Article 11: Integrated Reporting or Non-Financial Reporting?

Abstract

Traditional company reporting requirements concentrate on financial reporting, consisting of the balance sheet, the profit and loss account and the notes. A consensus exists that sustainability is hindered by the traditional accounting regime in which the emphasis on financial reporting has been at the expense of the social and environmental reporting requirements, leaving companies opportunities to escape full accountability for their externalities.

Non-financial reporting gives additional information, especially on the environmental and societal impacts of a company’s activities. Integrated reporting tries to combine both financial and non-financial elements. The most important proponent of integrated reporting, the International Integrated Reporting Council (IIRC), regards integrated reporting as “a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.”

This Chapter focuses on companies’ reporting requirements and considers especially whether changes in the European Union’s (EU) reporting requirements for business entities are necessary to fulfil the duties set out in Article 11 of the Treaty on the Functioning of the European Union (TFEU), and whether the recent and pending new EU non-financial reporting requirements are sufficient to fulfil those duties. This Chapter explores this development and how it is likely to be affected by the more international progress towards integrated reporting. The Chapter also considers the prospects of success for the integrated report from the sustainability perspective, especially compared with the recent amendments in the EU law. It will suggest that whilst there is much promise in the EU plans and the IIRC’s plans, a number of potential limits will need to be addressed and new amendments proposed if full success is to be achieved.

Our conclusion is that the integrated report presents an opportunity to close the information gap and to avoid any disconnect between financial and non-financial information, and so fulfil the requirements of Article 11 TFEU, but its success depends on the inclusion of a number of factors in the development and implementation of integrated reporting, presented at the end of the Chapter.