The Financial Benefits of Integrated Reporting

The short term internal benefits of integrated reporting will eventually lead to a companies superior performance.
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TRANSCRIPT

Question: Does integrated reporting yield direct financial benefits?

Robert Eccles: The blunt answer is no. There’s maybe 15 to 20 companies that have started doing this, they’ve done it for a year or two and a few cases has been 5 or 6, so the database is much too small that you could do the type of analysis that a financial economist would do to be able to link integrated reported to superior shareholder return.  If you talk to people in the companies and you say, “What do you think the benefits are that you receive from doing integrated reporting?”  They will say it has certainly improved internal coordination, it has certainly made sustainability more real in terms of it’s a core part of the strategy, it’s embedded in operations.  They would say it has improved the understanding that the stakeholder community has of the company and the relationship between financial and non-financial performance.  But to be fair, they would say that the shareholder community is still struggling to understand this other kind of information.  My response to that would be it’s a necessary, educational process that companies need to go through with their shareholders.

So at this point in time, the benefits the companies would explain are primarily internal, but I do believe over time, and clearly these companies believe over time, that this will lead to a superior, long term performance.

The issue of timeframe is important, because integrated reporting, the title of my book is One Report:  Integrated Reporting for a Sustainable Strategy, it’s really about the long term.  So companies have to take the long term, shareholders have to take the long term, investors who are short-term oriented, hedge funds, technical trading programs, a lot of hedge funds, probably aren’t going to be interested. That’s not the shareholder community that companies that are producing an integrated report are trying to appeal to.  Personally, I think that’s part of the problem with our capital markets today, I think it’s one of the reasons that we had the recent financial crises, was this short-term shareholder-only oriented mentality.  Integrated reporting is a way of taking a broader stakeholder view, of rethinking the role of corporations in society, and stretching out the timeframes under which both companies and investors make their decisions.

Recorded on April 19, 2010