The International Integrated Reporting Council (IIRC) was established in 2010, a response to the global financial crisis, when solutions were needed to mitigate the risk of such a collapse of the financial system happening again.
It celebrates its tenth anniversary during a new global crisis – the ongoing health pandemic that has already caused lasting devastation around the world.
And yet, the world has changed over the last ten years.
It is a story of an awakening of many concepts that are at the heart of integrated thinking and reporting. The importance of challenging short-termism. The understanding that climate change is a crisis that we must all confront. The need for business to be a part of society, not apart from it. The importance of balancing profit with purpose.
We haven’t conquered all of these issues – far from it. But there is growing consensus on where we need to get to and integrated reporting has grown as a result.
Back in 2010, integrated reporting was just a concept – an idea that this new form of ‘multi-capitalism’ could help address the misallocation of resources and capital that had led to the financial crisis.
Today, the concept of integrated reporting has been embedded by over 2,500 companies in more than 70 countries.
Over 40 stock exchanges refer to it in their guidance. The concepts within it have been woven into the fabric of corporate governance reform in countries across the world.
And this year, we have for the first time set out what a holistic corporate reporting system can look like in partnership with the other leading framework providers and standard setters.
Working with CDP, the Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) we have provided a shared vision for a comprehensive, globally accepted reporting system that includes both financial accounting and sustainability disclosure, connected via integrated reporting.
When HRH The Prince of Wales called a meeting at St James’s Palace in 2009 – a meeting that marks the start of the IIRC’s journey, the focus was on bringing together a cross section of representatives from companies, investors, regulators, standards setters, the accounting profession, academics and civil society to drive integrated reporting forward.
This coalition remains the foundation of the IIRC and the last ten years would not have been possible without the advocacy and support of IIRC Council members, <IR> Business Network participants and ambassadors that have helped develop, implement and advocate for its adoption.
The contributions to this tenth anniversary celebration all have a similar theme – the strong belief that the adoption of integrated reporting goes hand in hand with real, effective, behavioural changes to the way businesses think, plan and communicate. That the benefits of integrated reporting are tangible, with enhanced stakeholder relationships and a better understanding of the real drivers of value within a business – as businesses focus on the risks and opportunities to their business models from beyond the balance sheet.
The testimonials in this anniversary publication also recognize the importance of integrated thinking, which has gone from strength to strength, as organizations recognize the need to develop strategy through a multi-capital lens, and engrain it into corporate governance and performance management practices.
Ultimately, they emphasize the huge strides made over the last ten years that has led to this new, exciting opportunity to create a holistic, cohesive and complete corporate reporting system internationally and the need to work together to drive this system forward and achieve the IIRC’s mission.
Key to the success of the IIRC has been the market-led development of the principles-based International Integrated Reporting Framework. Its concepts have stood the test of implementation in businesses of all sizes and sectors around the world. It is the intellectual basis of the global integrated reporting movement, setting out the key concepts of value creation for the organization and others, connectivity of information and the multi-capital approach to managing and nurturing resources and relationships.
Published in December 2013, the <IR> Framework brought technical rigour and cohesion to a process that was already growing organically through market pressure. Its principles were developed and tested by the 100 participants of the IIRC’s Pilot Programme who trialled the <IR> Framework over a three-year period, alongside a set of investor organizations who guided the <IR> Framework development to ensure it was in line with their reporting needs.
It was subject to a three-month consultation period which saw over 1,500 individuals attend 15 events on the same day around the world – hosted by major stock exchanges such as Deutsche Börse, Nasdaq and Singapore Exchange. A further 90 events took place over the following three months ensuring the <IR> Framework was fully reflective of experiences and needs globally.
This year, the IIRC has undergone a new consultation process which has demonstrated that the <IR> Framework remains fit for purpose. The consultation was on minor revisions to the <IR> Framework, to respond to an evolving market context and further embed integrated reporting and thinking into mainstream business practice, with a key focus of the revision on enabling organizations to use the <IR> Framework even more effectively.
Whilst the global COVID-19 pandemic meant the consultation had to take place virtually this time, over 1,000 individuals had their say on the planned revisions via 21 virtual roundtables hosted by IIRC partners internationally, as well as via written submissions.
The consultation has also helped the IIRC chart the course for the next ten years, with questions around how integrated thinking may develop further, technology may play a more important role in reporting and in the development of rigorous assurance models.
Since the release of the International <IR> Framework, organizations have found the benefits of integrated thinking to be transformational. The discipline of making a deliberate and coordinated effort to connect the organization’s strategy, governance, performance and prospects unleashes the compelling and durable internal and external benefits of integrated reporting.
When integrated thinking is applied, the integrated report becomes more than the output of a process but, rather, a critical milestone in the continuous journey of improvement in decision-making, accountability and communication.
Today, the best performers are basing their business decisions on interconnected and forward-looking information across multiple capitals, with a view to sustainable value creation.
In 2017, the IIRC launched a new Integrated Thinking & Strategy Group under the umbrella of the <IR> Business Network, with over 50 participants globally, to develop a new model for integrated thinking. The group published a state of play report published in January 2020 which set out the ‘spring model’ for implementing integrated thinking – based on the interconnectivity of the multiple capitals a business uses and effects. It is about creating and preserving value for key stakeholders to help build resilient, future-fit businesses.
A series of case studies published this year set out how individual businesses have approached integrated thinking, which the participants of the Integrated Thinking & Strategy Group hope will inspire a new generation of businesses to advance their integrated thinking.
Since the <IR> Business Network was established, it has brought together leading organizations around the world to discuss new approaches, overcome challenges and drive innovation.
Within this broad network, which brings together organizations globally and across a huge range of sectors, businesses have come together to discuss these issues within certain sectors or from specific viewpoints. These have included networks for those in the public sector, in banking, insurance, pension funds, academia, accountancy profession, and most recently, technology.
Technology is rapidly developing to enhance the way businesses analyze, use and communicate data as the volume, and demand, for data continues to grow.
The <IR> Technology Initiative brought together organizations from across the technology discipline including those in business software, reporting software, sustainability software, and consultancy and systems integration, to identify how technology can underpin new trends in reporting on both sides of the report production and consumption value chain.
The group published two reports – the first aimed at CFOs and how they can use technology to drive multi-capital thinking, and the second aimed at Chief Information Officers and the steps they can take to build an information architecture that supports integrated reporting, harnessing technological developments to identify how the organization is creating value in the short, medium and long term.
Other <IR> Networks have sprung up around the world as businesses meet locally to discuss paths to implement integrated reporting within the boundaries of local regulation – these include major networks in Australia, Brazil, India, Japan, Turkey, the US and across Europe, Africa and the ASEAN region.
South Africa is a trailblazer of integrated reporting, the first country in the world to adopt it as a mainstream component of corporate governance. The Integrated Reporting Committee of South Africa issues regular guidance to support the development of integrated thinking and reporting, with the latest piece setting out how organizations can adapt and enhance their reporting to respond to the COVID-19 pandemic.
Japan is another market leading the way with the widespread adoption of integrated reporting, which is encouraged as a route to developing strong, long-term relationships between businesses and their investors.
South Africa, Japan and other leading adopters such as the UK, Australia, Malaysia and the Netherlands have approached integrated reporting from the corporate governance angle.
Corporate reporting is an essential and inseparable part of corporate governance – it is the outcome of the corporate governance process – grounded in the purpose, values and activities of the business and reflecting on the behaviours, from the board and management team, through the business.
Increasing numbers of corporate governance codes around the world are highlighting the value of integrated reporting in this regard.
The benefits of adopting integrated reporting have been analysed by academics around the world. From lowering the cost of capital (Nanyang Business School), to better stock liquidity and a higher firm value (Stanford University), to higher share performance (University of Singapore) and securing long-term investors (Harvard Business School).
The contributions from business leaders to this ten-year anniversary publication demonstrate that integrated reporting has supported real behavioural changes to the way organizations think, plan and communicate.
Integrated reporting helps businesses produce concise, cohesive reports that focus on the unique value creation story of their organization, helping to build trust and understanding with investors, employees, customers and society at large.
Twenty years ago, a balance sheet might have provided useful insight into an organization’s value. Today, the value of total assets reported in most balance sheets is a fraction of the market value of many organizations and investors are looking for greater insight into where this value lies and how it is being managed.
Integrated reporting enables investors to have a better understanding of an organization’s key resources, strategy, performance and prospects.
An EY survey of investors has indicated that investors globally already see the benefits of integrated reporting, with 88% confirming that integrated reporting is useful.
Over twenty investor organizations globally signed a statement of support for integrated reporting, indicating their demands for the more reliable reporting across the value creation chain that integrated reporting delivers.
The accountancy profession is of strategic importance to our global economy and as such, their role in advancing the profession so that accountants shift from accounting for the balance sheet to accounting for the business, connecting the financial transactions to the organization’s broader goals, strategy and performance, is vital.
The profession has played a pivotal role in deploying integrated reporting in a way that ensures actionable focus on the information and decisions that matter to an organization and its potential success.
An International Federation of Accountants (IFAC) survey indicated that Professional Accountancy Organizations are actively involved in integrated reporting activities, with 88% of 49 organizations confirming this.
IFAC has called on the G20 to embrace multi-capitalism and integrated reporting in all G20 countries and has stated that, “As business leaders, the accountancy profession needs to play a key role in encouraging and supporting the global adoption of integrated reporting.”
As integrated reporting develops, so has the concept of integrated reporting assurance. Assurance is key to developing credibility and trust in reporting, with 60% of the <IR> Business Network now gaining some form of assurance, in addition to a statutory audit on their integrated report.
Thorough integrated reporting assurance, however, is still in its infancy with only a handful of cases internationally. It entails the judgement of the assurance practitioner as to whether the business is living the strategy it sets out in its report on a day-to-day basis. To obtain assurance on an integrated report adds credibility to claims made in the report about strategy, governance, resource allocation and relationship management, the business model, and risk and opportunity management.
Over the next ten years, we expect demand for integrated reporting assurance to grow as organizations such as ABN AMRO in the Netherlands, Cipla in India, and Cbus in Australia lead the way.
Central to the work the IIRC has achieved over the last ten years have been efforts to drive a cohesive and holistic reporting system that reflects enterprise value creation.
In 2014, the IIRC convened the Corporate Reporting Dialogue bringing together the International Accounting Standards Board, the Financial Accounting Standards Board, CDP, the Climate Disclosure Standards Board, the Global Reporting Initiative, the Sustainability Accounting Standards Board, the International Organization for Standardization and the IIRC.
The Dialogue strives to strengthen cooperation, coordination and alignment between key standard setters and framework developers that have a significant international influence on the corporate reporting landscape.
Since 2014, members of the Dialogue have published a map of the reporting landscape aligned to the <IR> Framework’s six capitals, a statement of common principles of materiality, a report on the Sustainable Development Goals and the future of corporate reporting, insights into the common foundations and key objectives of Dialogue participants and a report outlining alignment in climate-related reporting.
The work of the Corporate Reporting Dialogue can be seen as a precursor to the joint statement published by CDP, CDSB, GRI, SASB and the IIRC setting out a shared vision of what is needed for progress towards comprehensive corporate reporting – and the intent to work together to achieve it.
The agreement of the Sustainable Development Goals (SDGs) in 2015 provided businesses with a framework to translate global needs and ambitions into the business model and strategy of organizations.
Businesses globally have found the multi-capital model provided within the <IR> Framework supports them to articulate and engrain their contribution to the Sustainable Development Goals.
Our emphasis on the efficient and productive use of all forms of capital aligns with SDG 12, which seeks to ensure sustainable consumption and production patterns. Integrated reporting is an effective mechanism for monitoring the allocation of capitals, managing performance and strengthening accountability in the public and private sectors.
As a broad coalition of businesses, investors, standard setters, regulators and other key stakeholders, the IIRC also supports Goal 17, revitalizing the global partnership for sustainable development. Through our multi-stakeholder partnerships and extended networks, we are well positioned to influence regional and global policy and the decisions underpinning the flow of financial capital.
With the urgent need to tackle climate change at the forefront of the global agenda, the IIRC also supported the development of the Task Force for Climate-related Financial Disclosure recommendations (TCFD) which, with its focus on governance, strategy and risk management, is highly aligned to the <IR> Framework. As the TCFD recommendations became embedded in the reporting landscape, the IIRC worked with CDP, CDSB, GRI and SASB through the Better Alignment Project to demonstrate the alignment between our frameworks and standards to the disclosure principles, and recommended disclosures and illustrative example metrics of the TCFD recommendations.
As we look to the next ten years, with our eyes on achieving our mission to establish integrated reporting and thinking within mainstream business practice as the norm in the public and private sectors, we recognize the vital role partnerships will continue to play.
Our announcement of intent to merge with the Sustainability Accounting Standards Board (SASB) in to a unified organization, the Value Reporting Foundation, is a significant advancement towards building a comprehensive system of corporate reporting, as we work to ensure integrated reporting and sustainability disclosure have the same level of rigour as financial accounting and disclosure.
We are committed to working closely with our colleagues at CDP, CDSB and GRI, building on our joint statement of intent, and stand ready to engage with the IFRS Foundation, IOSCO, EFRAG and others working towards global alignment in the corporate reporting system.
Reporting should never be for reporting’s sake. Our focus is on ensuring businesses have effective governance over enterprise value creation factors and that investors are able to fulfil their role as stewards.
We look forward to working with you over the next ten years to achieve this.