According to the International Integrated Reporting Council (IIRC), “Sustainability reporting is central to integrated reporting. Robust sustainability metrics are included in integrated reports, based on the International IR Framework” (“Global Reporting Initiative,” But is this really true? A skeptic might note that there is no “sustainability reporting” section within the IR Framework. In fact, the Framework’s famous octopus-shaped model (see Exhibit below) does not even mention the word “sustainability.” In addition, although the word “integrated” appears on 34 of the 37 pages of the IR guidance document, the word “sustainability” appears merely three times.


The IR Framework as a Model for an IIM System

How can sustainability be considered “central to integrated reporting” if it is barely mentioned in the guidance document? Indeed, why should anyone who cares about sustainability take the IR Framework seriously? Conversely, why should anyone who cares about integrated reporting take the field of sustainability seriously?

Management accountants hold the answers to these vexing questions. In order to generate integrated sets of data to fill integrated reports, the data must be stored within an integrated system of information management. After all, organizations can only report what their data systems can generate. If management accountants can store information in an integrated manner, they will be able to report the information in an integrated manner.

Viability and Value

What is the fundamental distinction between traditional financial accounting and integrated reporting? Traditional reports focus on reporting recent and current fiscal results, while integrated reports focus on the generation of long-term sustainable value. That is why the phrase “value creation over time” underlies the entire IR Framework, and why Mervyn King, the founder of the IIRC and the author of Chief Value Officer: Accountants Can Save the Planet, emphasizes value generation in his book.

Financial accountants prepare traditional reports by focusing on the financial position of an organization at a single point in time and the earnings and cash flows of the organization over a limited period of time. These historical periods may be as brief as twelve months, three months, or even one month.

Because integrated reports address the long-term viability of the enterprise, an accountant must draw upon a wide variety of qualitative and quantitative information in order to prepare relevant disclosures. Data from sources as disparate as sales demand analyses, internal control deviation reports, and capital expenditure projections must be amalgamated into an internally consistent information system. For example, long-term demographic trends may need to be incorporated into the sales demand and product development forecasts of retail and healthcare organizations. In addition, future climate trends may become part and parcel of the supply chain expenditure plans of agricultural, mining, and shipping organizations.

The phrase “integrated reporting” implies the need to integrate these disparate data elements into a unified data platform. And, in a colloquial sense, “sustainable” means “viable in the long term.” Thus, if an enterprise wishes to generate sustainable value over the long term, it will need to develop an Integrated Information Management (IIM) system with extremely diverse sets of quantitative and qualitative data. These are the tools of management accountants, not financial accountants; they are the professionals who must fuse financial and nonfinancial data.

Designing a Schematic

Consider a management accountant who needs to address this challenge. The accountant might begin with a process-oriented operating plan of the company’s business model. After all, any enterprise must ensure that it can procure and maintain sufficient amounts of material, labor, and other inputs during the production of its outputs. Management accountants design supply chain, process flow, sales, variance, and other analyses to meet these data needs.

The next consideration is the strategic data elements that help senior managers and executives govern the organization. For example, while engaged in a continuous quality improvement initiative to enhance the company’s reliance on more efficient equipment and more effective labor, a management accountant might need to revise resource allocation policies, outlook projection reports, and risk management functions. Once again, management accountants employ balanced scorecards, activity-based costing reports, flexible budgets, total quality management schedules, and enterprise resource planning controls to meet these needs.

Finally, there are the funding requirements budgets for each of the company’s major resource categories. Indeed, every enterprise must replenish its working capital, replace its depreciating assets, and develop and protect its intellectual capital. In addition, every organization must train its employees, nurture relationships with its government regulators and other external stakeholders, and support a healthy environment. Management accountants aggregate a wide array of “cost driver” data in order to produce such budgets, which must often be revised on a continuous basis.

How would a management accountant pull all of this information together and design the schematic plan that the CEO expects? It will require a model that incorporates information about inputs, business activities, outputs, resource allocation policies, outlook projections, risk functions, and various uses of capital, as well as integrates these disparate data elements into an integrated system of information.

The IR Framework is that model. It lists four operational data categories: inputs, activities, outputs, and outcomes. It lists five strategic data categories: mission, resource allocation, outlook, performance, and risks. It lists six investment data categories: financial, manufactured, intellectual, human, social and relationship, and natural. In other words, transforming the IR Framework’s perspective into one of data management creates a schematic for an IIM System.

Why didn’t the creators of the IR Framework explicitly identify the common tools of management accounting that must be employed for each data category? Apparently, the IIRC opted to follow a principles-based approach to designing the framework, presuming that management accountants would utilize their industry-specific proprietary knowledge to identify the analyses, guidelines, methods, statements, budgets, schedules, and programs that must produce the integrated data.

Answering the Three Questions

Returning to the three questions posed at the beginning of this article: How can sustainability be “central to integrated reporting” when the word does not even appear in the IR Framework or its guideline document? Because the objective of the framework, in its holistic entirety, is to support organizational efforts to develop sustainable value over the long term. Sustainability is not merely an element of the model; instead, it represents the very purpose of the model.

Why should anyone who cares about sustainability take integrated reporting seriously? Because anyone who cares deeply about environmental and social issues should want management accountants to embed relevant data sets into the information systems of business institutions. By persuading organizations to do so, they can ensure that executives and managers pay appropriate consideration to their concerns.

Finally, why should anyone who cares about integrated reporting take sustainability seriously? Admittedly, there are managers who believe that social and environmental considerations have little effect on the future viability of their organizations. Although such individuals may be inclined to pay little heed to sustainability-related data, they may still appreciate a holistic information system that integrates operational, strategic, and financial data elements.

Such a system, for example, may feature dashboard reports for use by distribution network managers that link sales projections with finished goods storage capacity metrics, as well as with scheduling systems that arrange for independent truckers to carry merchandise during surges in demand. When utilized in this manner, an IIM schematic may provide a helpful supplement (or substitute) for an enterprise resource management system.

By reporting data from an IIM system, a management accountant can produce metrics with a significant degree of inherent credibility.

What if an organization’s board of directors decides to respond to the requests of external stakeholders by requiring the issuance of sustainability reports to the public? Even a sustainability skeptic can rely on a management accountant to review each of the data elements of an IIM system to select the items that should be included in an integrated report.

Greenwashing and Ethics

By utilizing the IR Framework as a schematic diagram for an IIM system, management accountants can ensure that their organizations will be able to access the diverse data elements required to make complex decisions. In addition, when accountants receive directives to prepare environmental, social, and governance (ESG) sustainability reports for public issuance, they can likewise retrieve the relevant data to do so. Furthermore, by taking such an approach to information management, organizations can rebut the charge that sustainability reports are merely public relations vehicles.

Many critics assert that organizations “greenwash” their reputations by issuing superficial sustainability reports that contain disjointed scraps of unverified data. According to such critics, these frivolous reports always claim that business organizations are stalwart protectors of the natural environment, and thus hide their true behavior. By reporting data from an IIM system, however, a management accountant can produce metrics with a significant degree of inherent credibility. After all, if such information is integrated into the decision-making activities of an enterprise, it should be familiar to the internal and external auditors.

In other words, the IR Framework can help preserve the ethical reputation of firms that publish sustainability reports—and of the management accountants that produce the contents that are included therein—by ensuring that the sources of the data are an entity’s own IIM System.

Michael Kraten, PhD, CPA is an associate professor in the accountancy program at the Providence College School of Business in Providence, R.I. He is a member of The CPA Journal Editorial Board.