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Sustainability Reporting Versus Integrated Reporting: BIST Sustainability

Index

Chapter · December 2017

DOI: 10.1007/978-3-319-49559-0_47

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 Sustainability Reporting Versus Integrated Reporting: BIST Sustainability Index
Gülşah ATAĞAN1

Introduction
Businesses are appearing as not only profit oriented organizations but also an element
that ought to fulfill responsibilities towards society and environment. Businesses are social
entities that have social responsibilities. As a necessity of social responsibility principle;
voluntarily or as a legal necessity, businesses which have interactions with current economic
and social surroundings, provide and render reports associated with corporate social
responsibility and environment. These reports are gaining significance day by day due to
expansions of traditional performance standards focusing on social and environmental
performance indicators in addition to corporate net profit that causes more investors to advocate
environmental and social factors effectiveness of corporate value of businesses. In preparation
of these reports accounting has significant duty. Accounting information system gains
important role on measuring, evaluation and reporting of every kind of information in
businesses.
Corporate sustainability can be defined as enterprises' undertaking of social, economic
and environmental as well as financial responsibilities. The information related to new
responsibilities placed on companies must be presented to stakeholders just like the financial
information. Inadequacy of financial reporting, in providing information related to new
responsibilities of companies to large numbers of stakeholders spread all over the globalized
world, has led to emergence of a new vehicle. This new tool, used by companies to
communicate their activities with internal and external stakeholders, is called sustainability
reporting.
Corporate sustainability had become popular with the publication Brundtland Report
entitled “Our Common Future” and had defined as to ensure that it meets the needs of the
present without compromising the ability of future generations to meet their own needs.
In 1990s Triple Bottom Line reporting method which is put forward by Elkington,
provides economic, social and environmental components together. Contrary to traditional
reporting that takes account net income as an indicator of performance, it includes a much
further concept multidimensional reporting model comprising of social and environmental
performance. (Fleischman and Schuele, 2006:43)
Social responsibility reports can be defined as the provision of financial and non
financial information relating to an organisation’s interaction with its physical and social
environment, as stated in corporate annual reports or separate social reports. Sustainability
concept, brings into the question that all corporate activities have social, economic and
environmental results and it is necessary to report all of them as a whole.
Giving place to this type of information in companies’ sustainability reports, can cause
sustainability reports and integrated reports to be perceived as the same. However, integrated
reporting is the kind of reporting, that covers much wider and more sustainable reports. In this
study, the terms of integrated reporting and sustainability reporting have been examined in a
detailed way. Although there isn’t any company making integrated reportingin Turkey, there
are still 29 companies registered under BIST Sustainability Index publishing their sustainability
reports. Two registered companies under BIST enrolled in the pilot programme of IIRC and a
vast number of companies announced that they will make integrated reports in the upcoming

1
Gülşah ATAĞAN, Dokuz Eylul University, Business Administration Department, gulsah.ugurluel@deu.edu.tr
days. The Basic Principles of BIST Sustainability Index are considered in details in this study
and a proposal for integrated reporting is made.
1. Sustainability Reporting
Sustainability is an old concept, developments in the business world and increased
competition have caused the business entities to refocus on this concept in order to safeguard
their continuity. Sustainability consists of three dimensions, economic, environmental, and
social. Sustainability approach requires the integration of these dimensions into business
strategies and the reporting the performance of business activities related to these three
dimensions. Sustainability accounting and reporting can be considered as a complement to
financial accounting. When used together, financial information and sustainability information
can provide a complete view of the performance and value creation of a corporation.
Sustainability Reports provide “information relating to a corporation’s activities,
aspirations and public image with regard to environmental, community, employee and
consumer issues. Within these headings will be subsumed other, more detailed, matters such as
energy usage, equal opportunities, fair trade, corporate governance and the like” (Gray et al.
2001:329).
Elkington, (1988) suggests that financial reporting should expand beyond traditional
bottom-line as net income, success indicators such as social and environmental performance
should be also taken into account.
Statistics from GRI also reflect a growing uptrend in the world that more and more
companies start using the Global Reporting Initiative’s (GRI) – modern and comprehensive
Sustainability Reporting Framework enabling organizations to measure and report their
economic, environmental, social and governance performance – the four cornerstones of
sustainability. Every year, an increasing number of reporters adopt GRI’s Guidelines. (Gurvitsh
and Sidorova, 2012:28)
2. Integrated Reporting
The International Integrated Reporting Council (IIRC) defines integrated reporting as
“a process that results in communication by an organization, most visibly a periodic integrated
report, about how an organization’s strategy, governance, performance, and prospects lead to
the creation of value over the short, medium and long-term.” (http://integratedreporting.org/
06.02.2016)
Integrated reporting is more than creating a comprehensive annual report. It can be used
as an effective governance tool for performance oriented management.
According to the PWC report (August 2013), integrated report is a a way to respond to
the evolving needs of stakeholders in the capital markets.
• Capital market stakeholders are finding it valuable when companies provide information on
environmental, social, and governance issues impacting their businesses. Stakeholders are
increasingly considering internal and external non-financial factors, such as resource scarcity
or demographic shifts, when assessing companies’ long-term prospects.
• Integrated reporting builds on the existing financial reporting model to incorporate
nonfinancial information that can help stakeholders understand how a company creates and
sustains value over the long-term. This is in line with the continued growth of sustainability
rating systems and investment policy disclosure requirements. The trend toward reporting non-
financial information is increasing and will likely continue.
• Globalization of and interdependencies in supply chains, rapid population growth, and
increasing global consumption are impacting the quality, availability, and price of resources.
Integrated reporting has the potential to make the impact of these and other factors on
companies’ strategies and business models more transparent to stakeholders.
• Companies that have embarked on the integrated reporting journey view it as a change process
that has enabled them to think differently about their businesses. Among the benefits they’ve
realized are strengthened financial reporting across business activities, enhanced internal
collaboration, and increased internal and external communications. Some have also used the
process to develop key performance indicators to provide clarity regarding their business
models.
There is no standard format for an Integrated Report and no specific disclosure
requirements. Instead, the Discussion Paper issued by the IIRC sets out five Guiding Principles
and six Content Elements for an Integrated Report:
Guiding Principles
 Strategic Focus
 Future Orientation
 Connectivity of Information
 Responsiveness and Stakeholder Inclusiveness
 Conciseness, Reliability and Materiality
Content Elements
 Organizational overview and business model
 Operating context, including risks and opportunities
 Strategic objectives
 Governance and remuneration
 Performance
 Future outlook
The IIRC also contrasts eight differences between current and Integrated Reporting.
Table 1. Current Reporting and Integrated Reporting
Feature Current Reporting Integrated Reporting
Trust Narrow Disclosures Greater Transparency
Stewardship Past, financial Past and future; connected;
strategic
Thinking Isolated Integrated
Focus Past, financial Past and future; connected;
strategic
Time Frame Short term Short, medium and long term
Adaptive Rule Bound Responsive to individual
circumstances
Concise Long and complex Concise and material
Technology Enabled Paper based Technology Enabled
Source: (KPMG, April 2013)
Integrated reporting is based on two fundamental and interconnected concepts: value
creation and the capitals. Value creation emphasises value is not created by or within the
organisation alone, but is influenced by the external environment, the organisation’s
relationships with others, and the resources used and affected. Value creation can best be
understood as the change in value of the capitals over time. (Integrated Reporting Committee
(IRC) of South Africa, 2014)
The concept of capitals seeks to assist an organisation in identifying all the resources
and relationships it uses and affects to report in a comprehensive manner.
The six capitals are:
• Financial capital, such as shareholder equity and funds raised by issuing bonds
• Manufactured capital, such as equipment and public infrastructure
• Intellectual capital, such as technology, patents, research and development, and the
organisation’s internal systems, procedures and protocols
• Human capital, such as people’s skills and experience
• Social and relationship capital, such as key stakeholder relationships, brands and reputation,
as well as community involvement
• Natural capital, such as water, land, and minerals
 According to the IIRC, 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. (IIRC)
Although providers of financial capital are the primary intended IR users, an integrated report
should be designed to benefit all stakeholders—including employees, customers, suppliers,
business partners, local communities, regulators, and policy makers—interested in an
organization’s ability to create value over time. The key objective of Integrated Reporting (IR)
is to enhance accountability and stewardship with respect to the broad base of six types of
capital, or “capitals” (financial, manufactured, intellectual, human, social and relationship, and
natural), and promote understanding of their interdependencies. Through this approach, IR is
designed to support integrated thinking, decision making, and actions that focus on sustainable
value creation for stakeholders. (Di Donato, Bordogna and Busco, 2013, 208)
The comparison made by Fasan (2013), related with the application reports can be found
in the table below. It can be clearly seen that sustainability reports and integrated reports do
resemble each other in many aspects. For this reason, these two reports can be percieved as the
same. But integrated reporting goes a long way, including sustainability reports also.

Table 2. Sustainability and Integrated Reports Main Features

Annual Sustainability Integrated
Reports Reports Reports
Target Specific stakeholders Several Primarily providers of
(shareholders and stakeholders financial capital
investors) (social and
environmental
perspective)
Mandatory/Voluntary Mandatory Voluntary (with Voluntary (with some
some exceptions: exceptions: South
Denmark, Africa)
Sweden, France)
Regulation or Guidelines National and international Global reporting IIRC framework
laws and GAAP (or initiative (GRI)
IAS/IFRS)
Comparability High Medium Low
Industry Customization Low Medium (Sector High
supplements)
Assurance Level High Low Low
Scope Financial reporting entity Broader than Broader than financial
(company or group of financial reporting reporting entity (supply
companies) entity (supply chain, LCA approach)
chain, LCA
approach)
Source: (Fasan, 2013;50)

3. BIST Sustainability Index

BIST Sustainability Index aims to provide a benchmark for Borsa İstanbul companies
with high performance on corporate sustainability and to increase the awareness, knowledge
and practice on sustainability in Turkey. Moreover the index is a platform for institutional
investors to demonstrate their commitment to companies managing environmental, social and
governance (ESG) issues with high performance. Borsa İstanbul has signed a cooperation
agreement with Ethical Investment Research Services Limited (EIRIS) to create BIST
Sustainability Index. In accordance with this agreement, EIRIS assesses Borsa İstanbul listed
companies based on the international sustainability criteria. The assessment is based upon only
publicly available information and assessment costs of companies are covered by Borsa
İstanbul.
 EIRIS is an independent London-based research organization, specialized on
environmental, social and governance issues for more than 30 years and serving asset owners,
asset managers and index providers globally. Johannesburg and Mexico Stock Exchanges are
the other exchanges that EIRIS provides sustainability research service.
BIST Sustainability Index has been launched on the 4th of November, 2014 with the code
XUSRD. The initial value of the index is 98.020,09 based upon the second session closing value
of BIST 30 index on the 3rd of November 2014. The relative weight of each constituent is
capped at 15%.

3.1. Bıst Sustainability Index Ground Rules

The purpose of BIST Sustainability Index (the index hereafter) is to create an index
whose constituents are selected by the companies whose corporate sustainability performance
is high level among the listed companies in Borsa İstanbul and in extent to increase awareness,
know-how and hand-on practice of the companies about sustainability in Turkey, especially the
ones listed in Borsa İstanbul. The index will provide companies to compare their corporate
sustainability performance in local and global basis. With the Index, Borsa İstanbul provides
companies an instrument for evaluating their performance and consequently adopting new
targets or furthering their performance while allowing them to develop their risk management
abilities for corporate transparency, accountability and sustainability. The index also aims to
create an instrument which will allow investors to select and invest in companies that adopt
principles of sustainability and corporate governance.
3.1.1. Bıst Sustaınability Index Inclusıon Rules
BIST Sustainability Index Inclusion Rules are broadly explained below. There are 3
main criterias in the Index: environmental criteria, governance criteria, and social criteria.

3.1.1.1.Environmental Criteria

Environment
High Impact Companies Medium Impact Low impact companies
Companies
The company meets the following: The company meets one No requirements
the following:
- Four core indicators (at 2pts or above)
- Three core indicators (at 2pts or above) - Four core indicators (at
and one desirable indicator - Three core 2pts or above)
ind icators with one at a higher level of - Three core indicators (at
quality (3 pts) 2pts or above) and one
- Membership of one listed initiatives desirable indicator -
Three core indicators
with one at a higher level
of quality (3pts)
- Membership of one
listed initiatives
Core Indicators: Desirable Indicators:
Environmental Policy

- Reference to all key issues* - Globally applicable corporate

- Level of Senior Responsibility** operating standards
- Commitment to use of objectives and targets ** - Commitment to stakeholder
-Commitment to monitoring/auditing involvement
- Commitment to public reporting - Commitment to adress product or
service impact
* This indicator is scored on a scale of 0 pt, 1pt and - Strategic moves toward sustainability
2pts. Initiatives:
**These indicators are scored on a scale of 0pt, 1pt, - ICC (International Chamber of
2pts and 3pts Commerce) membership
- CERES membership
 High Impact Companies Medium Impact Low impact
Companies companies
The company meets one the The company meets one No requirements
following: the following:

- Coverage is less than 33% and the - Coverage is less than

company meets four (or more) 33% and the company
indicators meets four (or more) core
Environmental Management System

- Coverage is 33% or greater and the indicators

company meets three (or more) core - Coverage is 33% or
indicators greater and the company
- Any evidence of ISO14001 / meets three (or more)
EMAScertified systems core indicators
- Any ‘other’ indicator - Any evidence of
ISO14001 /
EMAScertified systems -
Any ‘other’ indicator
Core Indicators: Other Indicators:
- Evidence of environmental policy - Commitment to obtain ISO14001 or
- Identification of significant impacts EMAS
- Setting objectives and targets - EIA undertaken for all projects
- Outline of processes and responsibilities, - Supplier audits Certified Systems -
manuals, action plans, procedures ISO14001 certification
- Internal system audits - EMAS (Eco-Management and
- Internal reporting and management review Audit Scheme) registration

Biodiversity
High Impact Companies Medium Impact Low impact
Biodiversity

Companies companies
The company meets at least one No requirements Not assessed
Policy

indicator.

Climate Change
Very High High Impact Medium Impact Low impact
Climate Change

Impact Companies Companies companies

Management

Companies
The company No requirements No requirements Not assessed
Response

meets at least
one indicator.

3.1.1.2.Governance Criteria

Board Practice
All Companies
Practice
Board

The company meets at least two indicators.

 Countering Bribery
All Companies
Countering

The company meets at least one indicator.

Bribery
Policy

The company meets at least one indicator.

Countering
Bribery
System

3.1.1.3.Social Criteria
Human Rights
Companies involved in oil Companies involved in Companies in Companie
& gas or mining activities oil & gas or mining other sectors s in other
with large presence in high activities with smaller with large sectors
risk countries presence in high risk presence in high with
countries risk countries smaller
presence
in high
risk
countries
The company has policy The company has policy The company has No
which explicitly mention 2 which explicitly mention 2 policy which requiremen
ILO core labor or has a ILO core labor or has a explicitly mention ts
statement on fundamental statement on fundamental 2 ILO core labor
Human Rights Policy

human rights. human rights. or has a statement

on fundamental
human rights.
Alternatively, the company meets one of the following: No
 The Company has published human rights policies which include explicit requiremen
support for the OECD Guidelines for Multinational Enterprises (This is a proxy ts
for having a policy on all the ILO core labor areas)
 The Company is a signatory to the UN Global Compact (This is a proxy for
having a policy on all the ILO core labor areas)
 SA8000 for its owned operations (This is a proxy for having a policy on all the
ILO core labor areas)

Companies Companies Companies in other Companies in other

involved in oil & involved in oil & sectors with large sectors with smaller
Human Rights System

gas or mining gas or mining presence in high risk presence in high risk
activities with activities with countries countries
large presence in smaller presence
high risk countries in high risk
countries
The company meets No requirements No requirements No requirements
at least one
indicator.
 Health & Safety
Healty & All Companies

The Company meets at least one indicator (Except senior

System
Safety
responsibility).

3.2. Expected Contribution From Index

The index provides competitive advantage to Turkish companies managing their
corporate risks and opportunities effectively. An investible index on which new instruments
can be developed is in place to attract capital for companies. The Index reflects companies’
approach to important sustainability issues including global warming, draining of natural
resources, health, security and employment, while allowing an independent assessment of their
operations and decisions regarding these issues and, in a sense, their registration.
The Index offers companies the opportunity to compare their sustainability performance
on both local and global level. With the Index, Borsa İstanbul provides companies an instrument
for evaluating their performance and consequently adopting new targets or furthering their
performance while allowing them to develop their risk management abilities for corporate
transparency, accountability and sustainability. This, in turn, allows companies to gain a
competitive edge. Inclusion in the Index adds to their visibility and prestige.
The Index facilitates for companies the access to global clients, capital, and lower-cost
finance. The project aims to create an instrument which allows investors to select and invest in
companies that adopt principles of sustainability and corporate governance. Today, responsible
investment is preferred mainly by institutional investors. BIST Sustainability Index encourages
founding such funds, while facilitating for Index-constituent companies to get a larger share
from such funds. At the same time, the Index offers a new financial asset category for all
investors.

Bıst Sustainability Index Constituents For The Period Between (November 2015 -
October 2016)

1 AKBNK AKBANK 16 PETKM PETKİM

2 AKSEN AKSA ENERJİ 17 SAHOL SABANCI
HOLDİNG
3 AEFES ANADOLU 18 SAFGY SAF GMYO
EFES
4 ARCLK ARÇELİK 19 TSKB T.S.K.B.
5 ASELS ASELSAN 20 TAHVL TAV
HAVALİMANLARI
6 BRISA BRİSA 21 TOASO TOFAŞ OTO. FAB.
7 CCOLA COCA COLA 22 TCELL TURKCELL
İÇECEK
8 DOAS DOĞUŞ 23 TUPRS TÜPRAŞ
OTOMOTİV
9 ERGL EREĞLİ 24 THYAO TÜRK HAVA
DEMİR ÇELİK YOLLARI
10 FROTO FORD 25 TTKOM TÜRK TELEKOM
OTOSAN
11 GARAN GARANTİ 26 ULKER ÜLKER BİSKÜVİ
BANKASI
12 ISCTR İŞ BANKASI 27 VAKBN VAKIFLAR
(C) BANKASI
13 KCHOL KOÇ 28 VESTL VESTEL
HOLDİNG
 14 MGROS MİGROS 29 YKBNK YAPI VE KREDİ
TİCARET BANKASI
15 OTKAR OTOKAR

4. Conclusion
This paper reviews the relatively short history of sustainability and integrated reporting.
The quality of the reports are as important as their numbers in their related countries. Although
USA, Canada, Denmark, Japan and some other countries have many reports by number, it is
stated in KPMG’s study in 2013 that when suppliers, value chain, governance, risk,
opportunuties and strategy criterias are considered, they seem to come after Italy and Spain who
have less number of reports.
As a result of literature review, a great majority of the reports are identified as GRI
reports both in Turkey and other countries. This can be considered as a result of GRI
guidebooks’ being prepared according to all the qualities of company criterias and prepared in
many different languages and Although there is no consensus about Integrated Reports
formatting, it is still thought to construct a new report format that can shape this report related
with 6 capital elements constituted by IIRC and IRC.
The GRI Sustainability Reporting Guidelines (the Guidelines) offer Reporting
Principles, Standard Disclosures and an Implementation Manual for the preparation of
sustainability reports by organizations, regardless of their size, sector or location.

References
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Sustainability Reporting Versus Integrated Reporting: BIST Sustainability Index

Abstract
As an extension of social responsibility concept, “social responsibility accounting” and
“social accounting” concepts have arisen. Businesses are not only economic entrepreneurships,
success or failure of businesses does not rest on just numbers. In that point, accounting or
reporting concepts can provide inadequate and misleading info to businesses. By way of
environmental accounting or social accounting this inadequacy are meant to be figured out. In
recent years gaining of sustainable development concept, businesses start to prepare social
responsibility reports. These reports include non-financial information besides financial info.
As a natural prolongation of financial reporting, social responsibility reports enlarge business
reporting in explaining environmental, social and economic performance of businesses.
The aim of this study is to evaluate the interaction between integrated reporting and
sustinability reporting in theoretical framework and to present the current situation of social
responsibility practices as qualitative and quantitative indicators in Turkey. The research has
been done by literature review related to BIST Sustainability Index Ground Rules.
Key Words: Social Responsibility Accounting, Sustainability Reports, Integrated
Reports, BIST Susutainability Index
JEL Classification: M40, M41, M48

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