Chair, International Accounting Standards Board
It has been an amazing and insightful journey during the past ten years in the world of reporting. I am proud to have been a part of it. During my tenure as Chair of the International Accounting Standards Board (IASB), we have worked closely together with the IIRC to strengthen corporate reporting around the world.
As part of the IIRC Council, I have seen first-hand the discussions and work that have led to the publication of the International <IR> Framework. It has become a catalyst for change. The ideas that underpin the <IR> Framework are becoming mainstream in other reporting frameworks. This includes, for example, our own guidance for companies on how to write their management commentary.
The IIRC’s success should be measured by the extent of its influence, not just the number of ‘Integrated Reports’ produced. For this I pay tribute to the dynamism of former CEO Paul Druckman who was instrumental in establishing the IIRC as a force for change, and more recently, Charles Tilley’s leadership.
The IASB has long recognized the importance of information outside the financial statements in assessing a company’s longer-term prospects. Recognizing this, we created the Management Commentary Practice Statement in 2010. The IIRC has built on those ideas. Now, I am pleased to say that we in turn are building on the IIRC’s work as we update our Practice Statement. Proposals for these amendments will be published early next year.
The IIRC has played a key role in getting important issues on the agenda. The hot topic in the reporting world is sustainability. The scope of potential sustainability issues is very broad with companies affected in a variety of different ways. It is not just about climate change. Investments in a company’s workforce and the durability of its business model will often be important. I am pleased that the IIRC is working with several organizations to look at this through the lens of integrated reporting.
Financial reporting often requires judgements to be made about the future, for example when assessing asset lives and impairments. So, companies are already having to think about the potential consequences of the Paris Agreement and other developments for their financial statements. Financial reporting materiality is not limited to short-term factors.
Sustainability reporting can complement this information when it provides additional insights into a company’s prospects – for example by providing measures to show the progress made in managing sustainability-related risks. This type of information is particularly useful where outcomes are uncertain or may occur over a long time period. It may be an important part of the narrative that accompanies the financial statements.
The IFRS Foundation is also looking at sustainability reporting with interest.
My hope is that in the future financial reporting and sustainability reporting will come even closer together. Much of that will depend on governments truly addressing the negative externalities of the most polluting economic activities. Financial reports today reflect the state of progress in pricing of externalities. A realistic carbon tax would cause the financial results of smokestack industries to reflect the true costs of their products. Financial reporting would come very close to sustainability reporting…
I wish the IIRC all the best and here’s to the next ten years of the organization.