Professor George Serafeim, Associate Professor of Business Administration, Harvard Business School

Key findings

  • More firms are undertaking elements of Integrated Reporting (IR) but may not call it IR.
  • Firms practicing IR tend to have dedicated, long-term oriented shareholders.
  • Carrying out IR may lead to more long-term investors holding shares of the firm, but having long-term shareholders does not lead to firms practicing IR.
  • An activist shareholder base of dedicated investors may lead to more IR.

“A myopic view of driving shareholder wealth at the expense of everything else will not create a company that is built to last. You need to attract a shareholder base that supports your strategy - not the other way around. We actively seek one that is aligned with our longer-term strategy.”

Paul Polman, CEO, Unilever

In another well-received keynote presentation, George Serafeim discussed the evolution of Integrated Reporting (IR), as well as recent research on how IR identifies value creation within the firm and attracts long-term investors. Approximately 7,000 companies are issuing sustainability reports, although nearly all are issued separately from financial reports, and typically lag behind financial reporting by six to nine months. With no standardised construct, the relevance, reliability and timeliness of sustainability data reporting are a problem. To overcome many of these challenges IR has emerged as an innovative approach that combines sustainability and financial reporting into one framework.

George Serafeim

Approximately 600 companies are issuing self-labelled integrated reports, whereas 100 are using the International Integrated Reporting Council’s (IIRC’s) framework that identifies six forms of capital instrumental in creating value within a firm: financial, manufactured, intellectual, human, social and relationship, and natural. Further research has shown a link between reporting capital-specific information and having a long-term oriented shareholder base.

Serafeim’s discussion draws from his recent paper, Integrated Reporting and Investor Clientele, which looks at the relationship between firms that practice Integrated Reporting (IR) and their investor base. Firms practising IR hold the underlying belief a company’s environmental, social and corporate governance performance provides better insight into future results than financial data since financial data are ‘backward looking.’ Prior research has shown the type of investors owning shares can impact management decisions - the more long-term oriented the investor, the less likely to encourage corporate managers’ shortterm behavior, which is known to block business transition to sustainability.


Serafeim uses IR scores created by Thompson Reuters ASSET4 for a sample of over 1,000 US firms from 2002 to 2010, as well as an alternate IR score provided by Sustainable Asset Management (SAM) to test the robustness of the ASSET4 IR score. ASSET4’s IR score is a composite index of disclosure scores.

Serafeim first tests the strength of the relationship between firms practicing IR and the long-term shareholder base. He then controls for other factors that are known to be associated with investor base, such as firm size, leverage, earnings yield, equity beta, etc. A further test is conducted to determine the causal effects – whether practicing IR leads to more long-term investors.


The influence on the level of association of IR and the investor base appears to be much stronger for:

  • Firms with growth opportunities – information about long-term business prospects becomes more critical.
  • Firms that are not family controlled – family-owned firms have a long-term orientation therefore IR is less likely to be a signal.
  • “Sin” industries, e.g. alcohol, tobacco, firearms etc. – the potential penalties and regulation are disruptive to the business model.

The level of influence appears to be weaker for firms whose past RI practice is erratic because of the lack of commitment to consistent disclosure, which pushes away longterm investors.


Long-term investors are attracted to firms that practice IR and they tend to be more loyal. The IIRC’s IR Framework is relatively new, and more work needs to be done to identify which parts of the Framework are attracting longterm investors in particular. Serafeims’ study does not evaluate whether IR helps investors make better investment decisions. The question remains whether, and how, investors are making capital allocations as a result of IR.

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    RI Quarterly Vol. 5: Highlights from the PRI Academic Network Conference 2014

    November 2014