Understanding Integrated Reporting

The Concise Guide to Integrated Thinking and the Future of Corporate Reporting

Carol Adams

• Publisher: Routledge
• Year: 2017
• Topic: Business
• eBook ISBN:
  9781351274982
• Subtopic: Accounting
• Index: Business

Integrated Reporting is the big new development in corporate reporting that everyone is talking about. Why? Quite simply, Integrated Reporting marks a paradigm shift in the way companies and other organizations think about business models and the creation of value. Integrated Reporting promotes long term thinking about value-creation and stewardship across a broad base of interdependent capitals – financial, manufactured, human, intellectual, natural, and social and relationship.With updated references and case studies to take account of the latest developments in Integrated Reporting, this book provides a practical and expert distillation of for IR professionals.Internationally renowned sustainability reporting expert and accountant Dr Carol Adams explains in simple terms what is and how to do it; how it links with other reporting frameworks and what it means in terms of thinking and processes. You'll also get a clear business case for IR and insights and best practice examples from leading integrated reporters. Integrated Reporting is not just for companies.This book demonstrates how integrated thinking and IR can benefit many other organizations whose success and influence depends on relationships and partnerships.

CHAPTER 1
Overview: What <IR> Is — and What It Is Not

THE INTERNATIONAL INTEGRATED REPORTING COMMITTEE (known since 2011 as the International Integrated Reporting Council) was formed in 2009 as an outcome of a high level meeting convened by HRH Prince of Wales to build on the work of the Prince’s Accounting for Sustainability Project.³ It was the culmination of various discussions, reports and initiatives including the 2009 King III Code of Governance for South Africa requiring from 2010 that companies listed on the Johannesburg Stock Exchange prepare Integrated Reports which integrate strategy, governance and sustainability.

The IIRC sees <IR> as an organisation’s value creation story. It explains how the organisation will thrive in the short, medium and long term. It requires thinking beyond financial profit, thinking much more broadly about what creates value and what presents risk to value creation.

Companies cannot think of themselves as apart from society – they are part of it. And that needs to come through in their communication on value. PAUL DRUCKMAN, CEO IIRC⁴

<IR> is a new form of corporate reporting and whilst aimed primarily at providers of capital, the content is of interest to a broad range of stakeholders. Some still think of <IR> as simply bringing together financial and sustainability performance information in one report. Indeed in recent research the GRI asked the question: ‘Why did your organization start to combine financial and non-financial reporting?’ (GRI, 2013a). It is much more than bringing together financial and sustainability reporting — and also much less than that. It does not replace either financial or sustainability reporting — both need to be in place for <IR>.

<IR> requires a fundamentally different way of thinking about what makes an organisation successful. It makes visible the organisation’s reliance on a much broader set of capitals than financial capital. It requires a different way of working — working together, rather than in silos.

There are some common myths cropping up in the financial press and on blogs. Here are a few:

1. <IR> makes sustainability reporting (and those that do it) redundant. You cannot tell a comprehensive value creation story unless you have been identifying material sustainability risks and thinking about the benefits of your social, community and environmental investments.
2. Disclosing strategy will present risks. In fact <IR> will lead to a reduction in risk through more informed decision-making based on consideration of externalities and wider risks than might otherwise be the case.
3. Preparing an integrated report means more work. There should be nothing which needs to go in an integrated report which is not already gathered and prepared by a well-managed business. Much of the information is already communicated to providers of finance in an ad hoc way. Preparing an integrated report will develop internal integrated thinking capacity. It is therefore an important investment. The question business should be asking is whether they can afford not to do integrated reporting.

If you call a report an integrated report and reference the International <IR> Framework you should comply with the requirements in bold italic type throughout this book unless reliable information is unavailable, legal prohibitions prevent disclosure or disclosure would cause significant competitive harm (see para. 1.17).⁵

“In the case of the unavailability of reliable information or specific legal prohibitions, an integrated report should:

• Indicate the nature of the information that has been omitted
• Explain the reason why it has been omitted
• In the case of the unavailability of data, identify the steps being taken to obtain the information and the expected time frame for doing so.” (para. 1.18).

“An integrated report should include a statement from those charged with governance that includes:

• An acknowledgement of their responsibility to ensure the integrity of the integrated report
• An acknowledgement that they have applied their collective mind to the preparation and presentation of the integrated report
• Their opinion or conclusion about whether the integrated report is presented in accordance with this Framework

or, if it does not include such a statement, it should explain:

• What role those charged with governance played in its preparation and presentation
• What steps are being taken to include such a statement in future reports
• The time frame for doing so, which should be no later than the organization’s third integrated report that references this Framework.” (para. 1.20)

In practice companies are currently responding to the momentum of <IR> in a variety of ways including: broadening the scope of their sustainability reports; putting additional information (such as specific International <IR> Framework content elements – see Chapter 7) in their annual report; and producing an additional report, but moving more sustainability disclosures online.

Who are integrated reports for?

Integrated reports are intended primarily for providers of capital including investors, shareholders or customers.

Integrated Reporting – embedding that concept of integration into business thinking and reporting processes – is essential for ensuring corporate reporting remains relevant to investors and plays a central role in their financial capital allocation decisions. Paul Druckman, CEO, IIRC

However, the International <IR> Framework recognises that a much broader group of stakeholders is interested in integrated reports.

I would like to see corporate reports being more about a true communication about the story of a business. This story should be more accessible to different stakeholders – that is, they can find what they want more easily. PAUL DRUCKMAN, CEO, IIRC

Indeed, Sasol’s 2014 Annual Integrated Report, including the Chairman’s Statement (p. 23) and the CEO’s Review (p. 25) is addressed to ‘stakeholders’ rather than providers of capital. Sasol also talks about delivering value to stakeholders:

“Our shared values determine the way in which we determine and respond to business opportunities and challenges, and establish expectations about how we work with our colleagues, customers, shareholders, suppliers, partners, governments and the communities we serve.” SASOL 2014 ANNUAL INTEGRATED REPORT, ⁶ p. 7

Sasol’s discussion of the capitals, strategy and business model set out on the subsequent pages demonstrate a relatively mature stage of ‘integrated thinking’.

Providers of capital come in all shapes and sizes. The CEO of one of the IIRC’s smallest pilot businesses, bankmecu, a customer owned bank, commented:

We regard reporting as a critical element of our customer owned banking model and for these reasons we have integrated all the areas in which the business delivers value into our reporting process. We want our key stakeholders as well as those observers of our mutually owned business to understand clearly how we define, create, preserve and distribute value. DAMIEN WALSH, ⁷ CEO, BANKMECU

Who should prepare an integrated report?

Any type of organisation can prepare an integrated report, or adopt elements of the International <IR> Framework. Whilst the IIRC is aiming primarily at the for-profit private sector and most of the pilot companies are owned by investors and shareholders, other types of organisations would benefit from <IR>. (The benefits that preparing an integrated report can bring to companies and other types of organisations and their stakeholders are considered in Chapter 2.)

Take a legal firm where the predominance of partners are white men approaching retirement (perhaps with their eyes on the size of their pension funds), but with a vibrant, more diverse, younger staff wanting to feel they are making a contribution to society. This firm is engaged in ad hoc philanthropic, citizenship and diversity programmes and prepares a GRI sustainability report, but is still largely regarded by many stakeholders as just another greedy law firm. If this firm told customers how its various projects created value for the firm and society and linked its citizenship work with its strategy, vision and the type of law it practises, it would make its younger staff proud to work there. It would attract high calibre staff and customers who shared its vision and admired its approach (and perhaps others who wanted to be seen to share its vision). Telling its broader value creation story would give it a competitive advantage.

Universities exist for the public good and their long-term success depends on their ability to demonstrate it. Yet whilst they report outcomes, in terms of number and quality of publications, number of students educated, number of prizes, honorary degrees, etc., awarded, their record of reporting on material outcomes and the value they create, or their strategy to improve outcomes, is poor (Adams, 2013a).

Providers of finance to universities, their staff and students and national governments might expect them to report their contribution to solving the world’s challenges and im...

Table of contents

• Cover
• Title
• Copyright
• Abstract
• About the Author
• Disclaimer
• Acknowledgments
• Acronyms
• Why I Wrote This Book
• Contents
• Who This Book Is For
• Foreword
• 1 Overview: What <IR> Is and What It Is Not
• 2 The Benefits of Preparing an Integrated Report
• 3 The Essential Ingredients of <IR>
• 4 The Fundamental Concepts
• 5 The Guiding Principles
• 6 Before You Report Things to Consider/Do
• 7 How to Report
• 8 A Word on Assurance of Integrated Reports
• Appendix: Categorisation and Description of The Capitals
• References
• Resources
• Notes