Every year lately, this question comes up from a number of clients: should the financials be part of the integrated report or a separate document?
The thinking from those who want to see the financials as part of the report itself is that everything should be ‘integrated’ into one document.
Firstly, that premise is a misunderstanding - the ‘integrated’ bit refers to the holistic story the report is telling, not the number of documents.
But beyond that, as a communicator, I tend to think the very idea of combining them is counter-productive. And it seems I’m not alone.
Let me explain . . .
An Integrated Report is a multi-stakeholder document. As soon as you look at it from that point of view, you need to keep that broad range of audiences in mind: your employees, prospective employees, customers seeking to reassure themselves of your ethics, regulators, environmental guardians – as well as investors.
And so, your report becomes a lay person’s document; a broad corporate statement of your total story, what you stand for, what’s important to you, how you're facing today’s multi-faceted challenges, how you’re creating value from all the resources you employ. And once your report becomes that storytelling piece, your message can become lost if it is presented in the context of a weighty, less accessible document. With the vast majority of the page count devoted to complex and arcane financial tables, this part can simply overwhelm the storytelling – the visual signal sent is simply not conducive to reader engagement.
Our advice to most clients who have strong brand and strategy stories to tell, is to separate your financial statements into separate document. Similarly, if you are of a scale or in a sector that requires great depth of environmental, social and governance content and data, we recommend a separate Sustainability Report. And with the rapidly increasing expectations around such things as Governance detail, TCFD and Modern Slavery etc. many clients are separating those out as well. Logic suggests that if you believe the financial statements should be included in one document, then so too should all this other rapidly evolving content.
The trick is to surface the key and material drivers and impacts from all that data, and weave your story around that, identifying the interdependencies, and seeking to represent a balanced view comparable with your previous disclosures and the sector you work in. And tell that story clearly and concisely.
But is this ‘separatist’ view at odds with the Integrated Reporting Framework?
Not at all.
For example, the Framework Guidelines specifically reference that an integrated report can refer to ‘information in other communications, e.g. financial statements, sustainability report’ etc. It states that an integrated report ‘may be included at the front of a report that also includes the organisation’s financial statements’.
Other global experts state such things as ‘an integrated report can provide an entry point to more detailed information outside the designated communication, to which it may be linked’. Deloitte tell us that ‘an integrated report is a narrative document – in contrast to numerical financial statements – that explains how a company’s current operations may affect its long-term profits.’ PWC proffer: ‘Elements of both financial reporting and sustainability reporting would be included in an integrated report if the information is relevant to how an organisation creates and sustains value.’
What I will say very strongly though, is that meaningful financial information should definitely be included. It is one of the six ‘capitals’ that integrated reporting is built on, alongside human capital, natural capital, intellectual capital, social and relationship capital and manufactured capital. But your narrative around the financial capital should be framed in integrated terms: focus on the value enhanced, preserved or diminished. Show how you allocate capital for maximum balanced short- and long-term benefit. Explain how your choices of spending affect the value of other capitals, etc. And be clear about the top line financial information and how that data is trending over time.
Those principles, of course, apply equally to all the other capitals, but I particularly emphasise them in this article to counter any notion that I’m advocating downgrading the importance of the financial statements.
Be guided by the principles
Always remember that the aim of an integrated report is to explain the factors that affect your ability to create value over time for all your stakeholders. And sometimes less detailed information allows the core story to become more apparent.
But at the end of the day, there is no right or wrong here. So make your own judgement. Every company's situation is different, with varying dynamics at play. And the beauty of the framework is that it is a set of guiderails and not a set of compliance rules.