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13 September 2011 | Adam Leach

Companies need to change the way they report their performance to cater for increasingly globalised supply chains, a report claims. 

The International Integrated Reporting Committee (IIRC) has called for sweeping changes to be made to the way companies report on financial and sustainability results.

TowardsIntegrated Reporting: Communicating Value In The 21st Century, published yesterday, argued “globalisation and resulting interdependencies in economies and supply chains” has left reporting standards out of date.

The report cites the fact that in 2009, only 19 per cent of a company’s overall market value could be attributed directly to physical and financial assets - with factors such as potential growth and brand value contributing to the other 81 per cent - compared with 83 per cent in 1975.

In response, it calls for a new “integrated” approach, where financial reporting is linked to sustainability and future projections, so that suppliers, investors and stakeholders are given a clearer picture of a company’s “overall value”.

In an integrated report, companies must disclose information on how financial health, intellectual property, social responsibility and sustainability schemes are progressing, but more importantly how they relate to each other. So if a company launches a large-scale recycling initiative, it should indicate what the financial impact will be.

The IIRC said drawing together the various aspects that companies report on, such as sustainability, financial results and forward-looking statements, it will be quicker and easier for third parties to access the information they need while also setting it in a suitable context.

The organisation also said the new system would have a positive impact on supply chains. It will increase transparency, which will in turn boost trust and engagement throughout the supply chain. Closer ties between finance and sustainability should also improve risk management.

The IIRC is working with companies to trial integrated reporting from October.