IIRC Newsletter

IIRC launches global call for feedback on business implementation of Integrated Reporting

Three years after publication of the International Integrated Reporting Framework for companies to adopt a forward-looking, broader approach to their corporate reporting aligned to long-term value creation, the global coalition supporting the transition has launched a worldwide call for feedback on its implementation.

The International Integrated Reporting Council (IIRC) has announced a two-month comment period aimed at businesses, investors, regulators, policy makers and other key stakeholders. Focus groups will be held in over ten countries around the world and public feedback is invited via a dedicated webpage.

Commenting on the launch of this comment period, Richard Howitt, CEO, IIRC said:

“Integrated Reporting has caught the imagination of business leaders globally – it has prompted them to change their approach not only to reporting, but also to thinking and planning for the future of their business. 

"We have seen 1,500 global companies adopt Integrated Reporting around the world, with its implementation already becoming mainstream in countries such as Japan and South Africa. This rapid adoption demonstrates the market view of the International <IR> Framework as a ground-breaking and beneficial tool. It’s now time for us to further assess how this tool is being used to assist the quality of the reporting, reinforce its relevance to new challenges and ensure it remains fully in tune with market needs.

“Few could have anticipated that within three years, so many business leaders would turn to Integrated Reporting to manage issues such as short-termism, climate risk and loss of trust in business.  We are in constant touch with practice through the globally active Integrated Reporting Business Network, technical advice to business - which we provide throughout the year - and through regular surveys and analysis of integrated reports.

"This new exercise is not intended to be a review of the Framework but a specific exercise in seeking feedback - from those who prepare the reports and those who do not yet do so - so that we can all learn from experience."

Christian Thimann, Group Head of Strategy, Sustainability and Public Affairs, at the major international insurance company AXA Group said:

"This year we have released AXA's first integrated report, tying in with the launch of the Group's 2020 strategic plan. We are delighted, as this is the natural outcome of several years of integrated thinking within the company. Over the years we have been working increasingly closely with stakeholders to talk about value creation, as well as engaging in a global discussion about long termism. Our work with the IIRC has enabled us to translate this focus within the company into our external reporting in a concrete way. We are delighted to have the opportunity to share our perspectives on this work - and how we've used the International <IR> Framework - with the IIRC, with the aim of encouraging further support and guidance."

Focus groups are planned for Australia, India, Italy, Japan, the Netherlands, Malaysia, Singapore, Spain, the UK and the United States with other locations to be announced in due course. Feedback can also be submitted online via the IIRC's website at: www.integratedreporting.org/invitation-to-comment - feedback is requested by April 30, 2017.

<IR> Business Network Participant, DIMO, wins Integrated Reporting award 

Diesel & Motor Engineering (DIMO) has won an award for the best integrated annual report in South Asia. The awards, which were hosted by the South Asian Federation of Accountants, looks for high quality, relevant, reliable and well presented reports. DIMO has been a long-time adopter of Integrated Reporting having helped develop the International <IR> Framework through the IIRC's Pilot Programme. 

DIMO is an active participant of the <IR> Business Network, which helps companies on all stages on the journey towards Integrated Reporting. 

In 2015 the IIRC sat down with Suresh Gooneratne, Director and Chief Financial Officer, DIMO to discuss why they have adopted Integrated Reporting and how it has influenced behaviour:

Richard Howitt, CEO, addresses IFAC Annual CEO Forum

Following the International Federation of Accountants (IFAC) public declaration of support for Integrated Reporting as the future of corporate reporting, Richard Howitt, CEO, IIRC has visited New York to address the chief executives of IFAC's member bodies. Richard shared insights on the IIRC's future direction and the importance of the accountancy profession in achieving the system change that we are working towards.  

Many of IFAC's members have been long time supporters and advocates for Integrated Reporting, including Barry Melancon, CEO of AICPA, who chairs the IIRC Board. In January 2017, IFAC released a paper stating that "Integrated Reporting is the way to achieve a more coherent system, fulfilling the need for a single report that provides a fuller picture of an organization's ability to create value over time." The IIRC has worked closely with IFAC over many years, including producing a paper on materiality in 2015 and collaborating on an 'Integrated Reporting for SMEs' project due out this year.

Speaking at the Forum, Richard shared insights on some of the recent momentum towards Integrated Reporting that we have seen around the world, including uptake reaching over 300 companies in Japan, growing interest in China from the Ministry of Finance, and a circular from the Securities and Exchange Board of India calling on Indian companies to adopt Integrated Reporting. Howitt called on the Chief Executives in the room to build on this success. He cautioned them against just agreeing with IFAC's statement of support for Integrated Reporting, but challenged them to embed it and make it clear that they agree via their own communications. This will be second nature to many of IFAC's member bodies, but as the IIRC moves from its breakthrough phase towards global adoption, we will be increasingly looking beyond the major international markets to build broader interest and understanding of why Integrated Reporting is the future of corporate reporting across the globe.

Building Integrated Reporting Capacity

Enrique Torres, Training Manager, IIRC discusses the <IR> Training Programme and how it's helping participants to develop their reporting processes

The <IR> Training Programme has celebrated its first anniversary, so where are we after year one?

The IIRC launched the <IR> Training Programme in December 2015 with a call for training partners to offer such training. <IR> Training is based on the learning outcomes from the <IR> Competence Matrix, i.e., the knowledge, skills and behaviours organizations need to adopt Integrated Reporting and realize its benefits. <IR> Training will be applied in different contexts to suit local practices and requirements by Training Partners selected by the IIRC. 

The IIRC is excited to be working with the following organizations as Foundation Partners to offer <IR> Approved Training Programmes: ACCA (global), BSD Consulting working with the University of Stellenbosch Business School (global), Black Sun plc, Boston College (Center for Corporate Citizenship), Enact Sustainable Strategies, Education Australia (Consortium of KPMG Australia, University of New South Wales and Deakin University), Grant Thornton and KPMG. We expect to have around fourteen <IR> Training Partners by mid-2017.

Our current Foundation Partners have given sixteen <IR> Approved Training courses to around 160 participants since the first one was given in September 2016. The participants’ post-course evaluations show a very positive response to these first sessions. The following testimonials are representative of what the participants liked about the <IR> Training.
  • “Interactive and extremely informative. I have a much deeper understanding of what Integrated Reporting means to businesses and how it can make them better.”
  • “The programme provided an incisive insight into Integrated Reporting and triggered many thoughts as to how to apply/change the thinking before getting down to writing the <IR> report.”
We expect a significant upscale in the number of <IR> Approved Trainings given during 2017. We are proud to be collaborating with our Foundation Partners so that they can provide expert training programmes that help individuals acquire and strengthen skills that will support them as they adopt Integrated Reporting. 

Visit the IIRC website to get more information on the current Foundation Partners. You can also see where and when upcoming <IR> Approved Training Programmes are being offered: www.integratedreporting.org/resource/ir-training.
<IR> training develops individuals' skills and builds capacity for organizations to implement Integrated Reporting. 

Training is now being offered around the world by our <IR> Foundation Partners - find out about
upcoming sessions

Integrated Reporting and the SDGs

ICAS and the IIRC will be collaborating with the Green Economy Coalition during 2017 to produce a report on Integrated Reporting and the UN Sustainable Development Goals.

The publication of the SDGs has reinvigorated the debate about system changes that are required to achieve them. It is widely agreed that the SDGs can only be delivered with the full participation of business. Their agreement has brought into focus a number of system changes that will be necessary to deliver the SDGs such as investment in infrastructure, longer term investment horizons and business planning cycles, consistently applied valuation of non-financial resources and businesses seeing the SDGs as a 'return on capital, not just a responsibility'. 

This publication is intended to help organizations adopting Integrated Reporting identify and demonstrate how their value creation models align with achievement of the SDGs. Concepts found in the International <IR> Framework such as connectivity, value creation, and multi-capitalism lend themselves to supporting organizations that wish to play their part in achieving the SDGs. It is envisaged that the publication will be a short, practical document which provides the intellectual basis, or conceptual underpinning, for organizations to be able to link their value creation process to the SDGs and will be launched towards the end of the first half of 2017.

Professor Carol Adams, CA, will author the paper - Carol has extensive expertise in Integrated Reporting from a practical and academic perspecitve and was a co-author of the capitals background paper for the IIRC. 

The seventeen SDGs were agreed and published by the UN in September 2015 and committed world leaders, over the next fifteen years to end extreme poverty, fight inequality and injustice, and to fix climate change. 

Commenting on the joint project Neil Stevenson, Managing Director - Global Implementation, IIRC said, "We hope that this publication will build on the already great work that we have seen from the business community to help achieve the SDGs. Initiatives such as the 'SDG Compass' from WBCSD, GRI and the UN Global Compact and 'Measure What Matters' led by the Green Economy Coaliton with A4S have already provided the market with much support, research and guidance for those that are committed to the SDGs. My hope is that this publication will provide additional guidance to those wishing to develop their approach to the SDGs consistent with the International <IR> Framework."

Anne Adrain, Head of Sustainability and Assurance, ICAS, said, "The report will highlight how Integrated Reporting can help organisations understand how their value creation model aligns with achievement of the SDGs. Ultimately, it will help companies to do their part to end extreme poverty, fight inequality and injustice and to fix climate change. We look forward to working with the IIRC and the Green Economy Coalition on this project." 

Oliver Greenfield, Green Economy Coalition said, "The global goals set a universal development direction that will create opportunities for business. We believe those companies already engaging with Integrated Reporting will have a head start in taking those opportunities."

The project will be overseen by an advisory group of stakeholders from across the corporate reporting system. 

In addition, the IIRC has been invited by our partners at GRI to work with them as part of a joint project with the UN Global Compact on reporting of the SDGs and both organizations have agreed to participate in a joint exercise in the Corporate Reporting Dialogue to identify how the Sustainable Development Goals are a common foundation of all the different standards in the Dialogue.

Reporting key to corporate governance reform in the UK

The UK government has concluded a consultation on the future of corporate governance in the UK. This consultation process has highlighted the importance of good corporate reporting as a key principle of corporate governance reform. The IIRC has responded to the consultation, cementing the alignment of the International <IR> Framework with the strategic report - a regulatory requirement in the UK. 

Currently directors of companies in the UK are asked to act in a way that 'promotes the success of the company' giving due to regard to broader stakeholders such as employees and suppliers as well as focusing on the long term, and the impact of the company on the environment. However, there is no requirement to report against this. The government are looking into ways to ensure that directors are fulfilling their obligations and our offer to this debate is the International <IR> Framework. By adopting Integrated Reporting companies will be able to tell their story of how they are taking these various factors into account when they manage their company.

The IIRC also called on the UK government to consider the integration of all reports. Companies are required to prepare a range of corporate reports - strategic, financial, governance, etc. - however, there is no requirement to make these reports a holistic, consistent communication that tells the company's value creation story. We recommended that the government calls on companies to prepare the various suite of reports they produce on an integrated basis. This will ensure better understanding by investors and all other stakeholders of how the company operates and its viability for the short, medium and long term. 

It comes as the London Stock Exchange released guidance on sustainability reporting stating, "It is increasingly common for larger listed companies to include explicit references to ESG themes within their annual reports. The integration of ESG issues into annual reports allows the processes and information controls that are already in place. It also means that ESG data is readily available to investors at the same time as wider information about the company." It continues, "The Integrated Reporting Framework helps companies produce a concise, investor-focused report that looks at an issuer's performance and prospects through the lens of 'six capitals'." 

The multi-capital business model is vital and it's here to stay, say CFOs

In December 2016, the IIRC’s official annual conference, in partnership with the International Corporate Governance Network (ICGN), brought together 400 people from over 30 countries around the world to discuss the future of the capital markets system globally. High level speakers from some of the world's leading businesses shared their insights and here we report on the key messages, issues and debates arising from plenary two, which focused on Building Multi-Capital Business Models for Future Value.

Plenary two’s panel of CFOs, was asked to consider the impact of trends such as technological advancements, environmental challenges and demographic change on today’s globalized capital markets. How do these trends affect the development of resilient business models? How can investors be clear about future prospects? And what should companies do to communicate the value they derive from the opportunities and challenges, in terms of human, intellectual, and social and relationship capital?  
To get things started, session chair Helena Morrissey, CEO of Newton Investment Management, put a polling question to the assembled delegates: “Multi-capital business models are a necessary response to today’s business context – agree or disagree?” With 99% of the audience participants responding in the affirmative, Morrissey declared that the panel had a licence to operate, and asked Interserve’s Tim Haywood, “who has the wonderful job title of Group Finance Director and Head of Sustainability”, to set the scene.

Haywood began by describing his joint role.  Echoing Mervyn King’s proposal for the creation of a Chief Values Officer, Haywood explained how his combined title is an attempt to overturn the widespread preconception “that the Finance Director is the guy who knows the cost of everything and the value of nothing, while the Head of Sustainability is the guy with no mandate who goes around hugging trees and shouting into an empty room”.

No business, said Haywood, wants to be badly run or not deliver value. What’s needed is “a blend of both value and values; of shareholder value and stakeholder value and a response to [our] ever-changing society”. Outlining the most urgent challenges and changes we face, Haywood pointed to the fact that seven of the world’s 12 largest economies in 2030 are likely to be just emerging economies today; that 1.5 million people are added to the world’s population every 24 hours; and that around 50% of current jobs will be computerised in the next decade. Those companies that do not adapt and evolve their business models in response to these global trends, concluded Haywood, face a very real “existential threat”.

The multi-capital model in action

Next, Morrissey asked the panel about the practical implications of the multi-capital model. What does it mean for business, and how it is implemented?

Dr. Ryohei Yanagi, CFO at Japanese pharmaceutical company, Eisai Co., Ltd, described how the multi-capital model involves, “the integration of current ESG with future ROE and empirical evidence to help quantify the intangibles.” As an example, Dr. Yanagi explained how his company’s plans to distribute 2.2 billion free filariasis tablets by 2020 as both an act of corporate philanthropy and a deliberate attempt to build reputational value in emerging markets, where “in 30 years we can create brand equity”. Such a model, he said, provided “accountability for shareholders”, and is already proving to be “a very effective tool [for] better engagement between Japanese companies and global investors”.

For Luka Mucic, Chief Financial Executive at SAP, the multi-capital model is all about responding to demographic change and ensuring his company “nurtures an innovation-oriented diverse workforce” as part of their core focus on intellectual capital. As a leading provider of enterprise application software, SAP works hard to measure the impact of their intellectual value creation, looking closely at “what new products that are early on in their lifespan contribute to [SAP’s] total revenues”. As an indication of how critical this metric is, Mucic revealed that “more than 50% of our new order entries come from solutions that we did not have within SAP just five years ago”.

Mucic went on to explain that SAP’s approach to Integrated Reporting is based “on the premise that we believe that our key steering metrics should relate back to our financial health and profitability”. To this end, the company has created “an analysis model” which assesses human capital-related KPIs, such as employee engagement, from a financial perspective.

A balancing act

Since the financial crisis, companies have come under increasing pressure to demonstrate their ability to balance short-term profits with long-term value creation and sustainable growth. Asked to comment on this trend, Alexsandro Broedel Lopes, Group Finance Director at Itaú Unibanco in Brazil, explained that in emerging markets “sustainability is not a consequence”, but is instead “an integral part of the business model”. At Itaú Unibanco, he said, this concept is underscored by the fact that his company is not selling goods and services that are quickly consumed, but is instead dealing in “transactions for customers that will last for 50 years”. Therefore, the company “needs people to believe that we’re going to be here 50 years from now, that we can provide long-term value creation”. If not, quite simply, “my business will cease to exist; my customers will go to the bank and get their money back”.

The challenge, Lopes went on, is in “going from speech to practice”. Indeed, “if you want to manage based on the six capitals, you have to give incentives based on the six capitals. Which means integrated thinking must become part of your remuneration and compensation system, it must be widespread in the organization”.

In response to this comment, the panel then discussed the likely timescale for a more solid legal grounding for Integrated Reporting. Picking up on Lopes’ point about ‘integrated incentives’, Morrissey spoke of the need for more specific auditing and stock exchange requirements and standards to ensure companies are “really living and breathing this”. Tim Haywood concurred, adding that, ideally, we “shouldn’t have a sustainability community or strategy – it should be business strategy; it’s difficult, but to make it effective it has to be the core essence of the purpose of an organisation to deliver sustainable value in all its guises.”

This article was kindly contributed by Stratton Craig: www.strattoncraig.co.uk. Look out for the continuing debate in articles from delegates and speakers at www.integratedreporting.org
<IR> Training Foundation Partners tell us why they are offering training on Integrated Reporting:

Black Sun: The time is right for Integrated Reporting

BSD Consulting: The need to build organizational capacity for integrated thinking and reporting
The IIRC welcomes Enel and the Duchy of Cornwall to the <IR> Business Network this month.

<IR> Business Network participants are at the forefront of the corporate reporting evolution, with many case studies from their reports profiled in the <IR> Examples Database.
The IIRC has welcomed PwC's 2017 Global Investor Survey, which confirms the need for companies to tell a clear story in an era of information overload - reinforcing the case for Integrated Reporting.

This builds on a recent IIRC/PwC  publication 'It's not just about the financials' - a series of interviews with investment professionals.
Richard Howitt, CEO, IIRC talks to Public Finance magazine about using Integrated Reporting to help public bodies demonstrate value. As CIPFA announces project to develop guidance in this field. 
Contact: juliet.markham@theiirc.org
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