**2. Background review and hypotheses presented**

#### **2.1 Integrated Reporting**

In recent years, we have seen a growing trend in companies to consider multidimensional reporting that reflects the different elements involved in the development of business activity [29]. These reports integrate social, environmental, financial, and corporate governance information into a single document, the most widespread of which is the so-called integrated report, which aims to provide a synthesised and holistic view of organisations and their actions [17, 30].

In 2010, the International Integrated Reporting Council (IIRC) was formed with the participation of the main professional bodies and global accounting regulators - International Accounting Standards Board (IASB), Financial Accounting Standards Board (FASB), International Federation of Accountants (IFAC), and International Organization of Securities Commissions (IOSCO)- and other public bodies, the "Big Four" audit companies (Deloitte, EY, KPMG and PwC), leading multinationals, and representatives of institutions promoting social and environmental accounting [31]. The IIRC published the conceptual framework for integrated reporting, identifying a set of fundamental concepts and basic principles and contents for integrating sustainability into corporate objectives and reports [18, 32, 33].

Integrated reporting is based on two basic ideas. First, that a company's results involve the participation of resources of a varied nature, some of which are internal, and so controlled or owned by the company, and others that are external to the company, such as natural resources (water, air, land, flora) or those generated by society (social cohesion, effective governments, infrastructures, educational systems). Both types of resource are present in value creation [17, 31, 34]. These

elements have to be considered in an integrated report to the extent that the company is accountable for the management of the resources used.

The second idea refers to sustainability. Value creation is not only to be understood in a financial sense; it also implies that there is a balance between the variations experienced by the various capitals, both internal and external, in the development of the business activity. The decreases in some of the capitals, mainly the external ones, and should be properly justified. This leads to the need for a reporting model that goes beyond the financial model and comprehensively considers the resources that allow the creation of value. Such a report can be also used as a management tool.

The analysis of sustainability requires combined consideration of the ecological, economic, and social effects that occur in the development of business activity and that can affect the availability of resources in the future. It refers to the responsibility of organisations to integrate economic, environmental, and social aspects into operations and business strategy [21] to assure the viability of the enterprise in the medium and long term [26, 35, 36]. It is assumed that there are relationships between all these elements that companies use and that it is necessary to ensure that they are real. Therefore, these dimensions should not be considered in isolation but should take into account their synergies and interrelations [19], which lead to medium and long term value creation [18, 32]. The underlying idea is that the combined effect of the different capitals is greater than the individual contribution of each of them. This leads to the idea that there must be a relationship between these capitals, which can and should be analysed prior to the study of their contribution to value creation.

#### **2.2 Theoretical framework**

In relation to CSR disclosure, several theoretical frameworks have been used [37, 38]. The most widely used of these are: institutional theory, which is appropriate when it is necessary to analyse the incidence of normative, institutional, and cultural contexts, etc. [39, 40]; the legitimacy theory, which is based on the existence of a social contract or licence to operate between companies and society [38, 41]; and stakeholder theory, which states that the responsibilities of companies towards society have significantly expanded [42]. Stakeholder theory is the most used, useful, and dominant theory to explain sustainability practices and is applicable in the context of this research [43]. The non-financial aspect included in integrated reporting involves consideration of the participation of different resources and stakeholders in value creation and sustainability [30]. Integrated reporting requires CSR to be part of the corporate and core business strategy. According to stakeholder theory, suppliers of factors understood in a broad sense, i.e. the five types of capital indicated above, are involved and associated with the organisation and cooperate to ensure the survival and continuity of the firm [31]. An integrated report should respond to the needs and interests of key stakeholders (investors, consumers, employees, suppliers and community) [18].

The role of companies and their commitments to society, employees, other stakeholders, and the environment is changing [44, 45]. Stakeholder theory requires linking the behaviour of a company with the effects on its stakeholders. In this context, the company must take into account the stakeholders' interests in products, behaviours, and programs developed by the entity. Stakeholders are an essential element in the success or failure of an entity [46]. An integrated report should respond to the interests of the groups involved and to some extent implies the application of accountability for the use of financial and non-financial resources, such as intellectual, social or relational capitals.

Stakeholder theory requires that companies balance the legitimate but sometimes conflicting interests of stakeholders [46, 47]. This requires considering their

#### *The Desirability of a Future Integrated Reporting in the Study of Social and Innovative Practices DOI: http://dx.doi.org/10.5772/intechopen.98670*

management and providing them with information [46]. A company's future success is linked to its consideration of and response to stakeholder expectations [48, 49].

Companies have to manage the stakeholders that directly or indirectly collaborate with the entity to achieve its objectives [45, 50]. This aspect of stakeholder theory fits into the framework of integrated reporting. Stakeholder theory has been widely considered in the literature as a solid justification for both social and environmental disclosure practices and for corporate governance mechanisms. In this sense, it is also applicable in the combined consideration of all these elements in a single report [26].

#### **2.3 The orientation towards stakeholders and innovation**

Although stakeholder theory is widely accepted in relation to CSR and innovation, most research focuses on competitiveness, obtaining competitive advantages, [5] and analysing the effects of programs on performance indicators [51, 52]. Emphasis has been placed on the effect of these practices on the market or investors. However, in the last few years, we have seen the model evolve towards a broader vision, where CSR and innovative practices could generate value beyond economic and commercial benefits [5].

Recent literature states that CSR could be oriented towards the search for value creation in terms of innovation for the company and society [5, 6]. Some of this research shows that CSR drives innovation in response to stakeholder demands [14, 15]. These works have focused on a more ethical vision of the relationship between CSR and innovation. Innovation in itself can generate social benefits, such as the generation of more economic products, the creation of new jobs [53], and the development of more sustainable business models [11, 54]. In this sense, entities could establish innovative practices that respond to the demands and expectations of stakeholders to ensure the creation of value.

Stakeholders often have unused or untapped knowledge that complements a company's internal knowledge and is valuable in achieving the goal of sustainable value creation [12]. The importance given to stakeholders in the elaboration of CSR programs is evidenced by entities' establishment of relational networks and new channels of communication to obtain information about stakeholder demands, expectations, and perceptions. Attention to suggestions made by environmental agencies, research institutes, community, consumers, employees, and investors and, where appropriate, integration into CSR programs can help strengthen stakeholder relations. Engaging with stakeholders allows companies to identify innovation opportunities [55]. The active participation of stakeholders helps in the detection stage and favours efficiency in the development of new proposals avoiding the development of ideas that are not in demand in the market. Subsequently, the consideration of different interests in management makes it possible to create situations of mutual benefit for companies and society [3, 56]. The interests of the different stakeholders can be aligned with the concept of shared value, the company survives in the market through innovation and the companies meet different needs of its stakeholders. The concept of shared value underlies the integrated report.

According to the above, there is a positive relationship between orientation to stakeholders and the development of innovative practices. As a result of companies' focus on stakeholders in CSR programs, CSR is expected to have a greater impact on innovation. The following hypotheses are proposed:

Hypothesis 1. A company's orientation towards stakeholders encourages innovation.

Hypothesis 2. A company's stakeholder orientation positively moderates the effect of CSR on innovation.
