SEC Pushes-Pulls Back on Integrated ReportingPosted: September 10, 2012
The SEC can’t seem to make up its mind on integrated reporting. Their actions seem to both support and hinder the movement to integrated reporting. The support comes from the SEC’s recent de facto rule making on cyber security reporting. The SEC sent a series of letters to more than twenty companies telling them the SEC expects to see significant new disclosures on actual security breaches. There was no discussion in the SEC letters of “financially significant” breaches – just breaches.
The hindrance comes from the SEC rule making on conflict mineral reporting. By backing away from requiring the disclosure to be included in the 10-K, the SEC has relegated the new reporting to a separate – unintegrated – report. In fact it could be argued that as a result of not including it in a report with the same distribution requirements as the annual report, conflict mineral reporting is destined to be read by very few actual investors.
The point of integrated reporting is to combine all relevant information about a company into one report that shows how the financial and non-financial information relates to the overall success (or lack there of) of the enterprise. It’s possible that the SEC action on conflict minerals is as much a statement about the lack of relevance of such information to the success of the business as it is any statement about integrated reporting. But if that is the case, then it might make for some interesting discussions around two other pet disclosures of the sustainability/integrated reporting crowd.
The first is information on access to and use of fresh water. Much like cyber security is a critical business risk to certain technology firms, access to the necessary amounts of fresh water is just as critical to a series of other businesses. On the other hand, absent artificial government imposed limits, carbon emissions do not pass the same criticality test.
Are these recent SEC decisions a peek at the future regulation over integrated reporting? Is the SEC going to look at the direct relation to the success of a business of non-financial disclosures when deciding what is required and what is not in the future required integrated report? Or am I reading too much into isolated decisions? What do you think?