considerable influence on organisation’s carbon behaviour

(see also: Ioannou and Serafeim, 2011b); however, their capacity to do so depended on the

relative power of short versus long-term investors. In social sustainability, Richard Sennett

(2006) has argued that increasing demands from investors for short-term financial returns

have destabilised organisations and increased employment insecurity, but without delivering

the promised increase in efficiency (see also: Stiglitz, 2013). From both perspectives, IR can

be viewed as an intervention in the struggle between short-term and long-term interests in

financial capital in favour of the latter, and where long-term investment is a necessary –

although by no means sufficient – condition of more sustainable corporate practice.

One difficulty with this third potential contribution of IR is that it moves against a historical

trend towards more mobile global investment with faster investment turnover (Castells, 2000;

Milesi-Ferretti and Tille, 2011). Indeed, the erosion of long-term investment by mobile global

capital is precisely what provokes the critical animus of theorists like Sennett (2006). There

are countervailing trends, such as the dramatic growth of sustainability funds since the 1980s

(Ioannou and Serafeim, 2011a). However, while sustainability funds are comparatively robust

15

against fluctuations in capital markets, they are still dwarfed by more conventional financial

capital (Renneboog, Ter Horst and Zhang, 2011; US SIF, 2012). Consequently, a widespread

adoption of IR within a longer-term investment framework cannot simply mobilise existing

investors, but requires substantial changes in the composition of contemporary capital

markets.

Against this background, the IIRC needs to reconsider what level of compulsion is consistent

with its currently voluntary framework. The South-African model of IR, which requires listed

companies to provide an integrated report or explain why not, provides a strong incentive for

organizations to provide integrated reports, but at the cost of substantial regulatory

‘interference’. A completely voluntary IR framework provides freedom from regulation, but

provides few incentives for short-term investors to use or endorse it. It may be then that a

voluntary adoption of IR is only possible with regulatory changes in global financial capital

that cultivates and rewards the long-term investment horizon that IR both assumes and

requires. For example, Peetz and Murray (2012: 16) find that ‘shifting the balance of power

from the short-term to the long-term’ would require international regulation that rewards a

long-term perspective; namely, an international carbon trading framework. This suggests that

whether IR advances or undermines sustainability depends not only on whose interests it

serves, but also on whether IR can contribute to a broader social transformation in

corporations and financial markets, rather than becoming just another reporting framework.

16

Appendix A: Non-financial reporting texts reviewed.

International Integrated Reporting Council

1. IIRC (2013) Busines and Investors Explore the Sustainability Perspective of Integrated

Reporting. London: International Integrated Reporting Council.

2. IIRC (2013). Basis for Conclusions. London, International Integrated Reporting Council.

3. IIRC (2013). Summary of Significant issues. London, International Integrated Reporting

Council.

4. IIRC (2013). The International IR Framework. London, International Integrated Reporting

Council.

5. IIRC (2013). Consultation Draft of the International IR Framework. London, International

Integrated Reporting Council.

6. IIRC (2013). Capitals - Background Paper for <IR>. London, International Integrated

Reporting Council.

7. IIRC (2013). Capitals - Background paper for <IR>. London, International Integrated

Reporting Council.

8. IIRC (2013). Materiality - Background paper for <IR>. London, International Integrated

Reporting Council.

9. IIRC (2013). About Integrated Reporting. from http://www.theiirc.org/about/. Accessed

16th March, 2013.

10. IIRC & GRI (2013) ‘Memorandum of Understanding’, IIRC, London, 1st February.

11. IIRC (2012). Pilot Programme Yearbook: Capturing the experiences of global businesses

and investors. London, International Integrated Reporting Council.

12. IIRC and Black Sun (2012). Understanding Transformation: Building the Business Case

for Integrated Reporting. London, International Integrated Reporting Council.

13. IIRC & International Federation of Accountants (2012), ‘Memorandum of

Understanding’, IIRC, London, 7th September.

14. IIRC (2011). Towards Integrated Reporting: Communicating Value in the 21st Century

London, International Integrated Reporting Council.

17

Global Reporting Initiative

15. GRI (2013). GRI 4, Part 1. Amsterdam, Global Reporting Initiative.

16. GRI (2013). GRI 4, Part 2. Amsterdam, Global Reporting Initiative.

17. GRI (2012), Exposure Draft for Public Comment, Global Reporting Initiative,

Amsterdam.

18. GRI (2012), G4 Development, Full Survey Report, Global Reporting Initiative,

Amsterdam.

19. GRI (2000). Sustainability Reporting Guidelines 3.1. Amsterdam, Global Reporting

Initiative.

Prince’s Accounting for Sustainability Project

20. A4S (2012). Future proofed decision making. London, Prince's Accounting for

Sustainability Project.

21. A4S (2007). Accounting For Sustainability Princes' Accounting for Sustainability Project.

King Committee on Corporate Governance in South Africa

22. King Committee (2009), King Code of Governance for South Africa. Johannesburg, The

Institute of Directors in Southern Africa.

23. King Committee (2009), King Report (III) on Governance for South Africa.

Johannesburg, The Institute of Directors in Southern Africa.

24. King Committee (2002). King Report (II) on Corporate Governance for South Africa.

Parklands, Institute of Directors in South Africa.

18

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