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Making Integrated Reporting A Reality
The document discusses the progress and positioning of integrated reporting (<ir>), highlighting developments by the International Integrated Reporting Council (IIRC) and the importance of integrated thinking in value creation. It outlines the benefits of <ir>, both internally for organizations and externally in communicating value, while offering practical implementation tips and resources for successful adoption. The document emphasizes that <ir> is an ongoing journey, requiring an organizational shift towards governance and management for effective integration.
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Making Integrated Reporting A Reality
- 1. Making Integrated Reporting aReality Quito, Equator Stathis Gould, Head of Professional Accountants in Business, IFAC May 5, 2015
- 2. Agenda • The positioningof <IR> • Developments at IIRC • Why Integrated Reporting – a recap • Implementing <IR> - success factors • Resources
- 3. strategy, governance, performance, prospectsFinancial reporting Other reporting concisecommunication about value The Positioning of <IR>
- 4. Developments at theIIRC • IIRC’s strength as a multi-stakeholder market-led initiative • New strategy based on a breakthrough phase 2014-17 – Establish <IR> within mainstream business practice in the private and public sectors • Business Network launched in September 2014. Need greater representation from Latin America • Global momentum led by countries like Brazil, Japan, Malaysia, Singapore, South Africa • For more information about the network contact businessnetwork@theiirc.org
- 5. Other Key Developments •<IR> Networks – Technology – Sector specific e.g., public sector, and banking – Investor – In development – a network for Professional accountancy organizations (PAOs) • The Corporate Reporting Dialogue – promote greater understanding of reporting frameworks and standards • Training – working toward creating a high-level syllabus for training providers
- 6. Why Integrated Reporting– a Recap • Internal benefit: helps organizations create value • Evidenced by the research of the organizations participating in the IIRC’s Pilot Programme and captured in Realizing the Benefits, The Impact of Integrated Reporting • External benefit: tell the value creation story in a succinct way • Integrated thinking is the foundation integrated thinking integrated Reporting integrated report
- 7. Implementing <IR> -success factors • Communicating versus complying • Notion of value creation lies at the heart of <IR> • <IR> reflects the relevant and material matters the board of directors takes in account in its decision making. Executive team and board need – Clear understanding of what <IR> is – Agreement on objectives, governance/oversight & process – To understand gaps, such as information gaps on each key capital collected and used by management • Deciding on the approach to assurance early on
- 8. Implementing <IR> -practical tips • <IR> is a journey; it will take more than one reporting cycle • <IR> should not be seen as just additional reporting. Change to governance, management and operations will be needed • Don’t think of the <IR> Framework as a list of requirements, tell your own, unique, value creation story • You are probably doing some/a lot of this already. Build on what you have in place
- 9. Resources • IIRC webpage:www.theiirc.org - Examples database - Receive the newsletter - Use the resources • IFAC Global Knowledge Gateway: http://www.ifac.org/global-knowledge-gateway - News, views, resources, thought leadership - Access global resources - Learn about emerging areas - Exchange views, make recommendations, share information and resources <IR> Examples Database
- 10. Specific Resources • CIMA,Using <IR> to create value and effectively tell the full story • IRC of South Africa, Starter’s Guide • Deloitte: Director’s guide
Editor's Notes
- #4 <IR> is consistent with developments in financial and other reporting, but an integrated report also differs from other reports and communications in a number of ways. In particular, it focuses on the ability of an organization to create value in the short, medium and long term, and in so doing it: is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term. has a combined emphasis on conciseness, strategic focus and future orientation, the connectivity of information, and the capitals and their interdependencies emphasizes the importance of integrated thinking within the organization.
- #5 The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. Such a multi-stakeholder platform is an important part of the IIRC’s strength. Together, this coalition shares the view that communication about value creation should be the next step in the evolution of corporate reporting. The International Integrated Reporting Framework has been developed to meet this need and provide a foundation for the future. The IIRC is chaired by Professor Mervyn King, and Paul Druckman is Chief Executive Officer. IIRC’s strategic Objective for the Breakthrough Phase is to achieve a meaningful shift towards early adoption of the International <IR> Framework. The <IR> Business Network launched in September 2014 for organizations committed to the adoption of <IR>. These organizations, who are embracing integrated thinking and driving innovation in reporting, will be at the forefront of this evolution in corporate reporting. Previously, the IIRC Pilot Programme underpinned the development of the International <IR> Framework. The group of organizations participating in the IIRC Pilot Programme contributed to the development of the Framework, and were global leadership in this emerging field of corporate reporting. It was made up of over 100 businesses and over 35 investors in the Investor Network. The <IR> Brazilian Network is thriving with 320 participants from over 90 organizations involved. Itau Unibanco and BNDES of Brazil are involved in the Business Network. In April 2014, Brazilian Stock Exchange BM&FBOVESPA backed <IR> by encouraging listed companies to produce integrated reports. BM&FBOVESPA recommended to listed businesses that they adopt the “Report or Explain” principle by either reporting on their non-financial impacts, or explaining why they have not done so. Momentum high in some countries, not so much others
- #6 The IIRC runs programmes for organizations that pioneer the journey towards Integrated Reporting. A number of <IR> networks have been launched. Plans for a PAO network being put in place and facilitated by IFAC. We will be inviting all PAOs to participate in a PAO <IR> network to: Support the exchange of ideas, knowledge, experiences, and resources within the global accountancy profession Facilitate the input of the accountancy profession into the IIRC, and provide updates on the development of <IR> in different jurisdictions Coordinate IFAC and PAO engagement with key stakeholders. The CRD has developed an online mapping tool to show the links between participants’ reporting initiatives. The landscape map provides a snapshot of corporate reporting initiatives and is a common reference point for demonstrating alignment through the lens of Integrated Reporting. It will be released next month. In response to calls from businesses, the IIRC is looking to work with developers and training providers to create a high-level syllabus for professional development programmes that can be tailored to meet market needs around the world The IIRC working with experts to create a high-level syllabus that will be offered to existing training providers for them to embed in their programmes. This will ensure consistent global implementation of <IR>
- #7 <IR> is more than a reporting framework as it helps a company create value by better understanding and connecting the disparate sources and drivers of long-term value to enable better strategy formulation, decision making and implementation through their business model. The research of the organizations participating in the IIRC’s Pilot Programme that ran for 3 years, captured in Realizing the Benefits, The Impact of Integrated Reporting, showed that: 71% of respondents experienced strategic benefits from implementing <IR>, the most important being a change in conversations between the board and management 79% reported improvements in management information and decision making, and 96% experienced a positive impact from connecting departments and broadening perspectives Of those organizations that have already published an integrated report, 79% have seen a benefit to their board of better understanding how the organization creates value. As a result of their integrated reporting, a majority of organizations changed their thinking about their business model and made changes to their strategy, and resource allocation decisions. From a reporting perspective, <IR> helps tell the value creation story in a succinct way, and can provide an umbrella under which other reporting requirements and existing information can be brought together. Ultimately, <IR> supports the effective functioning of market economies by enabling providers of financial capital and other stakeholders to understand how an organization’s strategy, governance, business model, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term. This understanding enables providers of financial capital to better allocate financial capital, and also other stakeholders to allocate their capital, such as people deciding where to work, and suppliers or potential strategic partners with which organizations to work. The foundation of <IR> integrated thinking: The active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects. Integrated thinking leads to integrated decision-making and actions that consider the creation of value over the short, medium and long term. Integrated Reporting <IR> is a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation. The Integrated report is an output which is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.
- #8 Communicating takes more than mindless compliance with laws and regulations. In seeking efficient and effective business reporting processes, companies need to focus on bringing together various elements of reporting and disclosure, so that compliance requirements are met while at the same time providing a useful insight into an organization’s capacity to create and preserve value over time. Value creation is key: Understanding and articulating the connections between value created for organizations and value created for others, particularly for publicly listed companies. Providers of financial capital are interested in the value an organization creates for itself. They are also interested in the value an organization creates for others when it affects the ability of the organization to create value for itself, or relates to a stated objective of the organization (e.g., an explicit social purpose) that affects their assessments. The ability of an organization to create value for itself is linked to the value it creates for others. This happens through a wide range of activities, interactions, and relationships in addition to those, such as sales to customers, that are directly associated with changes in financial capital. These include, for example, the effects of the organization’s business activities and outputs on customer satisfaction, suppliers’ willingness to trade with the organization and the terms and conditions upon which they do so, the initiatives that business partners agree to undertake with the organization, the organization’s reputation, conditions imposed on the organization’s social licence to operate, and the imposition of supply chain conditions or legal requirements. When these interactions, activities, and relationships are material to the organization’s ability to create value for itself, they are included in the integrated report. <IR> should reflect the relevant and material matters the board of directors takes in account in its decision making – matters related to an organization’s strategy, governance, business model, performance and prospects and that have the potential to substantively affect the organization’s ability to create value over time in relation to one or more of the capitals it uses or affects. Understanding and communicating multiple and complex connections between different types of information Credibility arises from the governance and oversight applied to the reporting process. Applying the same governance and oversight process traditionally applied to financial reporting, which includes board oversight, an effective audit committee, and the involvement of professional accountants as preparers, and in providing internal assurance, contributes to reporting that is trusted and ultimately perceived as credible. This level of oversight and scrutiny is typically applied to information that is deemed relevant and material to an organization and its providers of financial capital. Internal and external assurance provide enhanced confidence and credibility.