Integrated reporting seeks to promote more sustainable investment and management, by encouraging companies to report on how they create value in a broader sense. But is this getting through to preparers on the ground?
From 2018, the IIRC plans for <IR> to enter its ‘Global Adoption Phase,’ aiming to become firmly positioned at the centre of corporate governance and corporate reporting.
ACCA worked with IIRC to review 41 corporate reports produced by participants of the IIRC’s flagship <IR> Business Network.
Good news about <IR> adoption
The reports reviewed did particularly well at explaining each organisation’s strategy and the environment in which it operates.
88% went beyond reporting purely financial considerations, to reflect the way the organisation uses and affects different resources.
The review found the following priority areas for improvement:
- Value creation – widespread challenges in identifying and articulating what the organisation’s stakeholders perceive as ‘value’
- Connectivity – companies identified this as one of the biggest challenges with implementing <IR>: it required breaking down silos within the organisation and changing existing data collection processes
- Materiality – more needs to be done to demonstrate how materiality is determined and how it is applied, especially in using the lenses of value creation
- Conciseness – nearly half of the integrated reports reviewed ran over 150 pages. Companies found it difficult to reconcile conciseness and meaningful communication with stakeholders
- Reliability and completeness – many companies have yet to achieve a balance in reporting good and bad news. Preparers need to know what ‘good’ looks like in order to implement appropriate internal control processes and engage external assurance.
- Consistency and comparability – thinking and practice is still immature in articulating the value organisations derive from non-financial capitals, and how to identify consistently meaningful performance measures.
Eight quick wins
Integrated reporting is a long journey, but seasoned preparers give the following advice for new adopters looking for quick wins:
- Identify <IR> champions who can bring the project to life in the company. The CEO and CFO need to be committed as well.
- Take a multidisciplinary approach: Committed individuals from across the business can help to break down silos and encourage integrated thinking.
- Clarify the audience: whether the focus is on shareholders, potential investors or wider stakeholders explain who is being addressed and why.
- Determine materiality which means deciding which topics are most relevant to the audience. Explaining materiality decision gives credibility and accountability.
- Activate the data by bringing numbers to the fore. Companies should provide targets and carry on disclosing them even if they are missed.
- Use appropriate language avoiding technical and organisational jargon.
- Demonstrate board commitment perhaps by the CEO discussing what he or she hopes to achieve with <IR>.
- Set expectations by being clear that the integrated report will evolve over time.
"Integrated reporting does bring challenges. However, those companies who prepare integrated reports see them as an approach to sound business management as well as a valuable form of corporate reporting. Integrated reports need to be of high quality if they are to be valued and respected. "
Benefits of IR
Participants from the IR Business Network identified several benefits from adopting an integrated reporting approach:
Integrated thinking: IR is an approach to managing a business based on a clearer awareness of the many ways that entities create and destroy value
Greater clarity: Management is finding that IR provides greater insights into factors driving business performance and thinking around risks and opportunities.
Improved reputation and stakeholder relationships: IR allows investors to understand the business and its outcomes through using a single source of data to see the strategy, growth, performance and direction.
More efficient reporting: IR makes corporate reporting more efficient for both stakeholders and preparers. It helps to provide a consistent, well-articulated deck of information.
Employee engagement: Employees can learn of examples company work in other parts of the world or the business. This can help them become engaged ambassadors of the group.