INTEGRATED REPORTING - THE NEW ANNUAL REPORTING MODEL?

Stephen P. Carter, Partner, Assurance & Advisory

Over the years, our Firm and partners have challenged our Nonprofit clients to consider preparing their own Annual Report. The clear benefits of doing this include improved communication about the activities of the Organization, results of programs and initiatives that were the goals for the year, upcoming events and programs, financial and program goals, as well as, various needs that exist for the Organization for the coming year. In addition, the Annual Report can highlight new donors or volunteers, and the impact that the Organization had on the local community. These are just a few of the benefits of publishing one's Annual Report.

Notice that in my examples, not all of the information was necessarily financial. Which takes us to the heart of this article, and why you should consider putting together an Annual Report in the coming year.

There is, on the horizon, an evolved concept of "Integrated Reporting". SingerLewak believes that this concept of reporting may actually be the impetus for more Nonprofits, large and small, to begin preparing their Annual Reports.

INTEGRATED REPORTING:

What is Integrated Reporting? Professor Robert Eccles of the Harvard Business School defines it as: "The publication in a single document of the material measures of financial and non-financial performance and the relationships between them. It also involves leveraging the Internet and the (Organization's) Web site to provide more detailed financial and non-financial information of interest to particular stakeholders, including shareholders (donors and program recipients/beneficiaries), along with tools for analyzing this information. Finally, it's about increasing dialogue and engagement with all stakeholders."

The new challenge that Nonprofits and their CPAs will now have, is how to identify the material non-financial items, measure them in a standardized framework, and integrate such with the financial information.

NON-FINANCIAL INFORMATION: CORPORATE SOCIAL RESPONSIBILITY (CSR) VS. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

What would constitute non-financial information? What has begun as Corporate Social Responsibility Disclosure (CSR), is now evolving to Environmental, Social, and Governance (ESG) practices.

CSR information was a major shift in saying that the Organization's responsibility lies with stakeholders rather than shareholders. Many entities immediately began reporting on their CSR activities. The problem was that this reporting leads to inconsistency due to the lack of comparable information and use of widely varied formats. CSR reporting was also delivered as a separate product, not included in the financial information report.

ESG reporting includes information about carbon disclosure, greenhouse gas emissions, human rights and labor practices, and stakeholder engagement. How is this information going to be provided in a framework that is consistent and lends itself to standardization and comparability?
The information must be subject to independent verification and assurance, and be trustworthy.

Currently there is a pilot program that includes 100 companies around the world that are using real market experiences to help design and create a framework for such reporting. This program is under the auspices of the IIRC – International Integrated Reporting Committee.

We are seeing clients beginning to go down this evolving road of ESG practices and reporting. Clients are tracking their carbon footprint, measuring the reduction of their greenhouse gas emissions, devising programs for environmental awareness and enhancement, establishing programs for social awareness, and contributing in a positive way to the local communities in
which they serve and operate.

WHAT DOES IT MEAN FOR YOU?

What can and does all of this mean for you, the Nonprofit organizations? It may be the breakthrough in annual reporting you have been waiting for! You can now present an acceptable, standardized reporting framework where you can tell your full story, and not just by the numbers. Now an Organization can report on its ESG practices and results. This information can now tell the full story on the true beneficial effect that a vital Nonprofit is having on its benefactors and stakeholders.

We are seeing the new beginnings of this type of reporting. I have had discussions with companies and some Nonprofits that are tracking their carbon footprint, devising plans for the reduction of their green-house gas emissions, and identifying acceptable metrics that can accurately quantify carbon reduction. What companies and organizations are looking for now, are ways to verify or authenticate these types of claims.

CPAs will have to develop new skills to understand, evaluate, and opine on integrated reporting of non-financial information, and that's where we can help.

At SingerLewak, we have a head start in the areas of carbon footprint and greenhouse gas emissions with our CleanTech services. In these services, we can verify the generation/purchase, sales and retirements of renewable energy certificates (RECs) and carbon offsets. I have discussed this service in a prior article, and highlighted two of our clients, one a for-profit and one a Nonprofit client.

We will continue to monitor the progress of the IIRC, their pilot program, and what our SEC, privately owned, and Nonprofit clients are doing in this evolving reporting framework.

This new reporting framework is just beginning!