4.2.3 Mandatory Integrated Reporting

According to Professor Robert Eccles if the goals of integrated reporting are to be met, “integrated reporting needs to be mandatory, not voluntary, exercise.”1 The question about which should be the regulating body remains. We have seen developments on the EU level, with the European Commission’s non-financial reporting Directive amending the existing Accounting Directives and the European Parliament’s two reports calling on the European Commission to improve transparency and sustainability reporting. Some Governments and stock exchanges around the world have introduced a “report or explain approach” but the answer of who should be responsible for mandate sustainability reporting and or Integrated Reporting is not a clear cut.2

The European Commission has referred in 2014 that Integrated Reporting was a “step ahead” from what the non-financial reporting Directive requires and had mentioned great interest in the evolution of the integrated reporting concept, in particular, in the work of the IIRC.3 Two years after this declaration, there is a growing international support for Integrated Reporting and it seems natural that the European Commission’s next step would be in line with heading to the requirement of integrating financial and non-financial information in the annual report. The question is no longer whether integrated reporting will be adopted, in fact, it is how it will be adopted.4 The principles-based non-financial reporting Directive would facilitate the adoption and implementation of integrated reporting.5 High-profile representatives of the European Commission have said that “the future is some kind of integrated report that will be referred to as corporate reporting”.6 In addition to the recent developments on the EU level and particularly in countries such as South Africa, Denmark, United Kingdom, the Netherlands and Sweden the tendency is of mandating sustainability reporting.7 According to the GRI, South Africa, the Netherlands, Brazil, Australia and Finland are amongst the countries leading integrated reporting practices.8 As for integrated reporting, while voluntary adoption is not enough to mainstream integrated thinking, it is unlikely that integrated reporting becomes mandatory in the near future.9

However, recent developments at the EU level, with the EU Action Plan on sustainable finance of 2018 (further explained in chapter 6), it is recommended that ESG duties of institutional investors and asset managers are clarified, supporting long-termism in the investment decision process.10 Also an EU taxonomy is recommended to clarify ESG definitions and minimize language confusion.11 These developments suggest that ESG risk data is likely to become more integrated with financial information and more embedded in the investment decision process and in finance. This may represent a positive development for integrated reporting as the EU policy and regulation may be on the way.