The accounting profession has a role to play in achieving a very important aspect of sustainability—being part of the fabric of our capital market systems and our economy. It’s not about the people in this room being convinced about the importance of sustainability. It’s about how we achieve the successes that we are all passionate about. The people in this room can, in fact, make a difference. But we have to have a vehicle that the economy—potentially regulators, certainly investors, all participants in our capital market systems—can rally around in a way that is efficient and effective and drives better information flow and better decision making.

The United States Is Making Progress

There are examples of our economy lagging behind in the world in certain areas. Sustainability is an example. Clearly, it got stigmatized and politicized here in the United States and it is viewed by some as about delivering messages when they are in trouble.

Fortunately, I do think that we have come a long way, and events such as this help us to move forward. But I am here to convince you that it’s not simply about sustainability: the way we address sustainability is by elevating sustainability to be on par with all of the capitals that affect our capital market system, so that the messaging and reporting can be seen in an integrated way, in a way that delivers the right type of messaging to investors and other stakeholder groups and also drives management thinking and change inside an organization.

Why is it that we have some difficulties from a U.S. perspective? I have probably spent more time thinking and being in meetings on this particular topic than anyone. We have an environment in the U.S. that we know is highly regulated. We know it’s highly litigious. We know it in many ways rewards short-termism. And I think that in fact creates some of our challenges.

We have a lot of great examples of the marketplace producing positive results. In the sustainability area, we have companies like Wal-Mart and Costco, who have demanded their suppliers be part of a sustainability reporting notion in order to get adequate shelf space for their products. And that type of market pull is a very significant and powerful driver to cause change.

But in spite of that, we still lag behind. How do we make progress, and what is this real integrated reporting aspect? If you look at how businesses should be managed—and therefore what businesses should be reporting about to their stakeholder groups—we can conclude sustainability is important. But there are other elements not presently part of the business reporting landscape that also need to be covered.

Traditionally, the information flow associated with that capital market system has revolved around the traditional elements of business information: financial information focused on tangible assets and financial assets, such as cash and investments. Today—different reports put these numbers at different places—about 80% of the value of the S&P 500 companies is actually captured in nontraditional financial assets. How does the reporting model change? My message here today is that integrated reporting—and integrated thinking, which actually comes before integrated reporting—is the vehicle in which that can occur.

Integrated Reporting

What is integrated reporting? It’s an external perspective of the key issues in the key six capitals—traditional capitals and new-thinking capitals that reflect what really drives a business—and a way of communicating it in a simpler fashion such that people can digest and understand the strategies driving a business and where value is being generated.

It’s an external force, and it is, just as sustainability, being embraced around the world much more aggressively than here in the United States. Integrated reporting was brought forward after various bodies and groups around the world had made attempts at changing the footprint of business reporting. Here in the United States, the AICPA has led many initiatives over a 20-year period to try to change the footprint of business reporting. And they ran into the same hurdles that I just described.

Integrated reporting, led by Mervyn King, became the notion of, “Let’s change the landscape on a global basis for all business and try to do it in a consistent way.” The IIRC [International Integrated Reporting Council] is a non-profit organization. It has a feedback group, a council made up of all types of different players in the system—people in the sustainability area, people in the governance area, people in accounting—who participate in the process.

The IIRC’s mission was to produce a framework that this reporting could actually look at. This framework was adopted in 2013, a very historic element. It envisions value creation and this broader notion of capitals six different ways: traditional financial capital, manufacturing capital, intellectual capital, human capital, social and relationship capital, and natural capital. Sustainability would fall into many of those—most directly into social and relationship and natural capital areas.

What integrated reporting does is elevate sustainability on par with traditional financial capital and manufacturing capital. Integrated reporting covers elements of sustainability reporting in its substance, but it does it in a way that sustainability reporting is measured and communicated in an integrated thinking context—one that is about how business drives its own value—and it does so with a focus on long-term value creation.

How does integrated thinking move this needle on sustainability? The notion is that leaders should try to connect the dots in their organization and not look at sustainability reporting or financial reporting being the cause of the day, but instead look at what drives value as a whole. Many companies obviously do this integrated thinking, but need to conceptualize it with an eye to ultimately reporting it to the public.

The official definition of integrated thinking is the active consideration of the relationships between an organization’s various operating and functional units and the capitals that the organization uses or affects—so “affects” obviously has an external component. Integrated thinking leads to integrated decision making and actions that consider the creation of value over the short, medium, and long term. Clearly, long-term thinking and long-term decision making is something that’s very critical to the sustainability of a business enterprise, and obviously sustainability, in an environmental sense, as well.

Integrated reporting applies principles and concepts that are focused on bringing greater cohesion and efficiency to the reporting process, and adopting integrated thinking is a way of breaking down silos in companies and reducing duplication. The intended result is more effective sustainable management of the business, as well as more transparent, decision-useful corporate reporting.

The world of business has changed from our traditional financial and manufacturing capital approaches. What we know from more than 100 years of history is that businesses are looked at primarily by that financial and capital measure. Integrated reporting is about looking at those things that really are part of the CEO and the board’s decision-making processes and reporting on them. Companies that adopt this approach stand to benefit from integrated thinking and integrated reporting with more sustainable business models and better access to capital. These benefits span the spectrum from small private companies to large public companies.


There is evidence in the marketplace of support. It takes leaders and companies who are committed to a new type of business reporting for this to be successful. For instance, we have something called the IR Business Network, and companies in the United States, such as PepsiCo, Prudential Financial, Edelman, JLL, the Clorox Company, are all active participants. GE just issued its first integrated report, with significant fanfare. In the first 24 hours of GE’s integrated report being issued, there were 2,400 downloads. For the entire prior year, there were 684 downloads of GE’s traditional financial information.

Companies that embrace this are seeing benefits. They’re seeing better strategic planning. They’re seeing more sustainable business models, and they are seeing better access to capital. The hedge fund organizations in this country and different types of investor groups can help drive it from that standpoint.

If we’re going to be successful in sustainable reporting, the key is not to view that as a silo, but to view that in the change management process of what businesses as a whole need to be reporting on. The vehicle that’s being adopted globally for that is integrated reporting.

Our mission is to help momentum be built here in the United States so that, like in the rest of the world, the totality of what drives business and what creates value and what’s important to humankind from a business perspective can be captured in a meaningful communication and thinking process called integrated reporting.

I do believe that we are on a journey here in the United States, and this is a very critical part of building momentum for that journey.

Barry C. Melancon, CPA, CGMA is the president and CEO of the American Institute of CPAs. He is also the chairman of the board of the International Integrated Reporting Council. The above is an edited transcript of his remarks at the conference.