By Kyle Armbrester and Robert G. Eccles
A sustainable strategy is best reinforced through integrated reporting, a new management practice based on an integrated presentation of financial and nonfinancial (e.g., environmental, social, and governance) performance. Through cloud computing, integrated reporting can be easily and inexpensively adopted by companies of all sizes, thereby contributing to the development of a sustainable society.
Global concern continues to grow about how to create a sustainable society, one which can meet the needs of the presentation generation, including fulfilling the aspirations of the billions of people in developing countries without compromising the ability of future generations to meet their own needs. There are a number of challenges to creating a sustainable society. Externalities created by companies’ operations and products (e.g., CO2 emissions contributing to climate change and pollution resulting from waste) reduces the quality of human life and can ultimately threaten its very existence. Over-consumption of nature resources (e.g., certain plants and minerals, water, land, and ocean life) puts the viability of future generations at risk. Social injustice (e.g., wages and working conditions in developing countries in factories that are part of the supply chain of large multinational companies) eventually leads to social unrest and class conflict. Finally, dysfunctional capital markets that destroy value (e.g., financial products that are divorced from the real economy and excessive risk taking by large financial institutions) erode investor confidence and put severe strains on the political and social system, especially when the few people participate in all the financial benefits of the upside, and society as a whole bears the financial cost of the downside.
In order to address these issues, companies can no longer simply focus on financial results that create value for shareholders whatever the expense to other stakeholders (e.g., employees, suppliers, and the communities in which they operate). Instead, they must also focus on their environmental, social, and governance (ESG) performance – which we will refer to as nonfinancial performance – and understanding the relationship between financial and nonfinancial performance. This can be done through “integrated reporting,” a simple but powerful new concept that will enable companies and investors to make resource allocation decisions that will contribute to creating a more sustainable society.1 Integrated reporting is the most effective way to communicate and reinforce a sustainable strategy, defined as one that creates value for shareholders over the long term while contributing to a sustainable society.