IIRC Newsletter

<IR> perfect tool for CEOs to align with Larry Fink's vision

Larry Fink, the CEO of the world's biggest investor, BlackRock, has written to the Chief Executives of S&P 500 companies and large European organizations. His letter sets out a vision for tackling short-termism, urging companies to report on their strategy. In his letter, he reiterates that it is the responsibility of the board "to review, understand, discuss and challenge a company's strategy." This powerful call for change is a perfect example of what the IIRC is trying to achieve through the global introduction of Integrated Reporting. Commenting on the letter, Sandra Peters, Head of Global Financial Reporting Policy, CFA Institute said, "Efforts by the International Integrated Reporting Council to develop a framework for reporting value creation seem very much in-line with what Mr Fink is suggesting."

The primary purpose of an integrated report is to improve the quality of information available to providers of financial capital by communicating broader and more relevant information that can assist in effective capital allocation decisions. And as Larry Fink says in his letter, "one reason for investors' short-term horizons is that companies have not sufficiently educated them about the ecosytems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses." 

Larry Fink asks that "every CEO lay out for shareholders each year a strategic framework for long-term value creation." Companies all over the world are already using the International <IR> Framework to communicate their value creation story over the short, medium and long term. We call on companies to respond to this letter by using Integrated Reporting to ensure their business is communicating a clear, concise, integrated story that explains how all of their resources are creating value. 

The <IR> Framework is explicit that "those charged with governance have ultimate responsibility for how the organization's strategy, governance, performance and prospects lead to value creation over time." Companies that move towards Integrated Reporting are in a prime position to comply with Larry Fink's statement that CEOs should explicitly affirm that their boards have reviewed the strategy of the company. 

Michelle Edkins, Managing Director & Global Head of Corporate Governance, BlackRock is a valued member of the IIRC Council whose contribution to developments in governance and corporate reporting are widely recognized. 

This letter is yet further evidence that investors are taking more than financial information into consideration in their investment decisions. The world's largest investor has sent a clear signal to leading businesses around the world - the time is now to evolve your reporting structures. Only then, as Larry Fink puts it, can shareholders "put your annual financial results in the proper context." 

This letter was reported by Business Insider on 2 February 2016. 

Do you have a report coming out soon?

The <IR> Examples Database is constantly being updated with new examples of emerging practice in Integrated Reporting, providing key insights for organizations that are developing, or planning to develop an integrated report. The innovation we have seen since the Database was first launched in 2012 is incredible. And with reporting season about to hit its peak we will be adding new examples to the 230 examples already available on the Database. 

Recently added examples include Marks and Spencer, Titan, Banca Fideuram and National Grid. These reports have been added because of their focus on areas such as value creation, stakeholder relationships, the business model, performance and connectivity of information. 

We rely on insights from users of the Database to identify reports that we can feature. If your organization, or another you know, really stands out for its application of any of the Integrated Reporting guiding principles, content elements or fundamental concepts you can suggest it here. We also feature a list of over 300 reports by organizations whose reports refer to the IIRC or the International <IR> Framework, or are influenced by the Framework by participation in <IR> Networks - let us know if you'd like your report to be featured on this list by emailing info@theiirc.org 

Advocates of Integrated Reporting join Task Force on Climate-Related Financial Disclosures

The IIRC has welcomed the announcement on the membership of the Task Force on Climate-Related Financial Disclosures. Those joining the Task Force are at the forefront of a new understanding that financial information in isolation is insufficient to communicate the breadth and complexity of risks faced by our capital markets today, with many of the participants in the Task Force prominent advocates for Integrated Reporting. This understanding is based on the idea that a risk such as climate change can impact an organization’s ability to create value over time.

The IIRC works closely with many of the individuals that will participate on the panel, key amongst them, IIRC Council members Koushik Chatterjee (Tata Steel), Thomas Kusterer (EnBW), and Russell Picot (HSBC), as well as IIRC Ambassador Steve Waygood (Aviva Investors). The IIRC considers it important that organizations that are ‘walking the talk’ will be shaping this discussion, including leaders from organizations in the Integrated Reporting Business Network such as Unilever and Eni.

Commenting on the announcement Paul Druckman, CEO, IIRC said, “The members of this Task Force are in a prime position to help businesses understand what financial markets want from disclosure in order to respond to the risk of climate change. I am delighted to see so many of the members are already experiencing, in their own organizations, the benefit of applying the concepts of Integrated Reporting as the overarching framework. Climate disclosure is a critical indicator within Integrated Reporting’s six capitals – predominantly for natural and social capital. I am confident that this Task Force and its outcomes will make a real difference, so that the market can start properly accounting for the risk of climate change.”

Insights from the World Economic Forum

The discussions and talking points at this year's World Economic Forum (WEF) meeting in Davos demonstrate that corporate reporting continues to play an important role in delivering the high ideals set out at the meeting to secure the stability and sustainable development of the global economy.

Bertrand Badré, World Bank Group CFO, wrote a blog for the World Economic Forum website following the meeting. He wrote,  "To understand the true value created by an organization, we need to look more broadly. This necessitates going beyond traditional financial reports and spending time understanding how the institution manages its non-financial resources." He continues, "Research shows that more and more investors are incorporating non-financial information into their decision-making. The tool institutions use to communicate this comprehensive value is called integrated reporting.

Superna Khosla, Integrated Reporting Policy Lead, PwC wrote following the meeting, "We launched our 19th Annual Global CEO Survey on Tuesday night at the WEF meeting, which includes insights into the optimism (or otherwise) for growth and what’s on the CEO agenda. What’s emerged for me is an interesting picture of the themes that will impact corporate reporting and the trajectory that takes the world towards more holistic, broader reporting. For me, that means Integrated Reporting." The research demonstrates that 76% of CEOs define success by more than financial profit and 59% want to better communicate their purpose and value. Superna Khosla concludes, "The solution is not straightforward, but beginning to unpick some of the elements of the business model and strategy disclosure requirements for external reporting seems like a sensible starting point. For me, that means digging deeper into understanding the true cost of doing business and driving greater insights on the broader outcomes achieved."

S&P launched an innovative new index in Davos as a 'powerful tool to focus markets on the long term'. The S&P Long-Term Value Creation Global Index has been designed to measure companies that have the potential to create long-term value based on sustainability criteria and financial quality. Six of the world's largest institutional investors have voiced their support for the Index as a "powerful catalyst to influence corporate and investor behaviour." A number of investors have committed to initially allocate approximately US$2 billion to funds tracking this new index - with the amount expected to grow substantially in due course. 

As Paul Druckman, CEO, IIRC stated in a blog, "WEF shows, year after year, that managing the risks associated with each of the capitals is no longer an option; it is essential to the successful management of the business and will have a direct impact on its cost of capital and reputation.  Over the last year, investors and regulators have increased the volume of their demands for information in context and it is a trend I predict will only intensify in 2016."

<IR> firmly on China's B20 agenda

The IIRC is yet again playing an important role in this year's G20 process, with IIRC representatives participating in B20 Taskforces. Through this participation we will ensure that corporate reporting has its place in this key process for determining the architecture of the global financial system. We believe that corporate reporting can help to deliver inclusive and sustainable prosperity and will be engaging throughout this process with market leaders to make practical connections and recommendations to this effect.

China is president of the G20 this year and companies in China are starting to adopt Integrated Reporting. CGN Power is the largest nuclear power company in mainland China and is evolving its corporate reporting towards Integrated Reporting because it helps them reflect on their future strategy. Nuclear power has a very long life cycle (around 100 years) and Integrated Reporting helps them to understand this long view. They have a vision to become the largest nuclear power generator in the world and will use Integrated Reporting to explain how they will get there. Together with Honk Kong listed companies CLP, Link REIT and Swire Pacific, Integrated Reporting is starting to gain a foothold in the Greater China region.

Jonathan Labrey, Chief Strategy Officer, IIRC was in Beijing for the B20 Kick off meetings. He said, "China's commitment to produce clear, actionable and implementable recommendations is clear from the start of their G20 and B20 leadership. This will be achieved by each task force having a clear mandate, and through constant discussion between the business community and G20 Governments throughout the process. Last year's Turkish Presidency produced three recommendations relating to Integrated Reporting. This year is about moving to stronger commitments and towards a roadmap for implementation."

Consultation on the Technology Blueprint for <IR> Adoption to open soon

The Technology Blueprint for <IR> Adoption will be released for consultation later this month. Developed by the participants of the <IR> Technology Initiative, the Blueprint lays out guidance to those seeking to craft technology capabilities that support and enable next-generation business management and reporting practice. It is being developed for two parts of an organization's technology needs: one part explores the information requirements of a CFO who is considering or planning the introduction of next-generation management practice and reporting in their organization. The second part focuses on challenges faced by the Chief Information Officer in delivering an information and technology architecture that fits such requirements.

A consultation on the paper considering the needs of CFOs will be released for comments and feedback in February 2016 and the IIRC will be calling on the market for their feedback to ensure the Blueprint fits the needs of users. 

The <IR> Technology Initiative is a three-year programme that seeks to build a deeper understanding of how technology can be applied to assist Integrating Reporting adopters achieve their goals, and to consider how the evolution of corporate reporting is impacting - and being impacted by - technology. For further information or to join the initiative email techinitiative@theiirc.org
Contact: juliet.markham@theiirc.org
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