Theoretical insights on integrated reporting : the inclusion of non-financial capitals in corporate disclosures

Abstract

Purpose Corporations and large entities are increasingly disclosing material information on their financial and non-financial capitals in integrated reports (IR). The rationale behind their IR is to improve their legitimacy with institutions and stakeholders, as they are expected to communicate on all aspects of their value-creating activities, business models and strategic priorities. In this light, this contribution traces the theoretical underpinnings that have led to the organizations’ environmental, social and governance (ESG) disclosures, and to explain the purpose of integrated thinking and reporting.

Design / Methodology Following a review of relevant theories in business and society literature, this contribution examines the latest developments in corporate communication. This research explores the GRI’s latest Sustainability Reporting Standards as it sheds light on IIRC’s <IR> framework. Afterwards, it investigates the costs and benefits of using IR as a vehicle for the corporate disclosures on financial and non-financial performance.

Findings: This contribution sheds light on the latest developments that have led to the emergence of the organizations’ integrated thinking and reporting as they include financial and non-financial capitals in their annual disclosures. The findings suggest that the investors and the other financial stakeholders remain the key stakeholders of many organizations; it explains that they still represent the primary recipients of the corporate reports. However, the integrated disclosures are also helping practitioners to improve their organizational stewardship and to reinforce their legitimacy with institutions and other stakeholders in society, as they embed ESG information in their IR.

Research Limitations / Implications: This paper has discussed about the inherent limitations of the accounting, reporting and auditing of the organizations’ integrated disclosures. It pointed out that the practitioners may risk focusing their attention on the form of their reports, rather than on the content of their integrated reports. Moreover, this contribution implies that the report preparers (and their stakeholders) would benefit if their IR is scrutinized and assured by independent, externally-recognized audit firms.

Originality / Value: This contribution has addressed a gap in academic literature along two lines of investigation. Firstly, it linked key theoretical underpinnings on the agency, stewardship, institutional and legitimacy theories, with the latest developments in corporate communication. Secondly, it critically evaluated the regulatory instruments, including; GRI’s Sustainability Reporting Standards and the <IR>’s framework, among others; as these institutions are supporting organizations in their integrated thinking and reporting.