Integrated Reporting Driving Changes in Disclosure

Accounting, Auditing & Accountability Journal
Integrated Reporting and internal mechanisms of change

Wendy Stubbs, Colin Higgins,
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AAAJ
27,7
Integrated Reporting and internal
mechanisms of change
Wendy Stubbs
School of Geography and Environmental Science, Monash University,
1068 Melbourne, Australia, and
Colin Higgins
Deakin Graduate School of Business, Deakin University, Melbourne, Australia
Abstract
Purpose – The purpose of this paper is to investigate the internal mechanisms employed by early
adopters of integrated reporting in Australia to manage their reporting process and explores whether
integrated reporting is stimulating innovative disclosure mechanisms.
Design/methodology/approach – The study was based on in-depth semi-structured interviews
with organisations in varying stages of implementing integrated reporting. In total, 23 interviews were
conducted with sustainability managers, finance managers and communications managers across
15 organisations. A content analysis of the interviews was undertaken using qualitative coding
techniques.
Findings – While the organisations that are producing some form of integrated report are changing
their processes and structures, or at least talking about it, their adoption of integrated reporting
has not necessarily stimulated new innovations in disclosure mechanisms. This study did not uncover
radical, transformative change to reporting processes, but rather incremental changes to processes
and structures that previously supported sustainability reporting.
Research limitations/implications – A major limitation of this research study was the small
sample of organisations and stakeholders that participated, and the single-country focus. Finance,
accounting and strategy people were particularly under-represented in this study, as well as external
stakeholders, and the conclusions can only be tentative until further tested.
Practical implications – This paper sheds light on the practices of early adopters of integrated
reporting, and their learning could inform other organisations considering an integrated reporting
approach.
Originality/value – As an emerging phenomenon, there are few empirical studies exploring
integrated reporting practices and this paper provides some insights into integrated reporting in
Australia.
Keywords Organisational change, Disclosure, Sustainability reporting, Integrated reporting
Paper type Research paper
Introduction
Reporting on corporate social and environmental responsibility (referred to as
sustainability reporting in this paper) has evolved significantly in the past three
decades. In the last ten years the number of organisations producing sustainability
reports has increased substantially, particularly amongst the large multinational
companies (Kolk, 2010). In 1999, about 39 per cent of the Global Fortune 250 companies
(G250) reported on their sustainability activities. This has increased to 95 per cent in
2011 (KPMG, 2011). The latest development in sustainability reporting innovation is
Accounting, Auditing &
Accountability Journal
Vol. 27 No. 7, 2014 The authors are very grateful to The Institute of Chartered Accountants in Australia for funding
pp. 1068-1089 the research study and to our research assistant, Val Sands, for her important contribution to the
r Emerald Group Publishing Limited
0951-3574 project. The authors sincerely thank the reviewers for their detailed feedback, which has resulted
DOI 10.1108/AAAJ-03-2013-1279 in a much more insightful and rigorous paper.
integrated reporting, a reporting approach that promises to be “holistic, strategic, Integrated
responsive, material and relevant across multiple time frames” (Adams and Simnett, Reporting and
2011, p. 292). It incorporates the work of the International Integrated Reporting
Committee (IIRC), the Global Reporting Initiative (GRI), The World Business Council internal
for Sustainable Development, The World Resources Institute, the Carbon Disclosure mechanisms
Project and the UN Global Compact.
Integrated reporting is presented as more than just the “publication of one report 1069
that comprises both financial and non-financial information” ( Jensen and Berg, 2012,
p. 299); it is about clearly and concisely representing how an organisation creates and
sustains value, taking account of economic, social and environmental factors (IIRC,
2013). It is claimed that integrated reporting can help drive organisational change
towards more sustainable outcomes (Eccles and Krzus, 2010).
The IIRC (2013, pp. 7, 33) defines integrated reporting as:

A process founded on integrated thinking that results in a periodic integrated report by an
organization about value creation over time and related communications regarding aspects
of value creation [y] An integrated report is a concise communication about how an
organization’s strategy, governance, performance and prospects, in the context of its external
environment, lead to the creation of value over the short, medium and long term.
A large number of sustainability reporting studies have been published, primarily

focusing on examining the internal and external drivers of reporting and the type and
level of disclosure, and mainly drawing upon analyses of reports and formal documents
(Fifka, 2013; Frostenson et al., 2012) rather than engaging directly with firms. Much less
thought has been devoted to the internal processes of developing and generating
sustainability reports (Frostenson et al., 2012; Schaltegger, 2012a) and even fewer studies
have investigated the emerging phenomenon of integrated reporting (Frı́as-Aceituno
et al., 2013). To date, research into integrated reporting has been limited to theoretical
investigations and stand-alone case studies ( Jensen and Berg, 2012). It is unclear why
companies pursue integrated reporting, what approaches and internal mechanisms
early adopters use to implement it, and whether it is driving organisational change at
this early stage.
In light of this, the aim of this paper is to examine the internal mechanisms and
processes employed by early adopters of integrated reporting. It draws insights from
Laughlin’s (1991) model of organisational change to explore whether integrated reporting
is stimulating innovative disclosure mechanisms. The paper reports on an exploratory
study of 15 organisations in Australia who are at various stages of integrated reporting.
Integrated reporting raises new challenges compared to sustainability reporting as,
according to the definition of integrated reporting, it is more closely tied into business
strategy and how an organisation creates value. This suggests a more prominent role for
finance and strategy teams in understanding and disclosing non-financial information.
As such, the study sought the perspectives of finance managers in addition to
sustainability managers. This study also responds to calls for more research at the
level of the firm to further understanding of reporting initiatives (Kolk, 2010) and to
engage with actors responsible for organisational reporting to gain more understanding
of the issues associated with implementing reporting innovations (Adams and Whelan,
2009; Parker, 2005).
The paper first reviews the evolution of sustainability reporting and integrated
reporting, followed by a discussion of Laughlin’s (1991) model of organisational and
environmental change. Previous studies that examined the internal processes involved
AAAJ in sustainability reporting are then reviewed, followed by the research methods and
27,7 research findings.
Sustainability and integrated reporting

Sustainability reporting first appeared during the 1970s with the publishing of the first
wave of social reports, mainly in the USA and Western Europe (Fifka, 2013; Kolk,
1070 2010). While the practice had faded out by the 1980s, environmental-focused reporting
emerged in the late 1980s (Kolk, 2010). In the 1990s, non-financial reporting by large
multinational corporations took off and today, over 95 per cent of the 250 largest
companies in the world (G250) and 69 per cent of publicly traded N100 companies
(largest 100 companies by revenue in 34 countries) disclose their sustainability
performance (KPMG, 2011). While the amount of disclosure increased rapidly over the
last decade and is anticipated to continue to increase (Aras and Crowther, 2009),
sustainability reporting remains patchy outside of the G250 and the N100 (Higgins
et al., 2011; Milne and Gray, 2007; Stubbs et al., 2013). Integrated reporting is the latest
reporting innovation, emerging in 2010 with the formation of the International
Integrated Reporting Council. The IIRC (2013, p. 7) developed the International /IRS
Framework to “to establish Guiding Principles and Content Elements that govern the
overall content of an integrated report”. However, integrated reporting is not presented
as the next generation of sustainability reporting but as an attempt to promote “a more
cohesive and efficient approach to corporate reporting that draws on different
reporting strands” (IIRC, 2013, p. 2). An integrated report aims to bring together detailed
financial information, operational data and sustainability information to focus only on
those matters “that have a material bearing on the ability to create value in the short,
medium and long term” (IIRC, 2013, p. 26). The IIRC expect integrated reporting to
become the “corporate reporting norm. No longer will an organization produce
numerous, disconnected and static communications” (IIRC, 2013, p. 2).
Mirroring the growth in the practice of sustainability reporting, the academic
literature on sustainability disclosure has also grown significantly in the last two
decades (Kolk, 2010) and a large number of empirical studies exist today (Fifka,
2013). The literature has mainly focused on the range of motivations, internal and
external drivers for reporting (Lee and Hutchison, 2005; Roberts, 1992) and on report
content primarily based on analysis of sustainability reports (Higgins et al., 2011).
Fifka’s (2013) meta-analysis of 186 studies found that most of the empirical studies
examined internal determinants such as size, industry and profitability and external
drivers such as stakeholder pressures and regulation. Many studies concerning the
internal aspects of sustainability reporting are conducted from a managerial perspective
such as setting targets, choosing indicators or meeting sustainability requirements,
while other studies adopt a critical perspective (Frostenson et al., 2012). Few studies
focus on internal mechanisms and processes for sustainability reporting (Adams, 2002;
Adams and Frost, 2008; Frostenson et al., 2012; Schaltegger, 2012a), the “how” rather
than the “why” or “what”. As Frostenson et al. (2012, p. 7) emphasise, in sustainability
reporting research, “[T]oo easily, the issue of how gets a response in terms of a why”.
As an emerging phenomenon, there are even fewer academic studies on integrated
reporting. The studies to date have focused on the outcomes and benefits of integrated
reporting, compared to sustainability reporting, such as: it provides forward-looking
information (Adams and Simnett, 2011; Watson, 2011); it demonstrates how organisations
create and sustain value (Hampton, 2012; Watson, 2011); it reduces reputational risk and
enables companies to make better financial and non-financial decisions (Hampton, 2012);
it breaks down operational and reporting silos in organisations, and leads to improved Integrated
systems and processes (Roberts, 2011); and, it improves resource allocation decision Reporting and
making (Frı́as-Aceituno et al., 2013). Nevertheless, integrated reporting has been criticised
for its focus on financial capital providers to the detriment of the information demands internal
and needs of other key stakeholders (Cheng et al., 2014), requiring protection mechanisms mechanisms
for stakeholders other than shareholders in order to “increase companies’ holistic
transparency” (Frı́as-Aceituno et al., 2014, p. 68). At this stage, integrated reporting is 1071
targeted at large, publicly listed companies, excluding small to medium-sized
organisations, and those in the government and non-government sectors (Burritt, 2012).
In addition, Frı́as-Aceituno et al. (2014, p. 68) research found that companies with
monopolistic power are less likely to publish integrated reports to preserve their
abnormal profits, and they warn against the “opportunistic use of information”. In
regards to the six capitals, the “subjective” concepts of stock and flow of capitals create
difficulties for organisations “to explain some of their capitals beyond insubstantial
narratives” (Cheng et al., 2014, p. 98). Questions have also been raised about the assurance
aspects of integrated reporting (Burritt, 2012; Cheng et al., 2014, p. 99) and whether the
International /IRS Framework provides “suitable criteria and appropriate subject
matter” for reports to be assured. It is questionable whether, in the absence of assurance,
organisational stakeholders will be interested enough in integrated reporting to ensure
the survival of this new corporate reporting form (Cheng et al., 2014) and therefore
whether the “mass implementation of integrated reporting is likely to eventuate” (Burritt,
2012, p. 391). To date, no studies have focused on how the early adopters of integrated
reporting are managing and implementing this new approach to reporting.
Given the lack of knowledge in this area, this paper explores the internal
mechanisms employed by Australian early adopters of integrated reporting, drawing
on insights from previous studies of sustainability reporting mechanisms and Laughlin’s
(1991) model of organisational change.
Organisational change
Laughlin (1991) investigated pathways of organisational change in response to external
environmental “jolts” (see Table I). He conceptualised organisations as consisting of three
components, two intangible and one tangible: interpretative schemes (beliefs, values,
State Description Type of change
Inertia Do not respond to environmental issues None

Rebuttal Pressure to change is resisted. May result First order – changes to structure,
in minor temporary changes to systems processes, systems (“systems”)
Reorientation Small changes to systems, but no change First order (transition)
to underlying DNA
Colonisation Substantive change is forced upon Second order – changes to beliefs,
organisation’s systems, driven by a small values, norms, as well as to systems
group, leading to change in the underlying (Laughlin, 1991) (revolution,
DNA transformation) first order (Gray
et al., 1995)
Evolution Major changes to DNA and systems Second order (Laughlin, 1991)
accepted by whole organisation (transformation) first order (Gray
et al., 1995) Table I.
Summary of
Sources: Gray et al. (1995) and Laughlin (1991) change pathways
AAAJ norms and mission/purpose, which relate to the culture of an organisation), design
27,7 archetypes (structure, processes and systems) and the tangible sub-systems (buildings,
people, behaviours, machines and finance). First-order change (morphostatis), initiated
by an environmental jolt, results in changes to the design archetype and/or sub-systems.
This does not change the central core, or DNA, of the organisation, but is a transition.
Second-order change (morphogenesis) affects all components. This transformative
1072 change penetrates the DNA of the organisation. Laughlin identified four pathways for
change, two first order (rebuttal and reorientation) and two second order (colonisation
and reorientation). In the rebuttal pathway, an environmental jolt may result in minor
changes to the design archetype, but the jolt is rejected and the organisation reverts to its
original state. Environmental jolts that are internalised by an organisation and result
in changes to the design archetype and sub-systems are classified as reorientation.
Colonisation occurs when an environmental jolt results in changes to the design

archetype and sub-systems, flowing through to the interpretive schemes, forced upon the
organisation by a small group. Evolution involves major changes in the interpretive
schemes, which reshapes the design archetype and sub-systems, but it is chosen and
agreed to by the whole organisation.
A question is whether integrated reporting can drive morphogenetic change,
towards more sustainable outcomes as suggested by Eccles and Krzus (2010).
Integrated reporting potentially offers opportunities to reconceptualise the interpretive
schemes due to its acknowledgement of the inter-connectedness of natural (environment),
human (people), social (relationships between stakeholder groups) and financial
capitals[1] to shape organisations. The broadening of organisations’ remit to
stewardship of all capitals (IIRC, 2013), is more reminiscent of an ecological
modernisation interpretive scheme than neoclassical economic “business-as-usual”
that has a singular profit-maximisation focus (Stubbs and Cocklin, 2008). Ecological
modernisation is “people centred (improving human welfare) and environment centred
(maintaining the integrity and variety of non-human nature)”, acknowledging that a
prosperous economy depends on a healthy ecology and vice versa (Stubbs and Cocklin,
2008, p. 513). The capitals stewardship concept might suggest that organisations
adopting integrated reporting buy-in to this view, although the capitals framework is
not required to be adhered to by organisations preparing integrated reports. However,
the focus of integrated reporting on creating value and on the investment community
audience, may suggest that integrated reporting reinforces neoclassical economic
interpretive schemes, where “efficient and productive capital allocation” acting as
“a force for financial stability” (IIRC, 2013, p. 2) continue to take priority.
A few studies have used Laughlin’s model to examine the interaction between
environmental accounting and organisation change (see, e.g. da Silva Monteiro and
Aibar-Guzman, 2010; Gray et al., 1995; Larrinaga-Gonzalez and Bebbington, 2001;
Larrinaga-Gonzalez et al., 2001; Tilt, 2006). In considering whether environmental
accounting can drive organisational change or whether environmental accounting
interventions are used to appropriate the environmental agenda (“institutional
appropriation”), Larrinaga-Gonzalez and Bebbington (2001, p. 281) suggest that
sustainability reporting initiatives that are aligned with an organisation’s rationale and
reinforce its “internal unity”, will be more effective in driving change than ones that
are not. Initiatives aligned with integrated reporting’s focus on value creation may
reinforce an organisation’s profit-maximisation rationale (first-order change), but the
intent of an integrated report to show “stewardship for the broad base of capitals
(financial, manufactured, intellectual, human, social and relationship, and natural)”
(IIRC, 2013, p. 2) may require second-order change to internalise this concept and shift Integrated
the rationale of the organisation. Reporting and
Nevertheless, the empirical studies have not found any evidence of morphogenesis.
Gray et al. (1995) found that even though some organisations expressed views aligned internal
with Laughlin’s (1991) depiction of colonisation and evolution, the environmental jolts mechanisms
experienced did not result in significant changes to the central values and beliefs, but
minor reorientation (they remained in the neoclassical economic interpretive scheme). 1073
Their conclusion was that, rather than environmental accounting encouraging
“possibilities for change” (Gray et al., 1995, p. 214), it was used to negotiate and control
the environmental disturbances. Larrinaga-Gonzalez et al.’s (2001) study of Spanish
firms and da Silva Monteiro and Aibar-Guzman’s (2010) study of a Portuguese
company reinforce Gray et al.’s (1995) findings, that evidence of colonisation and
evolution discourses does not imply morphogenesis.
Internal mechanisms employed in sustainability reporting

While we did not find any literature on the internal mechanisms employed by
early adopters of integrated reporting, a few studies have explicitly examined the
mechanisms employed in sustainability reporting (see, e.g. Adams, 2002; Adams and
Frost, 2008; Adams and McNicholas, 2007; Frostenson et al., 2012). Adams (2002)
combined a review of the literature with a study of a small sample of German and
British firms to identify the structures and processes involved in sustainability
reporting. She found that a number of internal contextual factors influenced the
reporting process: changes in the chairperson influenced social disclosure; a corporate
social reporting committee increased social disclosures; ownership resided either in
the environmental department or the communications/public relations (PR) department;
varying levels and nature of stakeholder engagement and linkages to governance
structures; while reporting guidelines and other companies’ reports are referred to, the
report preparers determine the content; and, the absence of accountants in the data
collection process, and the view that accountants are not considered appropriate people
to be involved in non-financial reporting.
Adams and Frost’s (2008) study of four British and three Australian sustainability
reporting leaders and Adams and McNicholas (2007) study of a state-owned
enterprise reinforce Adams’ (2002) earlier findings. They highlighted the importance of
sustainability steering committees and stakeholder engagement mechanisms in
developing performance indicators and analysing the data that goes into the report,
and verified that ownership of the reporting process resided in the communications/PR
department or the sustainability/corporate social responsibility (CSR) group. Both of
these studies suggest that sustainability reporting can be a catalyst of organisational
change through integrating sustainability performance data into strategic planning,
decision making, risk management and performance measurement processes and systems.
The most recent study by Frostenson et al. (2012) of a large Swedish retailer did not
uncover any new insights. They found that the sustainability reporting process was
one where internal stakeholders (staff from all major functions in the organisation)
negotiated the “best story of the corporation’s sustainability impact” (Frostenson et al.,
2012, p. 4), through an ad hoc and complex data collection process. As the previous
studies found, the sustainability report is owned by the communications group (there
is no formal CSR group) and there is a reporting steering committee and reference
group with many representatives from different departments. The report is ultimately
approved by the company board.
AAAJ These studies suggest that the mechanisms employed in sustainability reporting
27,7 reflect first-order change of the reorientation kind. While the studies conclude
that sustainability can be a catalyst for change, the changes appear to be confined
to the design archetypes – the structures, processes and systems – and there is no
suggestion of changes to the underlying beliefs and norms. Sustainability reporting
was owned and driven by a team within the CSR or communications group, drawing in
1074 representatives from other areas to gain access to data, but there is no indication that
sustainability values and norms have been internalised by the whole organisation.
These studies raise a number of questions for examining the early adopters of
integrated reporting: are the same “first order” mechanisms being utilised in integrated
reporting as sustainability reporting or is there evidence of new innovations?; are
integrated reports utilising sustainability committees, internal stakeholder engagement
and separate sustainability teams or using other approaches?; is the integrated report
owned by communications or CSR groups or has it moved into the mainstream business?;
are accounting/finance people driving integrated reporting, or is it the sustainability
team?; are there any indications of new reporting mechanisms that are driving second-
order change (colonisation or evolution)?
Sustainability reporting has been further classified into two approaches: the
“outside-in” approach which aims to secure legitimacy and the “inside-out” approach
which is concerned with managing performance against the business strategy (Beck
et al., 2012; Burritt and Schaltegger, 2010; Schaltegger, 2012a). Beck et al. (2012)
suggest that sustainability reporting has evolved over time from the outside-in to
the inside-out process. The outside-in approach aligns the internal management of
information and reporting to meet requirements of external stakeholders and reporting
standards (Schaltegger, 2012b). Organisations pursue this approach to enhance their
reputations and secure social legitimacy with their stakeholders, but reporting
serves the PR function of “socially compliant” reporting (Schaltegger, 2012a, p. 189).
The GRI typifies the outside-in approach. This approach typically includes processes
for stakeholder dialogue, screening material issues of concern to external parties, and,
reporting and communicating the organisation’s impacts on these issues to external
audiences (Burritt and Schaltegger, 2010). Sustainability accounting and performance
management systems are driven by reporting requirements (Schaltegger, 2012b).
In contrast, in the inside-out approach, sustainability reporting is based on “corporate
strategy, strategically aligned accounting systems and corporate performance
achievements” (Schaltegger, 2012b, p. 9). Reporting is an outcome of managing
strategically relevant issues and key performance indicators (KPIs). The strategy
identifies relevant KPIs, which in turn determines the accounting methods and
report/disclosure content. The KPIs, accounting and reporting processes support
internal decision making to implement corporate sustainability (Burritt and Schaltegger,
2010). This approach aims for competitive positioning in the belief that “excellent
performance will be understood and appreciated by society” (Schaltegger, 2012b, p. 10).
A third “twin approach” combines both the inside-out and the outside-in processes,
while Schaltegger (2012a) also identifies a fourth PR-driven approach to reporting.
The PR approach treats sustainability reporting as a “satellite activity”, isolated from
the core business processes. Schaltegger (2012a) criticises this approach for its selective
positive reporting of issues deemed appropriate by PR, suggestive of window-dressing.
Reporting focuses on positive performance, which could result in greenwashing
“by reporting achievements in a way which are either only ‘part of the story’ or so
much exaggerated that they do not reflect the true picture” (Schaltegger, 2012a, p. 188).
The twin approach, involving external stakeholders and establishing a management Integrated
approach where reporting is integrated, includes many organisational units in collecting Reporting and
information, communicating and reporting to improve sustainability performance.
In addition, it involves external stakeholders in jointly developing sustainability internal
strategy, reporting, communication and accounting, as stakeholders contribute to value mechanisms
creation (Schaltegger, 2012a).
The outside-in and PR approaches are more aligned with a reorientation approach, 1075
where an external jolt (such as responding to pressure from stakeholders to be more
transparent), results in small changes to the accounting and performance management
systems. The inside-out and twin approaches suggests that sustainability issues
(human, social and natural capital) help shape business strategy, a view more aligned
with the integrated reporting philosophy. Whether and how these approaches are
manifested by the integrated reporting early adopters will be examined.
Research methods
The exploratory research study used an interpretive mode of inquiry based on
qualitative data. The study engaged directly with “insiders” involved in integrated
reporting to examine the phenomenon in the context in which it occurs (Crane, 1999).
The study used in-depth semi-structured interviews with organisations in varying
stages of integrated reporting. The interviews were supplemented with reports
issued by the organisations and data on their web sites, to help understand how the
organisations were managing the integrated reporting process. Integrated reporters
were identified from a number of sources. Companies stating their commitment to
integrated reporting were identified from the web sites of the ASX50 (largest 50
companies listed on the Australian Securities Exchange). All companies in the ASX50
provide some level of sustainability disclosure and just over 50 per cent are rated as
“best practice” sustainability reporters in the Australian Council of Superannuation
Investors (2012) annual sustainability reporting study. Potential candidates were also
found from integrated reporting research undertaken by the Association of Certified
Chartered Accountants in Australia and NetBalance Foundation (ACCA and NBF),
(2011), the Business Reporting Leaders Forum (2012) web site and from referrals made
by integrated reporters.
We identified 22 organisations across four industry sectors (financial services (F),
industrials (I), property (P) and transport (T)) from this process and 15 agreed to
participate in the research study (see Table II). Three groups of people were targeted to
interview: sustainability managers, finance managers and communications managers
(external affairs, corporate communications or investor relations). Based on previous
research (Adams and Frost, 2008; Adams and McNicholas, 2007), sustainability
managers are typically responsible for sustainability reporting and we started with the
assumption that they would be involved in integrated reporting (which was verified in
Industry (no. of organisations) Sustainability Finance Communications
Financial services (5) (F1-F5) 5 3 3

Industrials (5) (I1-I5) 4 1 1 Table II.
Property (3) (P1-P3) 3 0 1 Summary of research
Transport (2) (T1-T2) 2 0 0 participants by
Total 14 4 5 industry sector
AAAJ initial phone calls or e-mails). Communications people were also included as they
27,7 have played a prominent role in sustainability reporting (Adams, 2002; Frostenson
et al., 2012). Finance managers were included because the focus on value creation
in integrated reporting suggests a more prominent role for the finance group.
All participants were in middle management positions (either had “manager” or “head”
as part of their job title). Two financial services participants were new to the
1076 organisation (o9 months), 13 participants had two to five years in their organisation
(six financial services, three industrials, four property), six had six to ten years (two
financial services, three industrials, one transport) and two had greater than ten years
(one financial services, one transport).
We initially approached the sustainability managers for an interview and asked
if they could refer us to a finance person. In most cases, a finance person was not
identified or was unavailable to be interviewed, and in some cases, we were referred

to a communications person. The functional roles may influence the interviewees’
perceptions of sustainability. While we expected the sustainability managers and
communications managers who were responsible for issuing sustainability/integrated
reports to have beliefs and values aligned with sustainability, this may not be the case
for other communications and finance people. However, it became clear when setting
up the interviews that the finance people who agreed to an interview had voluntarily
chosen to be part of the integrated reporting team and were interested in sustainability
issues. While we wanted to talk to finance people not so closely involved in the
integrated reporting process, none agreed to an interview.
In total, 23 people from the 15 organisations agreed to an interview: 14
sustainability managers (SUST), four finance managers (FIN) and five communications
managers (COMMS). In total, 22 face-to-face interviews and one phone interview were
conducted during June-October 2012. The length of the interviews was 45-60 minutes.
The interviews probed the history of sustainability and integrated reporting in the
organisation, the meaning of integrated reporting, the drivers and challenges, how they
were implementing it and if (and how) their approach had changed from sustainability
reporting (processes, systems and structures). This paper focuses on exploring
the mechanisms employed by the organisations in producing their integrated report.
As the study investigated an emergent phenomenon and was cross-sectional rather
than longitudinal, we were unable to track actual changes in mechanisms over time.
The interviews uncovered the approaches early adopters are taking and perceptions of
how the reporting process is changing. We used Laughlin’s (1991) theoretical model
of change to help understand the nature of the changes taking place.
All interviews were recorded and transcribed. To maintain confidentiality of the
organisations and participants, participants’ are identified by their job role (SUST, FIN
and COMMS) and industry (F, I, P and T).
Of the participating organisations five were assessed by the ACCA and NBF (2011)
report as leaders in integrated reporting in one or more areas (mission and strategy,
management approach, performance tracking, risk management, stakeholder
engagement and the format of public reporting) but were not issuing an integrated
report at the time of the interviews (they were issuing a standalone sustainability
report). However, all were investigating integrated reporting and following the IIRC
integrated reporting pilot study (three Australian organisations are participating in the
pilot). Four participating organisations were in the early stages of integrated reporting
and said they were issuing a combined report (information from the annual report
combined with information from the sustainability report), and six were issuing, or
attempting to issue, an integrated report, although none claimed that they were Integrated
“there yet”. Reporting and
A content analysis of each interview was undertaken using qualitative coding
techniques (Strauss and Corbin, 1990/1998). The interviews were coded using the internal
Nvivo software package to identify the internal reporting processes and mechanisms. mechanisms
Through coding at the word, phrase, sentence and paragraph level, patterns emerged
within the data resulting in the key themes discussed in the Results section (Neuman, 1077
2003; Patton, 2002). An interpretive approach, utilising qualitative data collection and
analysis methods, is an appropriate methodological approach in exploratory research
of this nature (Crane, 1999).
Results
The interviewees identified some specific mechanisms employed by the organisations
to facilitate integrated reporting, which will be discussed in ensuing sections. These
include:
. push/pull approach;
. cross-functional teams and stakeholder engagement;
. sustainability committees;
. ownership of integrated reports;
. materiality analysis; and
. integrated measures.
We were particularly interested in understanding if, and how, existing internal
structures and processes may have changed due to integrated reporting. While we did
uncover evidence of change, one interviewee said that “nothing’s changed” (SUST-F2)
from when they were producing a separate sustainability report and financial report.
They ventured that this was because the organisation was relatively small and
sustainability had always been aligned with its core values and business philosophy.
This suggests that integrated reporting did not provide an external jolt to initiate
changes to the design archetype, nor to the interpretive scheme as this person believed
the company’s values were already aligned with those of sustainability. The organisation
was not listed on the stock exchange (shareholder-owned) and its business model may
not be as strongly aligned with the neoclassical economic model as publicly listed
companies are. In addition, the sustainability manager said that they had always worked
closely with the business groups, including the finance team, in producing the
sustainability report. It could also be due to the fact that the organisation’s first
integrated report was “essentially tacking the two [sustainability report and financial
report] together and renaming it” but they are aiming to align the second integrated
report “around our strategic plan”. This may trigger first or second order changes
but longitudinal research is required to explore this further.
Push/pull approach
In nine of the 15 organisations, we observed two different strategic approaches to
integrated reporting. In three cases, organisations were using integrated reporting
to explicitly drive change in the organisation (“push” strategy) and in four cases,
integrated reporting was seen a result of an integrated business (“pull” strategy). In the
AAAJ latter organisations, the interviewees believed that integrated reporting was better
27,7 able to tell the company story about how the company creates value, than issuing
separate sustainability and financial reports: “[y] telling the broader picture of your
organisation over a longer-term view” (SUST-F2). Two organisations suggested that
their integrated reporting process was a combination of push/pull.
In three organisations (F3, I2, I5), the integrated report is explicitly used as a tool
1078 to drive organisational change to integrate sustainability more closely into the core
business (“push” sustainability into the core business). This process is driven by the
sustainability team. The report is used as an internal tool by the sustainability team
to “push it [sustainability] up” (SUST-I2) the organisation and engage the different
groups in the organisation in the integrated reporting process, as “whatever we want to
say in this report needs to have had some robust internal discussions to get us to that
position” (SUST-F3). While this approach appears to be gaining traction in the three
organisations, they did suggest that a push process was the “tail wagging the dog”
(COMMS-F3; SUST-I5; SUST-I2):
I can see the broader benefit in doing this, the tail wagging the dog thing. I think it’s an
odd way to go about driving change to change how people report rather than change how
people develop strategy, and then have the report because the report should really be the
output of the [company’s] strategy and performance, but instead we’re trying to use that
to push the other way [y] I think there’s been some small steps and it potentially will [work]
(COMMS-F3).
One sustainability person who is using a push strategy seemed to be conflicted about
this approach. While they stated that they would rather not use “any sort of public
report as a mechanism for driving integration”, they also thought “absolutely it’s part
of my role to challenge the organisation [y] to drive understanding of value creation
from investment in sustainability”, utilising the reporting process (SUST-I2). However,
one interviewee disagreed with the push strategy, suggesting that sustainability is
not truly embedded in the business if the report is used to drive change, rather than
being an outcome of an integrated business. They were not convinced that this was an
effective approach:
Look, I do think that there’s an argument to say that reporting drives change. But I also think
that if people are integrating the report or taking sustainability initiatives so that they
can stick it in a report, then I don’t think it’s embedded, and I don’t think that that’s the right
way to think about it (SUST-T2).
It is questionable whether the push strategy is effective at driving deep organisational
change. Laughlin (1991, p. 213) argued that “inertia” is only overcome when the
environmental disturbance is an “uncontrollable jolt”, requiring staff to “shift inert
characteristics of organizational life”. Larrinaga-Gonzalez and Bebbington’s (2001)
research revealed that internal pressures are much weaker drivers of organisational
change than jolts from external stakeholders or regulatory pressures. In the firms that
are using a push strategy, the sustainability people are driving the change. While this
suggests a “positive inner colonization” (Laughlin, 1991, p. 220), where a small group
of employees force changes to the systems and processes flowing through to the
interpretive schemes, there is an absence of an “uncontrollable jolt”. There are no
external stakeholder pressures or regulatory pressures forcing change (Laughlin, 1991)
upon the organisation, just the desire of the sustainability team to integrate sustainability
more widely, and deeply, into the organisation. The interviews did not provide evidence
that the push strategy is leading to second-order change, but rather “some small steps”
(COMMS-F3) indicating first-order change. Interestingly, the interviewee that was critical Integrated
of the push strategy, was the only person that alluded to the need for changes to occur to Reporting and
the interpretive scheme:
internal
I think that we’ve got to move away from a world that is based on financial metrics. I’m a
climate change believer, probably not surprising given my role, and I think that if we’re mechanisms
actually going to make a difference, then we have to change the way we think and we can’t
just be driven by a financial outcome (SUST-T2). 1079
When probed about the extent to which sustainability values were embedded in
the culture of the organisation, the interviewee said that they were in parts of the
organisation but “it’s an ongoing battle. And people change and then you’ve got to start
again”. The questioning of the organisation’s “central myths” (Larrinaga-Gonzalez
et al., 2001, p. 230) has not translated to changes in the interpretive model (second-order
change), as evidenced by a later statement that:

[y] business is here to make money, we’re here to make a profit. So I want to deliver to
[organisation] business outcomes that have a financial robustness and have other benefits
as well, that are sustainable (SUST-T2).
In four of the organisations – all of them financial services (F1, F2, F4, F5) – we found
statements supporting a “pull” process, where interviewees said that the integrated
report is a reflection, or outcome, of an integrated business, or one becoming more
integrated – sustainability is “part of the organisational conversation” (SUST-F5) and
“fundamental to how we run our business” (SUST-F1). Interviewees talked about being
accountable for social and environmental externalities (SUST-F1) and embedding
sustainability into policies and all position descriptions (FIN-F2). The pull process
appears to be aligned with an inside-out sustainability reporting process, where
reporting is the “disclosing statement resulting from the process of managing
strategically relevant issues” (Schaltegger, 2012b, p. 10). According to one interviewee,
“you really need an integrated business to be able to produce an integrated report”
(SUST-F4). The pull strategy seems to follow the reorientation change pathway, where
a new integrated reporting norm is “accepted and internalised into the workings of
the organisation”, but the “real heart” (interpretive schemes) of the organisation is not
affected (Laughlin, 1991, p. 217). Change occurs to the design architecture (structures,
decision processes, communication systems), which gives “direction, meaning, significance”
to the subsystems of the organisation (Laughlin, 1991, p. 211). These changes to the design
architecture and subsystems do not “drastically affect the central core of the organisation”
(Laughlin, 1991, p. 218).
This raises the question of whether integrated reporting represents “an evolution
of business towards more environmentally friendly forms, or an instrument
of environmental reorientation/colonisation, leading to, or enabling a process of
capturing the environmental debate” by business-as-usual interpretive schemes
(Larrinaga-Gonzalez et al., 2001, p. 218). While this question was not explicitly explored
in this research, the interviewees did not provide evidence of a shift of values from a
“business-centred” to a people-centred and “environmental-centred point of view”
(Gray et al., 1995, p. 226; Stubbs and Cocklin, 2008), and more detailed case studies
of the four organisations are required to fully explore this. The concentration of the pull
process in the financial services organisations suggests that this industry is more
advanced in “integrated thinking”, which the IIRC (2013, p. 33) defines as “the active
consideration by an organisation of the relationships between its various operating
and functional units and the [six] capitals that the organisation uses or affects”.
AAAJ Two organisations (SUST-T1, SUST-I1) expressed views that their integrated
27,7 reporting approach was a push/pull process rather than one or the other; that it can
help drive change as well as be an outcome of the business strategy:
I think certainly [integrated reporting can drive change in the business] , I think it’s circular
[y] and I think that can help drive our thinking and then that helps our reporting (SUST-T1).
1080 Cross-functional teams

For five organisations (F1, F2, F3, F5, P3), cross-functional teams are a key mechanism
for implementing integrated reporting. In the past, to produce the standalone
sustainability report, the report owners (typically the sustainability team) gathered the
data from the “owners” of the data to produce the report. The report was reviewed and
ratified by a sustainability committee, with members drawn from different functional
areas. However, integrated reporting requires earlier planning and coordination across
business areas. The organisations now use cross-functional teams to drive the
integrated reporting process and “align it under our strategic plan” (SUST-F2). These
teams include representatives from finance, strategy, investor relations, legal, risk,
accounting and sustainability:
But the difference is we’ve now created an internal committee that brings together a lot more:
financial group, strategy, risk management, stakeholders, to have that conversation. So
strategy and risk have been involved in sustainability reporting in the past, but it’s been from
purely a sustainability angle. Now it’s group-wide; it’s how do we want our financials to talk
to our sustainability materiality and vice versa. So it’s a larger conversation and it touches on
a lot of what everyone’s doing every day, rather than just sustainability (SUST-P3).
In another organisation, the integrated reporting process was initiated by the
sustainability team working with group strategy on “a kind of thinking piece around
what the issues were” (SUST-F5). This then went to the sustainability council
consisting of all the general managers of each business unit to “test what that means in
terms of what we should be doing [y] and what are the targets we want to set”, before
engaging the other groups. However, in two of these companies (F1, F3), the actual
structure that supports the cross-functional approach lags the thinking, “it’s not
happening yet in sort of a coordinated way” (FIN-F1). Another finance manager
believed that people are “hungry for that” kind of cross-functional collaboration –
“there’s less of that ‘protecting my patch’ and ‘you don’t need to know about my stuff’
than it used to be ten years ago” (FIN-F3) – but a communications person’s experience
in the same organisation was quite different. They found a level of resistance to this
change, or a level of scepticism:
Resistance probably a bit of a strong word. I think sceptical, I was sceptical, the legal team
was sceptical, finance was sceptical. Probably the only ones that were not sceptical were
corporate responsibility, but it’s a bit of a domino effect so slowly I think we’re getting there
(COMMS-F3).
In these organisations, the sustainability people were facilitating, or coordinating,
the cross-functional teams to produce an integrated report. Larrinaga-Gonzalez and
Bebbington (2001, p. 286) proposed that where environmental accounting is used by
non-accountants to try to steer change, “existing accountants may resist the changes
being implemented”, inhibiting changes to the organisation. This results in first-order
change only. Two sustainability managers (F3, F5) appeared to be cognisant of
this issue and were attempting to educate the finance people to gain their support
for integrated reporting, which possibly could lead to positive inner colonisation
(second-order change) (Laughlin, 1991). To be successful, the sustainability managers Integrated
would need to influence enough powerful people in the organisation to create “lasting Reporting and
and fundamental change” in the interpretive scheme and design archetype of the
organisation (Laughlin, 1991, p. 220). internal
A sustainability manager that was working in a cross-functional team felt that mechanisms
Finance was still lagging so they initiated a one-on-one conversation with the finance
team, “and really that was an education discussion; that was more what integrated 1081
reporting is” (SUST-F3). In another organisation where the finance team was reluctant
to be involved, a workshop was organised to explain the integrity of the integrated
reporting process and educate them about integrated reporting:
[y] our auditors talked them [finance] through the fact that they do go back to source [y]
and then they test the veracity of the systems that are providing the data as well as the
numbers, and they do checks on each of the claims made in the text [y] Anyway, it was
clear that they had no understanding that we went through a process that was actually very
similar to their own and in fact, they had admitted when they left that meeting that they
had felt quite embarrassed about the view that they’d had before. And there’s been an
acknowledgement that whilst the data might behave in a different way to typical financial
data, the robustness of it is the same (SUST-F5).
This highlights the importance of internal engagement and education, particularly
for groups traditionally not engaged in the sustainability reporting process, and it
takes time to engage and educate the cross-functional team members. Whether this
leads to a change in the dominant ethos of the finance people (second-order change)
remains to be seen, and requires further research (longitudinal study). Nevertheless,
this is not dissimilar to Adams and McNicholas (2007) findings that emphasise the
importance of an internal staff engagement process to address the lack of experience
and knowledge of managers involved in the sustainability reporting process, and for
people to gain a common understanding of reporting practices and data/performance
indicators.
Sustainability committee
One mechanism commonly used to manage sustainability reports is a sustainability
committee (Adams, 2002; Adams and Frost, 2008). Consistent with this, nine of the
organisations have some form of sustainability committee that signs off their report
(F1, F3, F5, I1, I2, I5, P2, P3, T1). The committees include the CEO and/or the CEO’s
direct reports with representation from across the organisation. Six of the organisations
have finance people on their committees, while three of them have representation from
the strategy group. One financial services organisation has replaced its sustainability
committee with an annual review steering committee “which has representatives at the
highest level from across our business, so we have our legal, marketing, communications,
shareholder relations, finance and strategy” (SUST-F3). The committee provides
“strategic direction” in addition to signing off the report. The sustainability manager
believes that this committee “sets us apart from our peers [y] I think that’s one of the
key strengths for us is that we have that group that is interested” (SUST-F3). Two
organisations (F2, T2) have disbanded their sustainability committees because they
believe that sustainability is integrated into the business and now they do not need a
separate committee:
[y] that committee was rolled up and finished last year, so we felt that they had done their
job about raising awareness, setting that agenda and embedding stuff (FIN-F2).
AAAJ The financial services organisation’s integrated report is signed off by the Board.
27,7 The finance manager’s view is consistent with the sustainability manager’s (SUST-F2)
view discussed earlier, that the business philosophy was already aligned with
sustainability values. The sustainability manager in the transport-sector organisation
also expressed the view that sustainability was “sufficiently embedded, it’s now
considered by the board just like other strategic issues” (SUST-T2) but, as discussed
1082 earlier, the manager’s responses suggest that a sustainability-based interpretive schemes
is not embedded in this organisation. The reshaping, or “rolling up”, of the sustainability
committee is consistent with Laughlin’s (1991) first order changes to the design archetype
(structures and processes).
Ownership
Larrinaga-Gonzalez and Bebbington (2001) found that while management supported

the environmental agenda, the accounting department did not initiate or own the
environmental accounting initiatives (they were “quarantined” to the environmental
management group). This inhibited the ability of environmental accounting to drive
substantive organisational change. There is some evidence that integrated reporting is
moving beyond the sustainability group.
Report ownership appears to be one mechanism used by four organisations (F2, F4,
P3, T1) to manage the shift from sustainability reporting to integrated reporting.
One organisation (F2) moved its integrated reporting under the operations executive,
another (T1) under the finance director. Two organisations (F4, P3) moved the
sustainability team and integrated reporting to the communications division, to sit
“within the broader business” (SUST-F4). One sustainability manager has recently
widened her role to acknowledge the wider remit of integrated reporting:
[y] my new role is manager of corporate communications. So that now gives me access to the
full suite of our reporting documents, which is hugely helpful as we move towards better
communication methods through integrated reporting [y] improving our messaging around
how sustainability and our group strategy work together. So that’s a key objective of my new
role in corporate communications, and it’s also making sure that the work that I did in my
previous role is also embedded in a lot of the corporate communications (SUST-P3).
In another organisation, while the integrated report still resides in the sustainability
group, the sustainability manager pointed to “a bit of jockeying about where it sits”
(SUST-F5), as the sustainability team are working more closely with the communications
and finance groups.
Two finance people (FIN-F1, FIN-F2) also talked about how integrated reporting
was facilitating a move “away from silos”, through closer involvement of the finance and
sustainability people. One finance manager suggested that ownership of integrated
reporting should sit with finance because:
[y] within Group Finance we are seasoned at pulling together these things [y] but it won’t
be a Finance product as such, it will be a coordination exercise (FIN-F1).
They justified this because the CFO is now “focused on both strategy and finance [y]
which again fits perfectly in with this whole way of thinking”, and the CFO’s role is
“more of an enabling role” (FIN-F1). All these activities are illustrative of changes to
the design archetype (reporting structures), and demonstrate the “transition” nature
of first-order change (Laughlin, 1991).
However, for the majority of the organisations, there appeared to be little
engagement of the finance people with integrated reporting, as indicated by the lack of
participation of finance people in the research study (only four finance interviewees). Integrated
We asked the sustainability managers to refer us to a finance manager, but in eight of Reporting and
the organisations this did not occur because the sustainability managers were reluctant
to approach the finance people, they did not know who to approach, or they could internal
not find someone interested in participating in the research. This suggests that mechanisms
sustainability is quarantined and the integrated reporting discourse is not penetrating
the financial areas. 1083
Materiality
Identifying material issues is a key step in the sustainability reporting process, as
suggested by the GRI (2011). All the organisations in this study have a process
to identify material issues but the integrated reporters are changing their materiality
process. The organisations issuing integrated reports, are attempting to align the
materiality process with the business strategy and some expressed the desire to move
away from sustainability reporting guidelines that have a “one size fits all” approach.
Integrated reporters point to focusing on fewer, more strategic issues rather than lots
of issues that are, for example, covered by the GRI:
And what integrated reporting approach is saying is actually, for a [financial services
institution], why should we be reporting on nox [nitrogen oxide], sox [sulphur dioxide] and
other emissions when we don’t have any, so we’ll always just have a gap; what we should be
reporting on are those issues that are material to our operations in terms of the sustainability
impacts by which we may be impacted and that we generate (SUST-F1).
In one transportation organisation, where the sustainability manager reports into Group
Finance, the Deputy CFO questioned the sustainability manager as to why water
consumption was a material issue to the business and why it needed to be reported.
A finance manager criticised his organisation’s first attempt at an integrated report,
because it was not focused on the material issues. There was:
[y] too much information. so [this year] we don’t want to report too much and really
immaterial non-meaningful data. That’s why I think this year’s going to be a little bit different
for us. It’s really taking it back to those seven points in the strategic plan and reporting under
seven major headings (FIN-F2).
All of the organisations have been using the GRI sustainability reporting guidelines
to help manage their sustainability reporting content and process but seven of the
sustainability managers (3F, 2P, 2I) believe that the GRI is problematic in moving from
sustainability reporting to integrated reporting. They were critical of the GRI because
it “is a checklist of stuff that you have got to cover [y] it’s an exercise in filling up
space” (SUST-I2), and felt that it is not as relevant to integrated reporting as it is to
sustainability reporting. In contrast, the two other financial services sustainability
managers felt that the GRI was still very relevant for integrated reporting. According
to one sustainability manager, the GRI puts “standardised reporting ahead of integrated
[reporting]” (SUST-F1). The GRI, which typifies the outside-in approach (Schaltegger,
2012b), encourages organisations to report against standardised indicators “whether
you’re a bank or a mining company, a pharmaceuticals company etcetera” (SUST-F1),
and because of this, the integrated reporters critical of GRI did not think it was
appropriate for integrated reporting:
[y] we’ve had our dramas with GRI and the fact that it tries to be everything to everyone
[y] and it’s sometimes crazy what you’re being asked to report on [y] whereas a lot of the
AAAJ value of integrated reporting is the materiality conversation that you have where you’re
talking about group strategy (SUST-P3).
27,7
Even though interviewees were critical of the GRI – “integrated reporting should
be a move on from GRI because it is about those issues that are fundamental to a
specific reporting organisation” (SUST-F1) – at this stage none have stopped using it.
Four people (SUST-F1, SUST-F2, SUST-F3, SUST-I2) thought the next release of the
1084 GRI guidelines, G4, would better address integrated reporting, but one sustainability
manager believed that G4 would be more challenging for companies to use as “G4 is
looking like it’s going to require more effort”. A move away from the GRI for one
organisation is a logical progression in its reporting process as the “business strategy
and sustainability strategy discussion is far more integrated” resulting in more in-
depth discussions around “fewer things that have become truly material or significant”
(SUST-F5). For another, the integrated report is an outcome from the process of
identifying its material issues in line with its business strategy:
[y] we’ve always just reported on as many indicators and always been [GRI] A þ. I think
now that we’ve restructured it, it’ll be a lot easier for us to work out what is material and what
we don’t really need to report on. I think it will become a lot clearer now that we’re reporting
everything under our strategic plan because our strategic plan sets out what we’re trying
to achieve as a business (SUST-F2).
While many of the early adopters of integrated reporting are questioning the use of
GRI, they argued that “rules” are required to support the development of integrated
reporting. Half of the integrated reporters (SUST-F1, SUST-F2, SUST-I1, SUST-I5,
COMMS-F1, COMMS-F3, COMMS-I4, COMMS-F5, COMMS-P1, FIN-F1, FIN-F2,
FIN-F4) argue for new standards or regulation, particularly the communications
and finance people. The finance people are used to working with standards and are
frustrated that there are no “actual rules”:
So there’s a lot of dichotomy between the standards, and I guess that’s where we need
some direction as to say how would you harmonise or at least get them to talk to each other
(FIN-F1).
Another finance person suggested that until integrated reporting matures, and there is
a standardised way of looking at the world, there is not a lot of value in it: “unless you
can compare, I don’t see a lot of meaning other than it makes you feel good” (FIN-F2).
A “piece meal” approach makes it “much harder then, for the person looking in to say
how do I compare company A to company B” (COMMS-F5). The shift from GRI’s
approach of reporting on standard metrics to one focused around materiality and
business strategy does raise the issue of comparability. However, there were differing
views on this issue. While one financial services finance manager thought that
the industry was “a more generic industry, so [the measures are] closer to alignment”
(FIN-F3), comparability was a major concern for FIN-F2:
When you get into the non-financial data, you’ll be going oh well, I’ve read it and it’s an
interesting story and it made me feel good, or bad, but I can’t compare any metrics, or not
many metrics, in the [company X] report to the [company Y] report.
However, they did also point out that while the lack of standards was frustrating, it
was also “exciting because it’s a little bit cutting edge”. A financial services
sustainability manager thought that integrated reporting aimed “for a greater focus on
specific materiality to certain businesses or of sectors, and allows for increased
comparability”, but the communications and finance people from this organisation
expressed concerns. There is a danger that companies may exclude reporting on issues Integrated
where they do not perform well, because they deem them not material. This was Reporting and
alluded to by one sustainability manager:
internal
[y] this openness of you work out what’s material for you and you report on it, might mean
that all sorts of companies, within any particular sector, just don’t report on that stuff mechanisms
anymore because they say well, that didn’t come up in any materiality analysis [y] I think
maybe what might prevent it is doing materiality stuff properly [y] if you do that properly 1085
then you’re not just picking and choosing (SUST-F4).
In summary, while we found evidence of some minor first-order change to the early
adopters’ materiality processes and an intention to move away from the GRI framework,
organisations were still using the GRI while waiting to see how new standards, or
regulation, may arise.
Integrated measurement systems and metrics

An area that was flagged as requiring substantial change by six organisations
(COMMS-F1, COMMS-F5, COMMS-P1, SUST-I1, SUST-I2, SUST-P3) was developing
mechanisms (tools, performance indicators and processes) to “attempt to capture some
of that value creation process, particularly around social” and develop more “consistent
measurement systems” (COMMS-P1). It is very early days and while there are intentions
to adopt change, little work has been done on developing new measurement systems.
There is some evidence of experimentation “to get some measures that support financial
and non-financial strategic outcomes” (COMMS-F5). Four people mentioned working
on community development/investment indicators:
So we’re trying to measure the value of different sustainability elements which will then
ideally feed into integrated metrics to say we have a strong focus on community (SUST-P3).
This sustainability manager said that this was one area where the finance team were “very
happy to kind of take it on [y] to really get the financial metrics to tell a story” (SUST-P3).
Conclusion
This paper sought to explore the reporting mechanisms of early adopters of integrated
reporting, as this is an under-studied area within both the sustainability reporting
and integrated reporting literature. The exploratory study of 23 people across 15
Australian organisations revealed that integrated reporting is in an embryonic stage in
Australia. The organisations that have adopted integrated reporting are grappling
with how best to implement it within their organisations. While the organisations that
are producing some form of integrated report (combined or integrated) are changing
their processes and structures, or at least talking about it, their adoption of integrated
reporting has not necessarily stimulated new innovations in disclosure mechanisms.
This study did not uncover second order, transformative change, but rather incremental
changes to processes and structures that previously supported sustainability reporting
(first-order change). Change of a first-order nature reflects, in Laughlin’s (1991, p. 218)
words, “a ‘transition’ rather than a ‘transformation’”. Rather than the early adopters
rebutting the “disturbance” of a proposed new reporting regime, they internalise it in
such a way that “it really does not drastically affect the central core of the organization”
(p. 218). The IIRC seems to be avoiding explicit association with existing sustainability
reporting initiatives and terminology by positioning integrated reporting as a new
corporate reporting approach that reflects “integrated thinking” and represents “how an
AAAJ organisation creates value” (IIRC, 2013, p. 4). However, the interviews indicate that
27,7 integrated reporting is the (incremental) next phase in sustainability reporting, rather
than revolutionary transformation of the existing financial and sustainability reporting
approaches and processes seen in the colonisation and evolution pathways (Laughlin,
1991). There was no evidence of fundamental change to the interpretive schemes
(the central core) of the organisations.
1086 Incremental change was observed in the broadening of constituencies involved
in the reporting process, through cross-functional teams, and attempts to move away
from siloed thinking and structures. Although at this stage, few are shifting the
ownership of the reporting process from the sustainability or communications groups
to the finance or strategy areas. In contrast to earlier findings regarding accountants
(Adams, 2002), finance people are not seen as inappropriate people to be involved
in non-financial reporting. Together with the strategy team, they are encouraged to
participate in the integrated reporting process, not just to provide data, but to be part
of the cross-functional teams. In two of the organisations the CFO/Finance Director
seems to have a wider, more strategic role in the company and they are taking a
lead role in the integrated reporting process. Discussions about developing integrated
measurement systems, moving away from the GRI and the development/adoption
of integrated reporting standards indicate intentions to adopt change rather than
actual changes.
Arguably, the “push” approach is one innovative mechanism used by three early
adopters to drive cultural change in the organisation. While Adams and Frost (2008)
and Adams and McNicholas (2007) found that sustainability reporting can be a
catalyst for change, integrated reporting is used as an explicit tool to drive change.
In setting the expectation internally and externally that the organisation will produce
an integrated report, the business strategy is revisited in light of negotiating the
integrated “story” (Frostenson et al., 2012):
[y] tell a story across all forms of capital [y] to communicate to a really broad stakeholder
base what the company does, why it exists, and what it intends to do in the future to improve
those thing (FIN-F3).
However, there was no evidence in negotiating the integrated story that the interpretive
schemes of the organisations were actually changing at this stage, as integrated
reporting was not challenging the underlying DNA of the organisation (Laughlin, 1991).
While there was evidence of changes at the level of resources and structures, there was
no evidence that integrated reporting initiatives led to changes in what Laughlin refers to
as the intangible elements of the organisations (core beliefs, values, norms or mission/
purpose). Nor was there evidence that a shift to integrated reporting reflects a people-
centred and environment-centred organisation (Stubbs and Cocklin, 2008), with a focus
on stewardship of all capitals.
Six organisations adopting integrated reporting indicated a move away from
the outside-in approach, as characterised by aligning internal reporting processes with
external reporting standards such as the GRI (Schaltegger, 2012b), to an inside-out
(strategy led) or twin approach. This seems to be an extension of the trend over time for
sustainability reporting to move to an inside-out process (Beck et al., 2012), and not a
new approach.
As integrated reporting is in its early adoption stage, it may take more time before
innovative disclosure mechanisms emerge. The research study suggests that, at this
stage, integrated reporting is a “transition” (Laughlin, 1991) from sustainability reporting
rather than a radical, new innovative initiative that is driving “transformation”. The early Integrated
adopters exhibit a more holistic approach with more engagement between internal Reporting and
stakeholders but the lack of “rules” and standards may be inhibiting more widespread
adoption of integrated reporting. The absence of these rules and standards could be a internal
driver of “cutting edge” (FIN-F2) reporting innovations in the future. mechanisms
A major limitation of this research study was the small sample of organisations that
participated and the single-country focus, and the conclusions can only be tentative 1087
until further research is undertaken with a larger group of stakeholders. Finance and
accounting people were particularly under-represented in this study, and people from
the strategy function were not represented at all. Interviews are subject to inaccuracy
and bias (Crane, 1999), particularly if not all stakeholders’ voices are heard. In addition,
the views of external stakeholders were not explored. Further studies are required
with organisations undertaking integrated reporting across different countries, and

with a wider range of internal and external stakeholders, to further understand the
mechanisms that promote and facilitate integrated reporting. In addition, longitudinal
studies are well suited to explore changes in reporting mechanisms in response to
integrated reporting.
Note
1. Integrated reporting proposes that six capitals – financial, manufactured, intellectual,
human, social and relationship and natural – underpin the value of an organisation.
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About the authors

Dr Wendy Stubbs is a Senior Lecturer at the Monash University. Her research explores
sustainable business models and practices and how organisations are disclosing and
communicating their sustainability performance. She is the Coordinator for the Master of
Sustainability (Corporate Environmental and Sustainability Management stream) and teaches
corporate sustainability in the MBA programme. She has a PhD in Corporate Sustainability from
the Monash University and an MBA from the Wharton Business School. Dr Wendy Stubbs is the
corresponding author and can be contacted at: wendy.stubbs@monash.edu
Dr Colin Higgins is a Senior Lecturer in the Graduate School of Business at the Deakin
University. His research utilises discourse and institutional theories to study how business
organisations both respond to and construct institutional norms through their sustainability
reporting practice. He teaches strategy in the Deakin MBA. He has a PhD in Communication
Studies from the Deakin University.
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

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Integrated Reporting Driving Changes in Disclosure

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Integrated Reporting Driving Changes in Disclosure

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Accounting, Auditing & Accountability Journal

Integrated Reporting and internal mechanisms of change

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The IIRC (2013, pp. 7, 33) defines integrated reporting as:

A large number of sustainability reporting studies have been published, primarily

Sustainability and integrated reporting

State Description Type of change

Inertia Do not respond to environmental issues None

Colonisation occurs when an environmental jolt results in changes to the design

evolution discourses does not imply morphogenesis.

Internal mechanisms employed in sustainability reporting

manifested by the integrated reporting early adopters will be examined.

Industry (no. of organisations) Sustainability Finance Communications

Financial services (5) (F1-F5) 5 3 3

identified or was unavailable to be interviewed, and in some cases, we were referred

change), as evidenced by a later statement that:

1080 Cross-functional teams

Larrinaga-Gonzalez and Bebbington (2001) found that while management supported

Integrated measurement systems and metrics

with organisations undertaking integrated reporting across different countries, and

Organizations and Society, Vol. 17 No. 6, pp. 595-612.

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NachhaltigkeitsManagementForum | Sustainability Management Forum 129. . [Crossref]

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