Harvard Business School recently held the 2010 Workshop on Integrated Reporting to enurage the trend of mbining financial and nonfinancial information — especially measures of environmental, social, and rporate ernance (ESG) performance — in a single mpany report. The Landscape of Integrated Reporting: Reflections and Next Steps, an eBook available for free online, llects the thoughts and views of the workshop participants.  Two of the essays — by Maciej Piechocki and Olivier Servais, and by Brad Monterio and Liv Watson — specifically address the role of XBRL in facilitating integrated reporting. 

pany reporting of ESG — also known as rporate social responsibility or sustainability reporting — is making steady progress, at least among the world’s largest firms. Acrding to the most recent KPMG Survey on rporate Responsibility Reporting, nearly 80% of the world’s biggest mpanies issued rporate responsibility reports in 2007/2008, up from 50% three years earlier. More than three-quarters use GRI Guidelines for their reports. However, most mpanies still present ESG information in stand-alone reports, with perhaps a summary in a separate section of the mpany’s annual report. Only 3% of mpanies “fully integrate” rporate responsibility reporting with financial reporting in their ARs. (There’s a nice chart on page 16 of KPMG’s survey that shows the breakdown of stand-alone versus fully integrated reporting of mpanies by untry.)

Already the emerging global language for financial reporting, XBRL now is gaining traction as a standard for nonfinancial information as well. In their essay “The Role of XBRL and IFRS in Integrated Reporting,” Piechocki and Servais enumerate a growing list of nonfinancial XBRL taxonomies under development:

The Global Reporting Initiative (GRI) has published the GRI Taxonomy to reflect GRI Sustainability Reporting Guidelines. The World Intellectual Capital Initiative (WICI) is nducting a similar effort in the area of intellectual capital and has developed a taxonomy that reflects Gartner and Enhanced Business Reporting nsortium metrics, management discussion and analysis, and the WICI framework. There is also interest in XBRL from projects such as the Prince’s Acunting for Sustainability Project, the Carbon Disclosure Project, and the International Integrated Reporting mittee. [p. 157 of the eBook]

The authors discuss the problem of mparability of nonfinancial information across XBRL reporting frameworks — a challenge similar to that faced in financial reporting, which Piechocki recently described in an interview with this blog. The authors believe the work of the ITA project in helping to ensure cross-border interoperability of IFRS, EDI (Japan), and US GAAP taxonomies will yield important lessons for a similar alignment in integrated reporting.

In their essay “Bringing Order to the Chaos: Integrating Sustainability Reporting Frameworks and Financial Reporting into One Report with XBRL,” Monterio and Watson affirm the view that, as the de facto standard for financial reporting, XBRL is the logical choice for integrated reporting. They note two key challenges, however:

First, ESG reporting requires “mmercial strength” taxonomies developed by “neutral, trusted” anizations. As yet, there are no such entities in the ESG field that can fund and maintain these required taxonomies.

Send, just as key stakeholders drove the adoption of XBRL for financial reporting, “many more influential leaders in the ESG mmunity” must urge development of nonfinancial taxonomies and promote their adoption. [p. 165]

As the book’s 62 other essays well demonstrate, the number and breadth of issues raised by ESG reporting generally and integrated reporting specifically are enormous. One major problem noted by Ralf Frank in “Suess Factors for Integrated Reporting: A Technical Perspective” is that

…unlike US-GAAP or IFRS, which are legally endorsed… the extra-financial reporting criteria are voluntary frameworks that, given their nature, allow mpanies a significant amount of leeway, including the ability not to report under these frameworks at all. [p. 226]

Another huge challenge is the extent to which the environment — enomic, social, and, not least, political — for many ESG issues varies among untries. One prominent area is climate change: my Japanese friends are always amazed to learn that the role of human activity in global warming is far from being a settled issue in the US. As reported in the November 24 issue of BusinessWeek, the number of Americans who think the earth is warming because of man-made activity dropped to 34 percent in October 2010, from 50 percent in July 2006. The article goes on to note that recent US elections put into office 47 new lawmakers skeptical of climate change; any ngressional action on cap-and-trade, and even some less ambitious environmental legislation, appears dead for now.

In this light, the “cautionary note” on XBRL that Adam Kanzer offers in his essay “Toward a Model for Sustainable Capital Allocation” is interesting:

It seems to me to be somewhat ironic, however, to be discussing the ncept of One Report and XBRL in the same breath. XBRL may be a very positive development, but it is also likely to aelerate the atomization of rporate reporting, undermining the integrity of the report itself. Investors will have even less incentive to read the rporate report as published, preferring to extract the data points their models call for. What gets lost is ntext, and ntext is critical to understanding rporate strategy and performance, particularly with respect to those sustainability factors that cannot generally be rced to a data point. [p. 56]

I don’t know whether Mr. Kanzer’s ncern that XBRL rces the incentive to read the rporate report as published has validity. But it does seem that — in a world where there’s so much debate on just what the key ESG issues are, let alone how they should be reported — a data standard that can extract from a much larger report individual data points has distinct advantages for mparison and analysis. An atomized ESG srecard is highly preferable to none at all.

rporate responsibility and integrated reporting remain the exception rather than the rule: Michael Muyot of CRD Analytics states that of more than 75,000 multinational mpanies, only 3,500 (less than 5%) produce a sustainability/CSR/integrated report [p. 170]. But the essays in this book demonstrate that the trend lines for both rporate responsibility and integrated reporting will ntinue to slope upward – and that XBRL will have a vital role to play in their adoption.