CEO, International Federation of Accountants
The International Federation of Accountants (IFAC) was proud to be a part of the historic meeting at the end of 2009 at St James’s Palace, convened by His Royal Highness Prince Charles. IFAC, Mervyn King, the Global Reporting Initiative, and Accounting for Sustainability were joined by regulators, accounting firms, asset owners and asset managers, among others, to discuss an enhanced corporate reporting system that would enable boards of directors to discharge a duty of accountability beyond financial performance.
The outcome was the formation of the International Integrated Reporting Council – a multi-stakeholder coalition to make integrated reporting a reality. Within the IIRC, IFAC played a leading role in the development and emergence in late 2010 of the International <IR> Framework. Based on a six-capitals model, the <IR> Framework continues to provide the principles and concepts for thinking and reporting on value creation in the context of the digital, knowledge-driven, and resource-constrained world of the 21st century.
For the accountancy profession, developing integrated reporting was a milestone. Financial accounting and reporting have long been the language of business and capital markets. They are critical but on their own, they are not sufficient for boards to discharge their duty of accountability for long-term value creation. Integrated thinking and reporting are fundamental components of creating a more sustainable and inclusive global economy and achieving the United Nations’ Sustainable Development Goals.
Integrated reporting provides a foundation for rethinking value creation. It empowers organizations to break down reporting silos and recast reporting as a more meaningful activity involving the measurement, management and communication of what matters to long-term success while delivering short-term resilience and performance.
We are now again at a crossroads. Since the IIRC’s formation, the interest in and evolution of sustainable finance and environmental, social and governance (ESG) reporting has moved up several gears. This period of innovation and development has led to more diverse reporting on a wider range of issues which has gone some way to provide more transparency to stakeholders. But investors and capital markets complain that sustainability and ESG disclosure still is inadequate to inform investment decisions.
We now need to respond to demand from investors, policymakers, and other stakeholders for a reporting system that delivers consistent, comparable, reliable, and assurable information related to enterprise value creation and sustainable development. The price of continuing with a fragmented approach is inefficiency, increased cost to investors and companies, and a lack of trust.
In our view, the International Financial Reporting Standards (IFRS) Foundation, with its independence, good governance, and track record of due process, is in the best place to lead. It should do so by establishing a new International Sustainability Standards Board alongside the International Accounting Standards Board (IASB). Under the IFRS umbrella, this new board can garner support from public authorities like the International Organization of Securities Commissions, which is critical to legitimacy and the ultimate adoption of standards.
Integrated reporting, in conjunction with the IASB’s Management Commentary, provides the crucial link between financial reporting with sustainability and ESG reporting. It also extends to other capitals, including intellectual capital, which together comprise the value missing from traditional financial reporting.
As well as bringing together all relevant narrative, quantified and monetized information related to value creation, an integrated reporting process has three key features. First, it incorporates the same level of quality expected from financial reporting. Second, it is a predictive as well as historical analysis of performance and resilience. Third, and of critical and unique value, it can enable integrated management thinking, which is what is ultimately needed to improve decision making and capital allocation.
The accountancy profession continues to be an integral part of a multi-stakeholder corporate reporting system to help companies, economies, and societies achieve a more sustainable future. Our strategic partnership with the IIRC continues to support the advocacy and engagement of integrated thinking and reporting among the over 3.5 million professional accountants worldwide.