10 Feb, 2023

Integrated Reporting is a relatively new form of corporate reporting that shifts the focus from financial reporting to a broader perspective. It is based on the concept of integrated thinking. This concept states that all aspects of an organization – its activities, strategies and decisions – should be taken into account in order to achieve long-term success. An Integrated Report provides a comprehensive view of an organization’s performance by combining financial, environmental, social and other capital considerations. The Integrated Report, as advocated by the International Integrated Reporting Council (IIRC), emphasizes the 6 Capitals – financial, manufactured, intellectual, human, social, and natural – and provides a comprehensive overview of an organization’s performance and prospects.

This form of reporting allows organizations to achieve certain goals. These are to gain a deeper understanding of their performance and the impacts of their activities and strategies, thus enabling them to make better decisions in the long-term.

Today, organizations are striving to create a more sustainable and profitable future. For this precise reason, many are turning to integrated reports as a way to gain insight into their respective organizations’ performance across different areas. An integrated report is a narrative document that provides a comprehensive overview of the organization's current operations and how they may affect long-term profits. By using information graphics and statistics, this document can illustrate the connections between the various parts of the business and how they contribute to the overall success.

Ideally, it should be a concise document or presentation of not more than 20 pages. Creating it this way, while putting its focus on the long term, are the fundamental differences between it and an annual report.

It’s also a bit different from a sustainability report. What makes it so is that an integrated report asks whether the identified impacts in a sustainability analysis will have a positive or negative effect on the organization’s value. That’s a different matter from itemising the effects of water use, for example, on the environment

Another key difference between an integrated report and a sustainability report is that an integrated report needs board sign-off. That encourages companies to ensure the finance team is involved in the making of an integrated report.

A integrated report is not designed to substitute a company's financial documents, although it usually takes the place of the yearly report. It may also replace the sustainability report, although this is more debatable.Therefore, an integrated report should supply an overview of the future by linking economic and non-economic information to work out how current operations could build (or harm) gains in the near future. Non-financial details might include matters like employee satisfaction, the quantity of water a company uses per production unit and even external social welfare.

Integrated reporting is a type of corporate reporting that places emphasis on the interrelationships between an organization's financial and non-financial performance. It is an innovative approach to the communication of organizational performance and value creation. This type of reporting focuses on how the organization's strategy, governance, performance, and prospects are interconnected.

Integrated reporting allows companies to report to the company’s performance, potential and strategies to shareholders and customers. It’s a more concise yet comprehensive form of reporting, most companies have accepted it as a form of financial reporting. In fact, today, it has become a mandatory reporting practice in many countries.

The integrated reporting framework encourages companies to consider the environmental, social, and governance (ESG) impacts of their operations, in addition to the traditional financial reporting. This allows organizations to give a more complete picture of their performance, which can be useful in decision making and investment.

The main benefits of integrated reporting can be summarized as follows:

  1. It allows companies to easily communicate the value they create to their stakeholders.
  2. It encourages companies to consider the non-financial impacts of their operations, such as their environmental, social, and governance (ESG) performance.
  3. It offers companies as well as stakeholders, a more comprehensive view of their performance and potential.
  4. It allows investors to make more informed decisions.
  5. It can help organizations manage risk more effectively.
  6. It can help organizations make better use of their resources and prioritize their investments.
  7. It can help organizations attract and retain talent.

There are six key components, or capitals, that make up an integrated report. These six capitals are financial, manufactured, intellectual, human, social and relationship, and natural capital. One can get a more comprehensive picture of an organization’s performance by examining each capital carefully.

Financial Capital

This kind of capital refers to the current and future economic value available to the organization, including assets, liabilities, and equity. It provides a measure of the company's ability to generate resources, meet obligations, and create wealth over time. Net assets, capital structure, and liquidity ratios are the financial indicators that are used to assess financial capital.  

Manufactured Capital

Manufactured capital refers to tangible assets that are typically tools and equipment that the organization owns, like buildings, machines, vehicles, and production facilities. Organizations can assess their manufactured capital by looking at capital expenditure, depreciation, and the value of the assets on the balance sheet.

Intellectual Capital

Intellectual capital refers to the knowledge, skills, and experience of the organization's people, as well as its organizational processes.It also refers to intangible assets such as brands, patents, and copyrights. It is a measure of the company's ability to create value through innovation, problem-solving, and collaboration. Intellectual capital is assessed through measures such as research and development expenditure, employee training, and patent registrations.

Human Capital

This type of capital refers to the value of the organization's workforce, including their skills, experience, and potential for development. Companies assess human capital by looking at employee turnover, training and development, and salaries.

Social and Relationship Capital

Every organization needs to cultivate strong relationships and maintain reliable networks with stakeholders. This type of capital refers to both of these and usually includes customer loyalty, supplier relationships, and community engagement. Organizations can assess their social and relationship capital by looking at customer satisfaction, supplier relationships, and community partnerships.

Natural Capital

Organizations use and depend upon a lot of natural resources and ecosystem services to function properly. This type of capital includes the use of land, air, water, and biodiversity. It allows organizations to assess their natural capital by looking at energy and water consumption, emissions, and waste.

By providing information on these six capitals, through integrated reporting, investors can gain a better understanding of an organization’s performance. It also helps them make decisions that are more sustainable and in line with their long-term objectives. As more businesses adopt integrated reporting, it is becoming increasingly popular as a tool for investors to make better decisions.

Integrated reports have the potential to revolutionize the way organizations present their strategies and create sustainable competitive advantages. Integrated reporting is not a job for the uninformed or the faint of heart. .However, crafting a comprehensive and impactful integrated report requires a certain level of expertise and skill, which is best provided by specialized business design agencies. Therefore, it is highly recommended that organizations utilize these professionals to ensure the successful creation of their integrated reports.

We recommend checking out DesignMyReport. We are a report design agency with a professional content and design team that helps organizations create reports with the right kind of impact and produce the required results. Take a look at the services we offer and our past work. Get in touch to speak to our project managers and start work on your reports at the earliest.

Creating an ESG report takes time, patience and one needs to know how to piece together all the relevant information in order to ensure it has the right impact. This requires the assistance of a specialized team for which we recommend Design My Report.