Introduction to integrated reporting
Corporate reporting has traditionally focused on financial information, such as revenues, expenses, assets, and liabilities. These financial statements provide important insights into a company’s past performance and financial position. However, modern organizations create value through a much broader set of factors, including innovation, employee capabilities, environmental resources, and relationships with stakeholders. As businesses increasingly rely on intangible resources and long-term strategies, traditional financial reporting alone is often insufficient to explain how organizations create value, and a reporting approach known as integrated reporting has emerged to provide a more comprehensive view of corporate performance and strategy.
Current institutional framework of integrated reporting
Integrated reporting was originally developed by the International Integrated Reporting Council (IIRC), which issued the International <IR> framework to guide organizations in preparing integrated reports and communicating how value is created. Through a 2021 merger with the Sustainability Accounting Standards Board (SASB) and a 2022 consolidation into the IFRS Foundation, responsibility for this guidance now rests jointly with the ISSB and the IASB, who maintain it today as the Integrated reporting framework - a voluntary resource for connecting financial statements with sustainability-related disclosures.
Limitations of traditional corporate reporting
Historically, corporate reporting has evolved gradually as stakeholder information needs have expanded. Initially, financial statements served as the primary mechanism for communicating corporate performance. Over time, additional disclosures such as management commentary, governance reports, and footnotes were introduced to improve transparency.
Despite these developments, many stakeholders, including investors, continue to believe that traditional reporting does not fully explain the value creation process within organizations.
Several factors contribute to these limitations.
1. Increasing importance of intangible assets
Modern companies derive a large portion of their value from intangible assets such as:
- Intellectual property
- Technological capabilities
- Brand reputation
- Employee knowledge
- Organizational culture
For many companies, market value far exceeds the book value of tangible assets, reflecting value from intangible resources.
2. Incomplete information about long-term value creation
Traditional financial reports focus largely on historical financial performance. However, stakeholders are increasingly interested in understanding:
- How strategy affects future performance
- How companies manage risks and opportunities
- How environmental and social factors influence long-term sustainability
Financial statements alone do not provide sufficient information about these issues.
3. Separation of financial and sustainability reporting
In many organizations, sustainability reports and financial reports are produced separately. Sustainability reports may include environmental or social metrics, but they often lack a clear connection to the company’s strategy and financial performance.
This separation makes it difficult for stakeholders to understand how financial and nonfinancial factors interact to create value.
Emergence of integrated reporting
Integrated reporting was developed to address these shortcomings by providing a holistic view of organizational performance, combining financial and nonfinancial information into a single report that explains how various resources and activities contribute to value creation.
An integrated report therefore serves as a unified communication tool built around a defined set of content elements, including:
- Strategy
- Governance
- Performance
- Future outlook
within the broader context of the organization’s operating environment. These content elements, along with the six capitals, are covered in more depth in the next chapter.
Relationship between integrated thinking, integrated reporting, and the integrated report
Integrated reporting is closely linked to the concept of integrated thinking, defined above as the active consideration of the relationships between an organization’s operating and functional units and the capitals it uses or affects.
The relationship among these concepts can be summarized as follows.
| Concept | Description |
| Integrated thinking | Active consideration of the relationships between an organization’s operating and functional units and the capitals it uses or affects |
| Integrated reporting | Reporting process that communicates how value is created |
| Integrated report | Final report produced through the integrated reporting process |
Purpose of integrated reporting
The primary purpose of an integrated report is to explain to providers of financial capital how an organization creates, preserves, or erodes value over time. The report also benefits other stakeholders, such as employees, customers, suppliers, regulators, and communities.
Unlike traditional financial reporting, which focuses mainly on historical financial results, integrated reporting adds a forward-looking view to past performance and connects financial and nonfinancial factors to value creation over the short, medium, and long term.
More specifically, integrated reporting aims to:
- Explain how an organization’s strategy and business model create value
- Show the relationship between financial and nonfinancial performance
- Improve transparency for investors and other stakeholders
- Encourage long-term decision making
- Highlight key risks and opportunities
Through this approach, companies can communicate not only what their financial results are, but also how those results are generated and sustained over time.
Value creation as the central concept
At the heart of integrated reporting is the concept of value creation. Organizations create value by transforming various resources into goods and services that generate benefits for both the organization and its stakeholders.
These resources include financial, manufactured, intellectual, human, social and relationship, and natural resources.
Integrated reporting seeks to explain how these resources interact through the organization’s business model and strategy to generate value in the:
- Short term
- Medium term
- Long term
Understanding how value is created requires examining the resources used by the organization and the way they are transformed through business activities. These resources are described in integrated reporting as the six capitals, which are covered in the next chapter.
The relationship between integrated reporting and ESG
In recent years, environmental, social, and governance (ESG) issues - a set of criteria used by investors and other stakeholders to evaluate an organization’s environmental impact, social responsibility, and governance practices - have become increasingly important in corporate reporting. Investors, regulators, and other stakeholders increasingly expect organizations to disclose information about how they manage environmental risks, social responsibilities, and governance practices.
ESG reporting typically focuses on specific sustainability-related metrics and disclosures, such as carbon emissions, employee diversity, workplace safety, supply chain practices, or corporate governance structures.
Integrated reporting, however, has a broader objective. Rather than focusing only on sustainability metrics, integrated reporting explains how financial and nonfinancial factors combine to create value over time.
The relationship between the two approaches can be summarized as follows.
| Concept | Primary focus |
| ESG reporting | Disclosure of environmental, social, and governance metrics |
| Integrated reporting | Communication of how strategy, governance, and resources create value over time |