IIRC Newsletter - May Edition

IIRC meets in London

The International Integrated Reporting Council (IIRC) has held its first meeting of 2015, during which Council members considered the ambition for <IR> in the next phase of strategic activity from 2018 onward. 

The strategy discussion was introduced by Claudia Kruse, Managing Director, Head of Governance & Sustainability, APG and Simon Walker, Director General of the Institute of Directors. Walker called upon Council members to ensure companies of all sizes understand that, "good corporate governance, transparent reporting and responsible practice drives business performance."

To mark the Council's presence in London, the IIRC hosted several meetings and events throughout the week. A networking event, sponsored by Deloitte and attended by over 200 guests, focused on 'promoting stewardship and longer-term value creation in capital markets'. Speaking at the event, Stephen Haddrill, CEO, Financial Reporting Council UK (FRC) praised the IIRC for promoting a common global vision for corporate reporting that was helping to turn the tide from cynicism about reporting to innovation. He pointed to several developments that are creating a more positive environment, including the introduction of stewardship codes which are encouraging more forward looking engagement between company boards and investors. Haddrill challenged the IIRC to embrace the small listed companies’ sector, businesses that do not traditionally attract a great deal of analyst attention. The FRC itself will shortly be producing a discussion paper setting out ways to support smaller listed companies.

Mr Haddrill also issued a challenge to investors, calling on them to engage with <IR> to ensure that corporate reporting evolves to reflect their need for broader sets of information. Euan Munro, CEO, Aviva Investors responded to this challenge, accepting that investors have previously resorted to making decisions based on numbers alone. He called on his industry to take further interest in <IR>, and stated that Aviva Investors will lead the way, for example, by moving towards an integrated investment model that will see them no longer having separate 'ethical' funds as the same decisions will now be applied across all their funds.  

Throughout the week of the Council meeting, engagements were held to evaluate the IIRC's work with investors and the sustainability community. It was also an opportunity for the <IR> Business Network and the Public Sector Pioneer Network to meet, prompting discussions with organizations both new to <IR> and those already on the road; inspiring greater uptake. Blogs by the IIRC's Sarah Grey (<IR> Business Network) and Grant Patterson (Public Sector Pioneer Network) are available to give an insight into these meetings. 

Leaders from UK institutions, predominantly business and investor associations, also met during this week to consider how they can further collaborate to promote long-term value creation in the UK. This is a high-priority area for many professional bodies and other institutions, with active agendas covering a wide range of stakeholder groups. The energy in the room indicated that there is a wide acknowledgement that <IR> can play an important role in reaching many of their individual goals.
The market acknowledges the value of Integrated Reporting

 The value of Integrated Reporting is now widely acknowledged in the market, according to a new white paper, 'Allocating Capital for Long-Term Returns' released by the Generation Foundation in May 2015.

The paper evaluates the progress made towards the recommendations set out in their initial white paper, 'Sustainable Capitalism' released back in 2012. Their conclusion is that the new model of capitalism they proposed, which included Integrated Reporting, "has gained significant momentum and support".

The report states that, "An increasing number of companies are practicing Integrated Reporting or are in the process of making a transition to Integrated Reporting, suggesting the market acknowledges [its] value". It suggests this change has happened due to the range of benefits <IR> has to offer, such as a more holistic view of performance and better insight into risk, strategy, the business model, the operating context and governance. It concludes that studies now find that firms practicing Integrated Reporting are "able to attract more long-term investors to their ownership base". 

The report, which draws heavily on the research of a wide-ranging number of organizations, continues stating that, "a focus on the long-term through Integrated Reporting is especially important in a modern market with shifting macroeconomic values, wherein an average of 84 percent of the market value of companies now lies in intangible assets". 

The Generation Foundation is the advocacy initiative of Generation Investment Management of which David Blood is the Senior Partner. Blood has been an important supporter of Integrated Reporting since the IIRC’s inception, having authored with Al Gore 'A Manifesto for Sustainable Capitalism' in 2011. In this manifesto they argued that, "Despite an increase in the volume and frequency of information made available by companies, access to more data for public equity investors has not necessarily translated into more comprehensive insight into companies. Integrated Reporting addresses this problem by encouraging companies to integrate both their finances and ESG performance into one report that includes only the most salient or material metrics. This enables companies and investors to make better resource-allocation decisions by seeing how ESG performance contributes to sustainable long-term value creation."

Japanese report calls for <IR>

The Ministry of Economy,Trade and Industry (METI) in Japan, has published a report to prompt better dialogue between businesses and investors. It recommends Integrated Reporting as a means for providing the necessary information disclosure to bring about better dialogue between companies and investors, in order to enhance corporate value creation.

The report recommends the establishment of an environment in which companies and investors can develop a mutual understanding through high-quality dialogue and create corporate value over the mid- to long- term. It describes measures for realizing a "dialogue-rich nation", including comprehensive information disclosure by companies, enhancement of information that is useful for making investment decisions, setting a schedule aimed at achieving dialogue-oriented processes for shareholder meetings, and the promotion of 'electronification' - the use of new technology as a means to improve relations. 

The IIRC welcomes the release of this report, with Paul Druckman, CEO, IIRC saying, "The recommendations in this report will undoubtedly prompt a renewed focus on better dialogue between companies and investors in Japan. I am delighted that METI has come to the same conclusion as the IIRC - that Integrated Reporting can be a means for enhancing value creation, as a result of a better understanding by both the company and investors, of the information that is material to the company. Estimates suggest that around 180 businesses in Japan are taking steps towards <IR> and my hope is that through <IR> and the other recommendations put forward in this report, better dialogue between companies and investors will support sustainable growth in Japan."

This report is released as Japan's Corporate Governance Code comes into effect on 01 June 2015. The code encourages listed companies to disclose their own value creation story including strategy, risks and governance.
CDSB and IIRC sign statement of collaboration
The IIRC has signed a statement of collaboration with the Climate Disclosure Standards Board (CDSB), timed for the launch of the CDSB Framework for reporting environmental and natural capital information in mainstream financial reports on 8 June 2015

The statement of collaboration sets out the organizations’ shared vision of a corporate reporting regime that will deliver the high quality information needed for decision-making in the 21st Century.

CDSB and the IIRC believe that climate change and the protection of natural capital are core issues for business and that relevant disclosures about both can provide valuable insights into corporate performances as part of an organization’s mainstream reporting. In this regard, the IIRC welcomes the initiative taken by CDSB and its signatories to publish a Reporting Framework to guide disclosure of information on natural capital through mainstream reports.

As acknowledged in the statement, CDSB and the IIRC have complementary roles in championing the link between corporate reporting and sustainable capital markets. In particular, climate change is likely to have a wider impact on the strategy and business models of business over time, requiring organizations to respond through integrated thinking and more focus on its relevance to long-term value creation.

Commenting on this statement of collaboration, Neil Stevenson, Managing Director, Global Implementation, IIRC said, “This statement renews the commitment of both our organizations to work together to inspire greater innovation in corporate reporting. One practical means of collaboration is through the Corporate Reporting Dialogue, which we both participate in, which has a common goal of improving the quality and consistency of global corporate reporting to provide increased certainty for businesses and investors alike."
PRI's RI Quaterly: 
'Unleashing performance through reporting and disclosure' gives an investor view of <IR>
Breaking News: Swedfund International
wins Best Responsible Investment Award 2015 in Medium & Small Funds. Swedfund's Lars-Olle Larsson says, "....So proud that the inspiration we got from the IIRC Framework helped us to be Best in Class"
Contact the <IR> Technology Initiative if you'd like to attend an event regarding the development of a 'Technology Blueprint for <IR> Adoption'
Contact: juliet.markham@theiirc.org
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