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March

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How integrated reporting can help companies see the bigger picture

by Harsha Yadav

Source: Guardian Sustainability

By including environmental, social and governance information in their reports, businesses can reap significant benefits.

The United Nations has put global reporting by companies on sustainability among its proposed key outcomes for the Rio+ 20 summit in June. The “zero draft” policy agenda that negotiators will consider, calls for “a global policy framework requiring all listed and large private companies to consider sustainability issues and to integrate sustainability information within the reporting cycle.”

This is a welcome move. Corporate reporting is all too often narrowly limited to financial information. But in our increasingly complex world, a company’s finances represent just the tip of the iceberg. Below the surface lurk risks that could cause leaks in the most seemingly successful business’s operations, reputation or bottom line. The oil spill in the Gulf of Mexico involving BP and recent issues regarding factory conditions at a Chinese supplier for Apple are cases in point.

Many of the growing sustainability risks companies face, such as changing consumer preferences, climate change, and water, food and natural resource insecurity, do not feature clearly in companies’ financial reports. This oversight gives investors and companies an incomplete picture – both of the risks they face, and the opportunities they may be missing.

Today’s financial accounting standards are outdated. They emerged after the 1929 US stock market crash, in an era when ecosystems and natural resources were in abundance and manufactured and human capitals limited. Today the opposite is true, and natural capital needs to be reflected in a company’s balance sheet.

While corporate sustainability reporting accomplishes this to some extent, such reports are voluntary. They generally do a poor job connecting the dots to financial performance and risk. Further muddying the picture, both financial and sustainability reporting tend to be backward looking, fragmented and short-term.

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