Introduction to Integrated Reporting for IRO's Dec 2013

INTEGRATED REPORTING
THE FUTURE OF CORPORATE REPORTING IS HERE

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Strategic Communications for Corporations
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@eisenmandesign #IntegratedReporting

PRESENTERS

Jonathan Labrey
Communications Director
International Integrated Reporting Council (IIRC)

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Nina Eisenman
President and Creative Director
Eisenman Associates

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Does

An Annual Report
+ a Sustainability Report
= an Integrated Report ???



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INTEGRATED VS
ANNUAL + SUSTAINABILITY REPORTING

Many companies include some environmental,
social and governance (ESG) content in their
annual reports but that doesn’t make them
integrated reports



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ANNUAL REPORTS



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ANNUAL REPORT TO SHAREHOLDERS
Overview
•

Principal document used by most public companies to
disclose corporate information to their shareholders

•

A state-of-the-company report

•

Sometimes called the “Glossy” annual report

•

Must be sent to Shareholders prior to the annual meeting

•

Does NOT need to be ﬁled with the SEC

•

Many companies now replace traditional ﬁnancials
with the 10-K to create a “10-K wrap”

•

Online versions can range from PDFs
to video-enhanced micro-sites



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ANNUAL REPORT ON FORM 10-K
•

A comprehensive overview of a publicly traded company’s
business and financial condition

•

Includes audited financial statements

•

Must be filed with the SEC as per the
Securities Exchange Act of 1934

•

Companies can elect to send their
shareholders their Form 10-K in lieu of
an annual report to shareholders

•

Some limited environmental and other sustainability disclosure
requirements



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ANNUAL REPORTS
Typical content

Target stakeholders

•

CEO’s Letter to Shareholders

•

Shareholders, investors & analysts

•

Narrative content

•

Business partners & suppliers

•

At-a-Glance

•

Customers & consumers

•

Financial data & results of continuing
operations

•

Current & prospective employees

•

NGOs & the local community

•

Market segment info

•

New product plans

•

R&D activities



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SUSTAINABILITY REPORTS



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SUSTAINABILITY REPORTING
“Sustainability reporting encompasses an
organization’s economic, environmental and social
impacts with an eye toward meeting “the needs of
the present without compromising the ability of
future generations to meet their own needs.”
—The World Commission on Environment and Development, 1987

“Non-ﬁnancial reporting, also known as sustainability
reporting, is the practice of measuring, disclosing,
and being accountable to internal and external
stakeholders for organizational performance towards
the goal of sustainable development.”
—Global Reporting Initiative (GRI)



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SUSTAINABILITY REPORTING
PepsiCo ﬁrst included corporate responsibility content in their annual reports in
the late 90s. Over time that content expanded and evolved into stand-alone
sustainability reports.



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Overview

Target stakeholders

Environmental, social and corporate governance (ESG)

•

Local communities & NGOs

performance goals & results

•

Business partners & suppliers

•

Many follow the GRI Framework and include a GRI Index

•

Media

•

Outside assurance is “best-practice” but not required

•


•


•


•

“In 2013 over half (51%) of reporting
companies worldwide now include CR
information in their annual ﬁnancial
reports compared to only 20% in 2011
and 9% in 2008.”
—KPMG 2013 Survey of Corporate Responsibility Reporting



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Also called

Common formats

•

Corporate Social Responsibility Reports (CSR)

•

Hard copy summary report, limited print run

•

Corporate Citizenship Reports

•

PDF of full report (only available online)

•

Global Citizenship Reports

•

PDF of summary report

•

Browsable online version



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SUSTAINABILITY REPORTING: GRI
The Global Reporting Initiative (GRI) (globalreporting.org)
•

Established in 1997 to promote sustainability reporting for public & private organizations

•

“Sustainability Reporting Framework” helps companies navigate the reporting process

•

Sustainability Reporting Guidelines (latest version G4) is GRI’s “how to” guide

GRI’s VISION: A sustainable
global economy where
organizations manage their
economic, environmental,
social and governance
performance and impacts
responsibly, and
report transparently.


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76%

53%

of the S&P 500 had some
form of sustainability
reporting and 36%
referenced the Global
Reporting Initiative (GRI)
Framework in 2012.*

of all companies in
the S&P 500 Index
published 2012/2013
sustainability reports,
up dramatically from
about 20% in 2011.**

* IRRC Institutes’s “2013 Integrated Financial and Sustainability Reporting in the U.S.”
** G&A Institute’s “2012 Sustainability Reporting – Does it Matter?”



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SUSTAINABILITY REPORTING:
UN GLOBAL COMPACT
The United Nations Global Compact (UN Global Compact)
(unglobalcompact.org)
The UN Global Compact is a strategic policy initiative for businesses that are committed to
aligning their operations and strategies with ten universally accepted principles in the areas
of human rights, labour, environment and anti-corruption.

“The Global Corporate Sustainability Report 2013 reveals
that businesses around the world are beginning to take
sustainability more seriously. A look at the actions taken by
the nearly 8,000 companies from 140 countries
participating in the United Nations Global Compact tells a
promising story.”
– H.E. Ba n Ki-moon, UN Secretary-General



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SUSTAINABILITY REPORTING & INVESTORS

“10-Ks are filled with numbers and dollar signs. Sustainability
reports are filled with photos of smiling people in international
settings. I can’t use sustainability reports to conduct my
financial analysis of a company.”
—Research Analyst, Asset Management firm specializing in Socially Responsible Investing



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INTEGRATED REPORTING
<IR>



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<IR>: IIRC
The International Integrated Reporting Council
(theiirc.org)
•

A global coalition of regulators, investors, companies, standard setters,
the accounting profession and NGOs that promotes integrated reporting

•

Operating in 25 countries around the world

•

International <IR> Framework was released December 9, 2013



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<IR>: IIRC’S VISION

“Our long term vision is a world in which integrated management
and thinking are embedded within mainstream business practice
in the public and private sectors, facilitated by <IR> as a
corporate reporting norm. The cycle of integrated thinking and
reporting, resulting in efﬁcient and productive capital allocation,
will act as forces for ﬁnancial stability and sustainability.”
– The IIRC’s Vision Statement



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<IR>: WHAT IS IT?
“Integrated Reporting builds on the practice of ﬁnancial reporting and
ESG [sustainability] reporting. It equips companies to manage their
operations, brand and reputation strategically and to manage better any
risks that may compromise the long-term sustainability of the business.”
– Professor Mervyn King, Chairman, IIRC and Chairman for the King Committee on Corporate Governance

“An integrated report 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.”

“Integrated Reporting
emphasizes the
importance of
integrated thinking
within the organization.”

—The International Integrated Reporting Council



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<IR>: WHO ARE INTEGRATED REPORTS FOR?
“The primary purpose of an integrated report is
to explain to providers of ﬁnancial capital
how an organization creates value over time.”

Target stakeholders

“An integrated report beneﬁts all stakeholders
interested in an organization’s ability to
create value over time, including employees,
customers, suppliers, business partners,
local communities, legislators, regulators and
policy makers.”

•


•


•


•

Suppliers & business partners

•

Local communities

•

Non-government organizations (NGOs)

•

Legislators, regulators and policy makers

—The International Integrated Reporting Council



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INTEGRATED REPORTING: CONNECTIVITY
Connectivity
•

Various operational units contribute to the report

•

Connectivity not only in reporting but in the management of the business

•

Better risk management

•

Better understanding of where value is actually generated within the business

•

Unlocks efﬁciencies

“In a today’s fast changing environment, where expectation of
customers are changing much more rapidly, this concept of
being connected to all parts of the business, in having one
cohesive story and understanding of where value is generated
actually reduces those risks and enables a business to be far
more ﬂexible and responsive to the needs of its stakeholders.”
– Jonathan Labrey, Communications Director, IIRC


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INTEGRATED REPORTING: EXTERNALITIES
Externalities
•

Integrated reports measure and report on externalities

•

The business’ impact on the environment, society, local employee base, supply chain

•

The business’ role in society and if it is creating or depleting value

•

Reputation management

“The reputation of the business holds a lot of value,
and often it’s the strategic communication people who
are are the guardians of that reputation. If the business
is not on top of its impact, other people, NGOs, civil
society, will be —often in a much more negative way.
It’s far better for the business to be ahead of the story
and on top of its impact than allow others to do so.”



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INTEGRATED REPORTING: LONG TERMISM
Long Termism
•

More holistic and balanced view of the business

•

Business put in the context of society and the broader economy

•

Allows investors a long term view of the resilience of the business

“How is this business using the resource that are
available to it, to protect itself, to enhance value, to
manage resources including human resources,
intellectual resources, and natural resources, in order
to deliver value over the short, medium and long term.”



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INTEGRATED REPORTING: STRATEGY
Strategy
•

Integrated reporting is all about understanding and communicating the business’ strategy

•

All internal units aligned around a cohesive strategy

“This is key for communicators—integrated reporting is all about
understanding and communicating the strategy of the business and
making sure that all the different elements in the business are
connected to that strategy—that the reporting process is cohesive
and consistent with that strategy. That is a key differentiator between
integration reporting and other forms of reporting.”



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<IR> DRIVERS: INVESTORS
PRI— Principles for Responsible Investment
•

An international network of investors

•

More than 1,000 signatory firms world-wide

•

Represents assets of over $30 trillion or ~20% of the total value of global capital markets

•

Signatory firms consider how portfolio companies’ financial returns are impacted by their
environmental, social and corporate governance (ESG) policies

•

Supported by the United Nations

•

PRI’s Six Principles:
•

We will incorporate ESG issues into investment analysis and decision-making processes.

•

We will be active owners and incorporate ESG issues into our ownership policies and practices.

•

We will seek appropriate disclosure on ESG issues by the entities in which we invest.

•

We will promote acceptance and implementation of the Principles within the investment industry.

•

We will work together to enhance our effectiveness in implementing the Principles.

•

We will each report on our activities and progress towards implementing the Principles.



Growth of the PRI Initiative

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<IR> DRIVERS: INVESTORS
US SIF Foundation—The Forum for
Sustainable and Responsible Investment
•

Sustainable and responsible investing (SRI) accounted for 11.23% of all assets
under professional management in the US at year-end 2011

•

$3.74 trillion out of $33.3 trillion of investment assets is held by individuals,
institutions, investment companies or money managers that practice SRI strategies

•

Total net assets of mutual funds that consider ESG criteria doubled to
$641 billion from 2010 to 2011

•

More conventional investment ﬁrms are beginning to develop SRI divisions

*From the US SIF Foundation “Report on Sustainable and Responsible Investing Trends in the United States 2012”



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<IR> DRIVERS: EXCHANGES
The Sustainable Stock Exchange (SSE) Initiative (sseinitiative.org)
•

A peer-to-peer learning platform for exchanges, investors, regulators, & companies

•

Focused on corporate transparency, performance on ESG issues, & sustainable investment

•

Co-convened by the Principles for Responsible Investment, the United Nations Environment
Programme Finance Initiative, and the UN Global Compact

•

NASDAQ is a founding signatory, driving interest in <IR> in the U.S.

Sustainable
Stock Exchanges
Initiative

“NASDAQ OMX is happy to be a founding signatory of the Sustainable Stock Exchanges
commitment and will work together with the other founding signatories – BM&FBovespa,
ISE, JSE and EGX – through the World Federation of Exchanges to encourage all exchanges
to sign up to the new SSE commitment.”
–Sandy Frucher, Vice-Chairman of NASDAQ OMX.



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<IR> DRIVERS: STANDARD SETTERS
The Sustainability Accounting Standards Board (sasb.org)
A non-proﬁt that provides standards for use by publicly-listed
corporations in the U.S. in disclosing material sustainability issues for
the beneﬁt of investors and the public

“For us the integrated report is the Form 10-K.
Within the 10-K we intend to develop that language,
those standards by which companies can actually
disclose a more comprehensive view of their integrated
performance…The laws in the US require that all material
information be provided to investors and that includes
material environmental and social factors.”
—Jean Rogers, Executive Director and Founder, SASB


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<IR> DRIVERS: REGULATORS
European Union Legislative Proposal
•

In February 2013 the European Commission adopted a legislative proposal requiring all EU companies with
more than 500 employees to disclose information on environmental, social and employee-related matters

•

The proposal is now with EU legislators, the European Parliament and the Council of Ministers for adoption

“Europe is recovering from the worst crisis in 50 years. We need more responsible companies.
Existing corporate governance principles should be more effectively implemented. Company
boards should reﬂect gender, geographical, educational, professional and age diversity.
Companies should meet their obligations towards employees, consumers, local communities
and public authorities. Most importantly, the way these commitments are met should be made
public and transparent. That’s why non-ﬁnancial reporting is such an important issue. I am
convinced this serves the interests of investors, shareholders, employees and society
at large. In parallel, this is an asset for companies themselves.”
– Michel Barnier, European Commissioner for the Internal Market and Services
*From the US SIF Foundation “Report on Sustainable and Responsible Investing Trends in the United States 2012”



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<IR> IN THE U.S.

“Seven companies out of the S&P 500 included
a statement on integrated ﬁnancial and
sustainability reporting or declared their 2012
annual ﬁnancial report to also be a sustainability
report. All seven used the GRI guidelines as a
reference or otherwise complied with one of GRI’s
most recent reporting frameworks.”*
*From the IRRC Institute’s “Integrated Financial and Sustainability Reporting in the United States” April 2013



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<IR>: IIRC PILOT PROGRAMME
The IIRC Pilot Programme
A global Business Network of over 100 companies including:
•

Microsoft Corporation

•

PepsiCo

•

Prudential Financial

•

The Clorox Company

•

The Coca-Cola Company

•

Cliff’s Natural Resources

A global Investor Network of over 35 institutional investors including:
•

Calvert

•

CFA Institute

•

Goldman Sachs

•

ING IM International

•

Rockefeller Financial



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INTEGRATED REPORTS THE CLOROX COMPANY

About Clorox’s 2013 integrated report...
“Our fiscal year 2013 report represents continued progress in
integrated reporting, applying several principles from the
International Integrated Reporting Council (IIRC) framework, as
well as third-party assurance of key non-financial metrics as
indicated with a
by Ernst & Young LLP. We plan to
continue issuing an integrated report annually.”
Clorox won Corporate Secretary Magazine “Most Innovative Corporate Social
Responsibility (CSR) Disclosure Policy” Award for its 2011 integrated report



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INTEGRATED REPORTS
CLOROX: INTEGRATED BUSINESS MODEL

Integrated Business Model
(from the Clorox 2013 Integrated Annual Report)



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INTEGRATED REPORTS
CLOROX: BUSINESS VALUE DRIVERS

Operating Context: Business Value Drivers
(from the Clorox 2013 Integrated Annual Report)



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INTEGRATED REPORTS
CLOROX: GRI INDEX



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INTEGRATED REPORTS
CLOROX: EXTERNAL ASSURANCE
External assurance: Y
Type of Assurance Provider: Small consultancy/ boutique firm
Assurance Provider: Other



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IIRC’S INTERNATIONAL <IR> FRAMEWORK

“I am delighted that the day has come when
businesses worldwide can use the Framework as
a tool for the better articulation of their strategy,
and to engage investors on a more long-term
journey to attract investment that will be crucial to
achieving sustained, and sustainable, prosperity.”
– Professor Mervyn King SC, IIRC Chairman



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<IR> FRAMEWORK:
PRICIPLES-BASED APPROACH
•

Balance between flexibility and prescription

•

Sufficient degree of comparability across organizations

•

Does not prescribe specific Key Performance Indicators (KPIs)



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<IR> FRAMEWORK: VALUE CREATION
•

Increases, decreases or
transformations of the capitals
caused by the organization’s
business activities and outputs.

•

For the organization itself

•

For others

*From the IIRC International IR Framework



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<IR> FRAMEWORK: THE SIX CAPITALS
1. Financial capital
2. Manufactured capital
3. Intellectual capital
4. Human capital
5. Social & relationship capital
6. Natural capital

*From the IIRC Consultation Draft of the International IR Framework



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<IR> FRAMEWORK: VALUE CREATION PROCESS

The complete picture of an organization’s value creation process, showing the interaction of the Content Elements and the capitals in the context of the organization’s external environment.*



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<IR> FRAMEWORK: GUIDING PRINCIPLES
Strategic focus and future orientation
Connectivity of information
Stakeholder relationships

Consistency and comparability

STRATEGY AND
RESOUR CE
ALLOCATION

BUSINESS MODEL

IV E
NE
SS

•

OPPORTUN ITIES
AND R ISKS

RE
SP
ON
S

Reliability and completeness

PERFORMAN CE

FUTURE OUTLOOK

STA
KE
HO
LD
ER

•

CO
MP
AR
AB
ILIT
Y

Conciseness

GOVERNAN CE

ION

•

ORGAN IZATIONAL
OVERVIEW AND
EXTERNAL
ENVIRONMENT

T
MA
OR
INF
OF

Materiality

SS
NE
ETE
PL
OM
DC
AN
ITY
BIL
LIA
RE

•

CO
NS
IST
EN
CY
AN
D

•

I TY
TIV

•

STRATEGIC FO CUS AND FUTURE ORIENTATION

EC
NN
CO

•

The Guiding Principles and Content Elements*

MATERIALITY AND CONCISENESS



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<IR> FRAMEWORK: CONTENT ELEMENTS
Organizational overview
and external environment
Governance

•

Performance

•

Outlook

•

Basis of presentation

STRATEGY AND
RESOUR CE
ALLOCATION

BUSINESS MODEL

RE
SP
ON
S

SS
NE
ETE
PL
OM
DC
AN
ITY
BIL
LIA
RE

OPPORTUN ITIES
AND R ISKS

IV E
NE
SS

Strategy and resource allocation

PERFORMAN CE

FUTURE OUTLOOK

STA
KE
HO
LD
ER

•

CO
MP
AR
AB
ILIT
Y

Opportunities and risks

CO
NS
IST
EN
CY
AN
D

•

GOVERNAN CE

ION

Business model

T
MA
OR
INF
OF

•

ORGAN IZATIONAL
OVERVIEW AND
EXTERNAL
ENVIRONMENT

I TY
TIV

•

STRATEGIC FO CUS AND FUTURE ORIENTATION

EC
NN
CO

•

The Guiding Principles and Content Elements*

MATERIALITY AND CONCISENESS



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WHO BENEFITS FROM <IR>?
•

Investors gain more complete information about a business’ risks and value drivers

•

Companies improve operational performance, breaking down of silos and reduce risk and more fully
understand the material and systemic issues facing their industry, informing resource allocation
strategies, higher share price, lower-share price volatility

•

Corporate communications professionals gain a seat at the table

“Leaders in the implementation of integrated reporting will demonstrate
to investors and other stakeholders that business interests are not
damaged, but rather enhanced, by embracing a sustainable future.”
—David Nussbaum, Chief Executive of World Wildlife Fund UK and member of the IIRC Council



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<IR> CORPORATE REPORT COMPARISON

Annual Report
to Shareholders
and/or
on Form 10-K

Sustainability/
CSR Reports

Integrated
Reports


Financial Results
(historical)

ESG Results
(historical)

Financial & ESG Results
& Value Creation

Key Drivers

Target Audiences

SEC Regulations

Focus

Legally
Required

Investors/Analysts,
Customers/Consumers,
Current/Potential
Employees, Media, NGOs

Yes

NGOs, Communities,
Current/Potential
Employees, Media, Suppliers

No

Investors/Analysts,
Current/Potential
Employees, Media, NGOs

No

Stakeholder
Engagement
Stakeholder
Engagement,
Core Business
Strategy
Investor Demand

(historical & future outlook)


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RESOURCES

•

For information about Eisenman Associates: www.eisenman.com

•

For information about the IIRC: theiirc.org

•

Our blog post: “Integrated Reporting, What Is It and Why Should You Care?”

•

IR Magazine’s article: “IIRC opens way for integrated reporting”



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Introduction to Integrated Reporting for IRO's Dec 2013

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