2.1Introduction

Every year, at the end of the economic and financial year, companies are required by law to fill reports on their business activity. This reporting includes mainly financial statements (mandatory) and a report on how management used company resources to create wealth for shareholders. This is the primary purpose of management: to generate wealth for company owners. But is this really the primary purpose of management, to create wealth for shareholders?

For a long time, the idea existed that business enterprises should only be accountable to their shareholders. However, since the 1960s, a movement of social and environmental consciousness has led companies to be accountable to society beyond making profits for shareholders [1]. Indeed, a company’s level of governance and responsibility has emerged as a significant indicator of its overall business health [2]. That is referred to as corporate social responsibility (CSR). Nowadays, it is impossible to pick up a magazine or newspaper, watch TV, or search the Internet without chancing upon a discussion of how companies are living up to their CSR. Indeed, many companies throughout the world publish reports highlighting their economic, environmental, and social performance [3]. It is now generally accepted that in the short term a company might experience growth while inflicting some harm on society and the environment, but in the long term this is impossible [4]. The concept of sustainable development has emerged. It is largely concerned with organizing and managing human activities in such away that they satisfy physical and psychological needs without compromising the ecological, social, or economic base that enables these needs to be met [4].

CSR as a field of study has undergone a journey that is almost unique in the pantheon of ideas in the management literature [5] and in the accounting literature. Since the 1960s, the scholarly literature has reflected the greater attention researchers have been devoting to the issue of what precisely CSR is. To respond to this question we need to ask what purpose businesses serve, what contributions they make to society [5], and how they report on CSR [3]?

The term CSR is still in popular use, even though competing, complementary, and overlapping concepts such as corporate citizenship, business ethics, stakeholder management, and sustainability [1] have also come into use. Indeed, CSR has become an established umbrella term that embraces both the descriptive and normative aspects of the field and underlines everything that firms achieve in the realm of social responsibility in terms of policies, practices, and results [1]. Although CSR and sustainability are two distinct concepts, for the purposes of this chapter, they will be used interchangeably.

This chapter aims to describe and discuss the concepts of CSR and sustainability, to present the evolution of the concept and field of study, identifying two major branches of CSR – the theories and rationales behind sustainability reporting and the users of CSR/sustainability reports – and to present the main frameworks in which CSR/ sustainability reporting is conducted.

2.2The concept of CSR and sustainability

Some of the economic benefits from the development and growth of economies have been accompanied by social and environmental costs. Indeed, it should be borne in mind that many social and economic costs of economic growth are inseparable from that growth and often have a causal relationship with it. For example, the growth of large plantations in developing countries may have a detrimental effect on environmental biodiversity but may improve social conditions for the local population [2].

CSR has been defined in a variety of ways, and its concept has been evolving for decades. For example, the seminal 1953 book by Howard R. Bowen, Social Responsibilities of the Businessman, which some authors claim marked the beginning of the modern era of social responsibility [6], defined CSR as the set of responsibilities to society that businessmen/women are expected to perform in a reasonable way. In the 1960s Keith David stated that CSR referred to “businessmen’s decision and action taken for reasons at least partially beyond the firm’s direct economic or technical interest,” William Frederick asserted that businesses’ resources should be used for broad social goals, and Joseph McGuire posited that CSR urged corporations to assume certain responsibilities to society that extend beyond their economic and legal obligations (cited in [1, p. 87]).

The 1970s were the decade in which “corporate social responsibility, responsiveness, and performance became the center of discussions” (cited [1, p. 87]). This led to a split within the CSR concept into two branches. One branch became devoted to emphasizing that companies should assume a socially responsible posture. The other branch was focused on the act of responding to or achieving a responsive posture toward society [1]. Carroll’s conceptual model of corporate performance considered four different categories of CSR, which included businesses’ fulfillment of economic, legal, ethical, and discretionary/ philanthropic responsibilities. This four-part definition of CSR has been formulated as follows: “The social responsibility of business encompasses the economic, legal, ethical, and discretionary [later referred to as philanthropic] expectations that society has of organizations at a given point in time” [6].

The 1980s saw more empirical research and fewer new concepts of CSR. In this period, research was directed at pursuing the link of CSR and corporate financial performance. The business case for CSR dates to this time [1].

The 1990s and 2000s became the era of global corporate citizenship (Frederick cited by [1]), where concerns about sustainability and sustainable development emerged and became part of the CSR concept.

The concept of sustainability has its roots in forest engineering and requires that the harvest of trees should not exceed the growth of new trees, meaning society should not use more natural resources than the natural environment can regenerate [7]. Sustainable development, as defined by the Brundtland Commission (United Nations World Commission on Environment and Development – UN-WCED), “Sustainable development is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains two key concepts: the concept of ‘needs’, in particular the essential needs of the world’s poor, to which overriding priority should be given; and the idea of limitations imposed by the state of technology and social organization on the environment’s ability to meet present and future needs” [8]. This means that sustainable development is also about equity – both intragenerational and intergenerational – because the statement claims that it means meeting the needs of the present without compromising the ability of future generations to meet their own needs. How can this be achieved? [9]

The concept of sustainability is usually divided into two main categories: weak and strong sustainability [7]. Weak sustainability is associated with the idea that a community can use its natural resources and degrade the natural environment as long it is able to compensate for the loss with human (skills, knowledge, and technology) and human-made (buildings, machinery, equipment) capital. In this category, in the extreme case, natural and human-made capital can be considered equivalent because investment in either form of capital can generate the same income streams. This category has been seen by business as one justification for the continued use of nonrenewable resources if human-made capital can be substituted. On the other hand, strong sustainability argues for the conservation of nonrenewable resources (e.g., biodiversity) on the basis of nonsubstitutability, irreversibility, equity, and diversity. Its argument is that there are large uncertainties about the possibility of the substitution between natural and human-made capital. Uncertainties exist at the technical level, and even where there is a consensus about the technology itself, risks for future generations mean that there can be no right or wrong view [7]. Under strong sustainability, the concern is that environmental accounting is irredeemably contaminated by its hidden (ideological) assumptions and is “open to capture” by those with a “vested interest in down-playing ecological impact” (Maunders and Burritt cited in [7]). At a minimum, strong sustainability reminds managers that they have to be aware of a broader set of perspectives about the relative importance of business in society [7].

Poverty and ecological degradation exist for many reasons related to particular times and places, but it seems there are also systematic reasons behind these phenomena, namely, as a result of the dominant objective of organizing economies around the maximization of economic growth, which usually means energy- and material-intensive production and exploitative social relations, which are socially and environmentally unsustainable [4].

The definition proposed by UN-WCED was very important since it contributed to the acceptance of the meaning of sustainability and sustainable development [10].

Sustainable growth and sustainable development do not entirely match the biological approach based on the capacity of the planet or specific ecosystems to sustain life. However, a company is a social system whose survival is also a result of its economic performance. Sustainable development forces environmental groups, businesses, and governments to recognize that environmental factors may have a long-term detrimental impact on economic performance and that these factors were not given due consideration in the past [7].

An accepted and often-referenced definition of CSR is that proposed by the Commission of European Communities [11, p. 6]:

A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. Being socially responsible means not only fulfilling legal expectations but also going beyond compliance and investing “more” into human capital, the environment and relations with stakeholders.

CSR represents a company’s voluntary compromise with society in performing its business operations in such away that it contributes to the development of society while at the same time preserving the natural environment. This voluntary compromise also means companies have a responsibility to the people and social groups with which they interact.

Gray and Milne (cited in [9, p. 52]) have questioned the concept of CSR and whether corporations can, in fact, be socially responsible when it so obviously runs counter to the fundamental self-interest of business, shareholder demands, and the law that governs corporations and their directors. Sometimes it can be nothing other than insincere because sometimes it might be illegal to place stakeholders on an equal footing with shareholders [9].

Today it is common to read about the so-calledbusiness case for CSR.This refers to the arguments or rationales supporting why businesses in general should accept and advance the CSR cause [1]. The business case is concerned with the primary question: What do the business community and organizations get out of CSR, that is, how do they benefit tangibly from engaging in CSR policies, activities, and practices? For the most part, the business case refers to the bottom-line reasons for businesses to pursue CSR strategies and policies [1].

In sum, although there are many definitions of CSR, they all share the same features, though with different emphases: companies have an obligation beyond shareholders’ considerations; CSR is a strategic response of a company that must sustain and develop over time, and these principles must guide company performance and behavior. Finally, the company must match all its stakeholders’ needs, not just those of shareholders. But where do we find and how do we follow this strategic response of a company to its CSR? One way is to follow what companies publish in their annual reports or in their CSR/ sustainability report.

A sustainability report is a report published by a company or organization about the economic, environmental, and social impacts of its everyday activities. A sustainability report also presents the organization’s values and governance model and demonstrates the link between its strategy and its commitment to a sustainable global economy. A sustainability report is a key platform for communicating sustainability performance and impacts – whether positive or negative. Sustainability reporting can be treated as synonymous with other terms for nonfinancial reporting: triple-bottom-line reporting, CSR reporting, and more. It is also an intrinsic element of integrated reporting, a more recent development that combines the analysis of financial and nonfinancial performance [12].

2.3Brief overview of historical development of CSR reporting

The roots of CSR certainly extend back to before 1960. Historically, there are very strong links between economic activities, facilitated by the accounting process, and social effects. In the past, there was little recognition that the activities of business organizations could be socially harmful. Companies were regarded as meeting the needs of the majority of people. Problems such as dangerous products, corruption, fraud, and unsafe labor practices were regarded as financial problems affecting profitability, which had wider implications only insofar as the financial viability of the company might be threatened [2].

However, this perception has changed with reflections on company reporting. The designation CSR appears for the first time in the middle of the twentieth century in the USA; thus, the concept it in the literature has its roots in Western societies. The responses to the Vietnam War, the peace movements, and social movements such as civil rights, women’s rights, consumers’ rights, and environmentalism, whichwere very active in the 1970s, are credited with launching the movement toward satisfying public demands for increased CSR [1, 2]. Thus, the foundation for CSR was being laid by a quickly changing social environment and pressures from others, especially activists, to adopt CSR perspectives, attitudes, practices, and policies [1].

In the 1960s and 1970s, the CSR concept evolved primarily through academic contributions in the literature and the slowly emerging realities of business practices [1]. During this period of time, people started to question the purpose of companies and their responsibility in terms of becoming involved in community affairs. People became social conscious and recognized that companies had responsibilities toward their communities. At this time, there was also an absence of any coupling of social responsibility with financial performance, that is, companies engaged in CSR activities did not expect any specific returns from carrying out those activities [1].

This is why, although CSR concerns date back to the 1960s, it is only since the 1990s that public disclosure information about CSR and the social and environmental impacts of business operations have become widespread among companies, at a time when a number of large companies made considerable advances in reporting aspects of their environmental impact [3]. These disclosures were disclosed in annual reports along with the financial reporting. The purpose was to publicize the environmental and social policies, practices, or impacts of business operations.

Today, CSR reporting has evolved, and the number of organizations that report on their CSR activities has increased; in adition, CSR reporting itself has become more extensive, and often this reporting is done in separate, standalone social and environmental reports (with a summary of these disclosures being provided in annual reports) [3].

The business case for CSR refers to the so-called business justification and rationale, that is, the specific benefits to businesses in an economic and financial (bottom-line) sense that would flow from CSR activities and initiatives. In some cases, the effect of CSR activities on firm financial performance may be seen clearly and directly. In other cases, however, the effect of CSR activity on firm performance may only be seen through the understanding of mediating variables and situational circumstances [1].

In other words, the business case for CSR refers to the arguments that provide a rational justification for CSR initiatives from a primarily corporate economic/ financial perspective. Business case arguments contend that firms that engage in CSR activities will be rewarded by the market in economic and financial terms. A narrow view of the business case justifies CSR initiatives when they produce direct and clear links to firm financial performance. Mostly, the narrow view of the business case focuses on immediate cost savings. By contrast, the broad view of the business case justifies CSR initiatives when they produce direct and indirect links to firm performance. The advantage of the broad view over the narrow view is that it allows the firm to benefit from CSR opportunities. The broad view of the business case for CSR enables the firm to enhance its competitive advantage and create win-win relationships with its stakeholders, in addition to realizing gains from the cost and risk reduction and legitimacy and reputation benefits that are realized through the narrow view [1].

Various questions have framed this search for the business case: Can a firm really do well by doing good? Is there a return on investment in CSR? What are the bottom-line benefits of socially responsible corporate performance? Is corporate social performance positively related to corporate financial performance? It has been argued that, in business practitioner terms, a “business case” is “a pitch for investment in a project or initiative that promises to yield a suitably significant return to justify the expenditure” [13, p. 84]. That is, can companies perform better financially by addressing both their core business operations and their responsibilities to the broader society [13]?

Kuruccz, Colbert, and Wheeler [13] identified four types of business case for CSR: (1) cost and risk reduction (optimization subject to constraints), (2) competitive advantage (adapting and leveraging opportunities), (3) reputation and legitimacy (building a responsible brand), and (4) synergistic value creation (seeking win-win outcomes).

Cost and risk reduction arguments posit that CSR may allow a firm to realize tax benefits or avoid strict regulation, which would lower its cost. The firm may also lower the risk of opposition from its stakeholders through CSR activities. Legitimacy and reputation arguments hold that CSR activities may help a firm strengthen its legitimacy and reputation by demonstrating that it can meet the competing needs of its stakeholders while at the same time operating profitably. A firm, therefore, would be perceived as a member of its community and its operations would be sanctioned. Competitive advantage arguments contend that, by engaging in certain CSR activities, a firm may be able to build strong relationships with its stakeholders and garner their support in the form of lower levels of employee turnover, access to a higher talent pool, and customer loyalty. Accordingly, the firm will be able to differentiate itself from its competitors. Synergistic value creation arguments hold that CSR activities may present opportunities for a firm that would allow it to fulfill the needs of its stakeholders and at the same time pursue its profit goals. The pursuit of these opportunities is possible only through CSR activities. Growing support for the business case among academic and practitioners is evident [1, 13].

While acceptance of the arguments for the business case for CSR has been growing, it is worth noting some of its criticisms and limitations. For example, consumers may not have the ability to support companies engaging in CSR activities owing to their limited power in the marketplace. Accordingly, CSR initiatives are not rewarded, and the business case for CSR does not hold. Therefore, one possible solution is that policymakers empower consumers by providing them with more information through mandatory reporting on social and environmental performance and the development of a “comprehensive social or CSR” label [1]. Although many authors wished for a straight positive link between CSR and performance, in practice that may not be viable. There will not always be a positive correlation between carefully chosen CSR initiatives and firm financial performance, nor when there is a link will that relation continue in perpetuity. Mintzberg [1] argues that firms may be rewarded, in an economic and financial sense, for engaging in CSR practices to a certain extent. Beyond a given level of CSR investment, the market will cease to reward it [1, p. 100].

In public statements on their sustainable development policies and practices, many organizations claim that they recognize their social and environmental, in addition to their economic, responsibilities and are seeking to manage and account for these activities in an appropriate manner [4]. However, many authors claim that many organizations are simply using sustainability accounting techniques as a public relations tool to win the approval of those stakeholders whose continued support is crucial for the perceived legitimacy of their activities [4].

2.4Two branches of CSR

The definition of CSR has been evolving for decades. Two important events mark the CSR debate and two schools of thought on CSR. The first event is the publication of Milton Friedman’s 1962 work, in which he views the CSR debate as “fundamentally subversive” (cited by [6, p. 497]). Friedman asserts: “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible” (cited by [6, p. 497]).

Friedman goes on to argue that social issues are not the concern of business people and that these problems should be resolved by the unfettered workings of the free market system. Further, this view holds that if the free market cannot solve the social problems, it falls not upon business but upon government and legislation to do the job. In addition, business is not equipped to address social activities. This position holds that managers are oriented toward finance and operations and do not have the necessary expertise (social skills) to make socially oriented decisions [1]. It could also be argued that CSR dilutes businesses’ primary purpose. The objection here is the adoption of CSR would cause a business to venture into fields of endeavor that are unrelated to their “proper aim” [1]. Another argument against CSR is that business already has enough power, and so why should we place in its hands the opportunity to wield additional power, such as social power [1]? Finally is the argument that in pursuing CSR, business will make itself less competitive globally [1]. Although these arguments from the Milton Friedman school of thought were introduced long ago, they are still accepted by many managers.

Another school of thought comes from stakeholder theory, which was introduced by Freeman [14]. Arguments in favor of CSR typically begin with the belief that it is in business’s long-term self-interest – enlightened self-interest – to be socially responsible. This view holds that if a business is to have a healthy climate in which to function in the future, it must take actions now that will ensure its long-term viability. The second argument in favor of CSR is that it will “ward off government regulation.” This is a very practical reason, and it is based on the idea that future government intervention can be forestalled to the extent that a business polices itself with self-disciplined standards and meets society’s expectations of it. Two additional arguments in favor of CSR include that “business has the resources” and “let business try.” These two views maintain that, because business has a reservoir of management talent, functional expertise, and capital and because so many others have tried and failed to solve social problems, business should be given the chance [1]. Another justification for CSR holds that proactive policies are better than reactive ones. This basically means that acting (anticipating, planning, and initiating) is more practical and less costly than simply reacting to social problems once they have surfaced [1]. Finally, it has been argued that business should engage in CSR because the public strongly supports it. Today, the public believes that, in addition to its pursuit of profits, businesses should be responsible to their workers, communities, and other stakeholders, even if making things better for them requires companies to sacrifice some profit.

Besides the two aforementioned branches of CSR, several theories have been applied to explain the motivation for CSR reporting. The most popular include theories such as accountability, legitimacy, political economy, stakeholder, and institutional theory [9]. The essence behind these theories is summarized by Buhr (cited in [9, pp. 61–62]), presented in Table 2.1.

The rationales presented in Table 2.1 also reflect the different business cases identified by Kuruccz, Colbert, and Wheeler [13] and the two branches of thought about CSR.

Tab. 2.1: Rationales for sustainability reporting. Source: Adapted from Buhr (2007) (cited in [9, pp. 61–62]).

2.5To whom does one report on CSR and sustainability?

While financial reporting is generally aimed at providing economic and financial information to the providers of financial capital, such as shareholders and lenders, CSR reporting is concerned with voluntary identification and disclosure of information about the relationship of an organization with its employees, its local community, and society in general [2]. Accounting standards and other regulatory standards guide financial reporting. But what supports CSR disclosure?

The predominant development of sustainability reporting has been voluntary, that is, a function of the motivations of the organizations themselves. Table 2.1 presented a range of theoretical explanations for reporting on sustainability. But who really cares whether CSR improves the bottom line [1]?

Obviously, corporate boards, chief executive officers, chief financial officers, and upper-echelon business executives care. They are the guardians of their companies’ financial welfare and ultimately must bear responsibility for the impact of CSR on the bottom line [1]. They need to justify whether their firms’ strategies that include CSR are financially sustainable. However, other groups care as well. Shareholders are increasingly concerned with financial performance and are concerned about possible threats to management’s priorities. Social activists care because it is in their long-term best interests if companies can sustain the types of social initiatives that they are advocating. Governmental bodies care because they want to ensure that companies deliver social and environmental benefits more cost-effectively than they can through regulatory approaches [1]. Consumers’ concern is growing since they pressure the government to regulate products to make them socially and environmentally friendly since many of them want their purchasing to reflect their values [1].

2.6How to disclose CSR and sustainability information?

Sustainability, CSR, and accounting: What is the relationship among these aspects?

Accounting is a powerful tool that has conventionally been used to optimize the economic and financial performance of organizations [4]. Conventional management and financial accounting have provided tools in the management, planning, control, and accountability of the economic aspects of organizations. Nowwe can add the techniques of sustainability and accountability to these conventional tools.

Accounting systems are one of the most important management tools for every company. The function of accounting is to provide relevant, reliable, and accurate information to guide the decisions of managers, investors, and other stakeholders [7].

Accounting produces information under certain conventions to manage complex reality. However, conventional accounting has been heavily criticized because it concerns mainly the convention of using money and monetary calculations; thus, it has been said that the information collected by today’s accounting systems mirror only what business and political leaders currently consider to be important for the economy and society, from their own perspective [7].

Conventions reflect the distribution of power among different stakeholders such as shareholders, managers, future generations, and others. Since power relations among stakeholders are constantly changing, accounting systems also change since they are generally under constant pressure to change, expand, or adapt to provide information that the most powerful stakeholders wish to be reported [7]. As society changes, new information and new stakeholders also become important. This means that accounting conventions need to change also.

The growing concern over CSR issues has generated criticisms of accounting conventions in general use. The convention of ignoring events that take place outside an accounting entity lead to major problems when one tries to account for the environmental and social impacts of business. Conventional accounting systems do not provide information on how much the environment is harmed, no matter how high the social costs and no matter whether the damage is irreversible [7].

The influence of CSR issues on financial performance has been an intensively discussed topic for many years. However, reporting on CSR activities remains voluntary. Several authors argue that the existence of CSR accounting standards could be beneficial for the economy and society because it would improve transparency and accountability regarding the consequences of corporate activities for investors. However, the existence of such standards could also have negative effects because the standards could increase uncertainty and encourage managers to reduce transparency by promoting a desire to increase secrecy about possible negative CSR impacts. Therefore, although it is increasingly important that companies disclose information about its CSR activities, this disclosure process has been made in addition to the disclosures in financial reports or in CSR/ sustainability reports.

Corporate sustainability reporting goes beyond CSR reporting and is characterized by the extension and progression from earlier forms of corporate reporting to include matters of an organization’s environmental policies and impacts (e.g., resource and energy use, waste flows) and its social policies and impacts (e.g., health and safety of employees, impacts on local communities, charitable giving) [9]. The reporting frameworks that have grown up around reporting practices have entrenched these developments. For example, the Global Reporting Initiative (GRI) aimed at extending the financial accounting framework to include nonfinancial reporting to a wider range of stakeholders [9].

In its current format, reporting on CSR consists of some combination of communication on social, environmental, and economic issues related to the organization doing the reporting. This communication might be in a standalone report or be part of an annual report, inside or outside of the audited financial statements or inside or outside of management discussion and analysis [9].

CSR reporting is associated more with public corporations because it is there that it has a major influence, but CSR reporting is also carried out by private businesses, governments, nongovernmental organizations (NGOs), not-for-profits, and even family businesses.

According to Buhr, Gray, and Milne [9], CSR reporting can be analyzed chronologically by examining its threads: employee reporting, social reporting, environmental reporting, and, more recently, a mix of different forms of reporting.

Employee reporting is characterized by first reporting on issues such as community development and worker safety. Employee reporting was one aspect of social reporting in the 1960s and 1970s. By the end of the 1970s, social accounting was on the wane [9]. Only in the late 1980s and 1990s did social reporting lead to environmental reporting. In the main, the social was absorbed into background information, and the environment has emerged as something fresh and new [9]. Companies started to provide environmental information in their annual reports, and a few of them began to voluntarily produce standalone environmental reports. Over time certain types of information became mandatory. In fact, environmental reporting blossomed at the same time the Brundtland Report was issued. By 2000, companies started to produce reports in which environmental, economic, and social aspects of corporate performance were included. This linkage is sometimes referred to as triple-bottom-line reporting.

However, despite the developments in CSR reporting, it remains voluntary and usually unregulated. There is no standardized terminology that can be used unambiguously to interpret report content or reporting developments. While environmental reports tend to consider selected elements of an organization’s performance and social reports comprise some aspects of their employee and community interactions, the concept of the triple bottom line does little more than add a largely underspecified economic dimension to this mix [9]. But two developments overcome these shortcomings of CSR reporting: Global Reporting Initiative (GRI) and the Integrated Reporting (<IR>).

2.6.2Integrated reporting

An attempt to merge sustainability reporting with financial reporting constitutes the basis of formation of the International Integrated Reporting Council (IIRC). The IIRC was founded upon the initiative of two leading organizations in the field of accounting for sustainability: the Prince’s Accounting for Sustainability Project (A4S) and the GRI [16].

The formation of the IIRC in 2010 was a major international event that drew upon the support of a considerable array of big names from the worlds of accounting and reporting [9].

IIRC is a global coalition of regulators, investors, companies, standard setters, the accounting profession, and NGOs. Its mission is to establish integrated reporting and thinking within mainstream business practice as the norm in the public and private sectors [17].

In 2011 the publication Towards Integrated Reporting: Communicating Value in the 21st Century was published; it set out the shape that future reporting might take. In this publication, IIRC set out in broad terms what it proposed to do and proposed an answer to the question of what integrated reporting is (IIRC 2011 cited in [16, p. 2]):

Integrated reporting brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how an organization demonstrates stewardship and how it creates and sustains value.

The period 2014–2017 is considered the breakthrough phase in the sense that it represents the move from the creation of the International <IR> Framework and market testing to the development and early adoption by reporting organizations around the world. The IIRC’s objectivefor this phase was to achieve ameaningful shift toward early adoption of the International <IR> Framework [17].

According to IIRC, <IR> is 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. 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 in the short, medium, and long terms [17].

<IR> was created to enhance accountability, stewardship, and trust, as well as to harness the information flow and transparency of business that technology has brought to the modern world. Its advocates say that <IR> represents an evolution of corporate reporting, with a focus on conciseness, strategic relevance, and future orientation, that improves the quality of information contained in final reports. It is intended that <IR> will make the reporting process itself more productive, resulting in tangible benefits because <IR> requires and brings about integrated thinking, enabling a better understanding of the factors that materially affect an organization’s ability to create value over time. Its creators believe it can lead to behavioral changes and improvements in performance throughout an organization.

<IR> was created for organizations that want to embrace integrated thinking and to advance their corporate reporting. Businesses have reported breakthroughs in understanding value creation, greater collaboration within their teams, more informed decision-making, and positive impacts on stakeholder relations.

The International <IR> Framework establishes the Guiding Principles and Content Elements that govern the overall content of an integrated report and explains the fundamental concepts that underpin them.

An integrated report should include a statement from those charged with governance that includes an acknowledgment of their responsibility to ensure the integrity of the integrated report, an acknowledgment that they have applied their collective mind to the preparation and presentation of the integrated report, their opinion or conclusion about whether the integrated report is presented in accordance with this framework, or, if it does not include such a statement, it should explain what role those charged with governance played in its preparation and presentation, what steps are being taken to include such a statement in future reports, and the timeframe for doing so, which should be no later than the organization’s third integrated report that references this framework [17].

<IR> aims to explain how an organization creates value over time. Value is not created by or within an organization alone. It is influenced by the external environment, created through relationships with stakeholders, and dependent on various resources. <IR> reflects a set of fundamental concepts for understanding the framework.

One of the innovations introduced by <IR> is the concept of the stock and flow of capital. The framework includes six types of capital: financial, manufactured, intellectual, human, social and relationship, and natural capital.

Financial capital is the pool of funds that are available to an organization for use in the production of goods or the provision of services and obtained through financing, such as debt, equity, or grants, or generated through operations or investments.

Manufactured capital includes physical objects that are available to an organization for use in the production of goods or the provision of services.

Intellectual capital is the organizational, knowledge-based intangibles, including intellectual property, such as patents, copyrights, software, rights, and licenses to so-called organizational capital such as tacit knowledge, systems, procedures, and protocols.

Human capital is people’s competencies, capabilities, and experience, as well as their motivations to innovate, including their alignment with and support for an organization’s governance framework, risk management approach, and ethical values; ability to understand, develop, and implement the organization’s strategy; and loyalties and motivations for improving processes, goods, and services, including their ability to lead, manage, and collaborate.

Social and relationship capital consists of the institutions and relationships within and between communities, groups of stakeholders, and other networks and the ability to share information to enhance individual and collective well-being. Social and relationship capital includes shared norms, common values and behaviors, key stakeholder relationships, and the trust and willingness to engage that an organization has developed and strives to build and protect with external stakeholders, intangibles associated with the brand and reputation that the organization has developed, and an organization’s social license to operate.

Natural capital is all renewable and nonrenewable environmental resources and processes that provide goods or services that support the past, current, or future prosperity of an organization. It includes air, water, land, minerals, and forests, as well as biodiversity and ecosystem health.

According to the IIRC [17], not all types of capital are equally relevant or applicable to all organizations. Whilemost organizations interact with all forms of capital to some extent, these interactions might be relatively minor or so indirect that they are not sufficiently important to include in an integrated report.

Although these concepts of capital are considered fundamental for the implementation of the <IR>, the IIRC has been conducting consultations with all components of an organization that adopt the framework, and one of the greatest difficulties that has arisen is the different notions of capital, because the concepts are interrelated and it is not easy for corporations to identify them.

<IR> aims to report on how the corporation creates value. Figure 2.1 depicts the value creation process as understood within the framework.

The external environment, including economic conditions, technological change, societal issues, and environmental challenges, sets the context within which an organization operates. Those charged with governance are responsible for creating an appropriate oversight structure to support the ability of the organization to create value.

At the core of the organization is its business model, which draws on various types of capital as inputs and, through its business activities, converts them to outputs (products, services, byproducts, and waste). The organization’s activities and its outputs lead to outcomes in terms of effects on capital. The capacity of the business model to adapt to changes (e.g., in the availability, quality, and affordability of inputs) can affect the organization’s longer-term viability. Once again, from the IIRC’s consulting process, one of the difficulties pointed out is the difference between outcomes and outputs because its difference is not perceived.

Business activities include the planning, design, and manufacture of products or the deployment of specialized skills and knowledge in the provision of services. Encouraging a culture of innovation is often a key business activity in terms of generating new products and services that anticipate customer demand, introducing efficiencies and better use of technology, substituting inputs to minimize adverse social or environmental effects, and finding alternative uses for outputs. Outcomes are the internal and external consequences (positive and negative) of capital as a result of an organization’s business activities and outputs.

Continuous monitoring and analysis of the external environment in the context of the organization’s mission and vision identifies risks and opportunities relevant to the organization, its strategy, and its business model. The organization’s strategy identifies how it intends to mitigate or manage risks and maximize opportunities. It sets out strategic objectives and strategies to achieve them, which are implemented through resource allocation plans. The organization needs information about its performance,which involves setting up measurement and monitoring systems to provide information for decision-making.

Finally, <IR> considers that the value creation process is dynamic in the sense that it is necessary to review regularly each component and its interactions with other components. An integrated report includes eight content elements: (1) organizational and external environment overview, (2) governance, (3) business model, (4) risks and opportunities, (5) strategy and resource allocation, (6) performance, (7) outlook, and (8) the basis of preparation and presentation of the integrated report. These content elements are fundamentally linked to each other and are not mutually exclusive.

However, Flower [16] claims that the IIRC has been a victim of “regulatory capture” since, in the framework, the IIRC has abandoned concepts like sustainability accounting since the IIRC’s concept of value is “value for investors” and not “value for society” and the IIRC places no obligation on firms to report harm inflicted on entities outside the firm(such as the environment) where there is no subsequent impact on the firm. Initially, the IIRC proposed that the integrated report would be an organization’s primary report, replacing rather than adding to existing requirements. This is the big challenge for the future: to see if there will be only a report in which companies report to society and not mainly to shareholders.

2.7Final remarks

A long-term view of sustainability requires the integration of community involvement, stakeholder identification, interinstitutional collaboration, and communication [10]. This communication can be carried out using different communication channels, but every institution must communicate how it is meeting its CSR. However, regardless of the form of reporting, it is always driven by the immediate and strategic objectives of the corporation [9]. What companies report hides the motivation, their calculative purpose, and a message.What is produced is provided, at least in part, in response to various pressures, expectations, and social change and how the corporation interprets and prioritizes these [9]. In turn, with the act of reporting, corporations contribute to public discourse and serve to shape the public opinion to which they are responding [9]. The very act of providing accounts has the potential to change behavior. The process of reporting should serve to change management strategies and information systems and, in turn, lead to changes in management philosophy and practices [9].

Accountability is an essential component of civilized society, and sustainability is a matter of the supreme importance of the world, but past experience has yielded little fruit. Producing systematized and genuine accounts of the social and environmental impacts of corporations is not prohibitively expensive and does not need to necessary directly affect corporate behavior in any substantive way [9].

Knowledge revision

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Answers to review questions