Visiting Professor of Management Practice at Saïd Business School, University of Oxford
President, Mike Krzus Consulting
Just a few days before celebrating its 10th Anniversary, the International Integrated Reporting Council (IIRC) announced that it would be merging with the Sustainablity Accounting Standards Board (SASB) to form the Value Reporting Foundation. The merger will enable the new entity to provide “investors and corporates with a comprehensive corporate reporting framework across the full range of enterprise value drivers and standards to drive global sustainability performance.”
This announcement brought back some fond personal memories. One was a meeting on September 11, 2009 at St. James’s Palace in London that was convened by The Prince of Wales Accounting for Sustainability (A4S) project and Global Reporting Initiative (GRI) and organized by Jessica Fries, then on secondment to A4S and now its Executive Chairman. During the morning we got useful feedback on a draft of our first book on integrated reporting: One Report: Integrated Reporting for a Sustainable Strategy (published in 2010). At that time, A4S was working in the same domain under the label of “connected reporting.” The afternoon was devoted to how to bring these ideas into practice.
One follow up to that was a meeting at HSBC which, along with BP help set up A4S, on 16 July 2010 hosted by Russell Picot, then Group Chief Accounting Officer at the bank. A press release on August 2, 2010 announced the formation of the International Integrated Reporting Committee, which was renamed as the International Integrated Reporting Council in 2011. Attending the meeting were a number of luminaries including Paul Druckman, who became the first CEO of the IIRC, and Charles Tilley, then CEO of CIMA and now the CEO of the IIRC.
One year later in July of 2011 the Sustainablity Accounting Standards Board (SASB) was founded by Jean Rogers, with Eccles as its Chairman. In December 2013 the IIRC published “The International <IR> Framework.” Given the multiple NGO initiatives in the domain of setting standards for non-financial information, the Framework remained agnostic about which to use. We published our second book, The Integrated Reporting Movement: Meaning, Momentum, Motives, and Materiality, in 2014. One of our recommendations was the members of the movement needed to establish a strategy for balancing market and regulatory forces to speed the adoption of integrated reporting.
Both sets of forces have come together this year to create the opportunity for integrated reporting to achieve its full potential. Market forces include BlackRock calling for its portfolio companies to report according to SASB and the Task Force on Climate-related Financial Disclosures (TCFD), the September publications of ‘Statement of Intent to Work Together Towards Comprehensive Corporate Reporting’ by CDP, the Climate Disclosure Standards Board (CDSB), GRI, the IIRC, and SASB and ‘Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation’ by the International Business Council of the World Economic Forum with the support of the Big Four. On the regulatory side, also in September the IFRS Foundation published its ‘Consultation Paper on Sustainablity Reporting.’ This paper proposes that the IFRS Foundation establish a Sustainability Standards Board (SSB) to operate in parallel to the International Accounting Standards Board (IASB). The SSB would solve the problem for what standards an integrated report should use for the material environmental, social, and governance issues that matter to investors.
While the IFRS Foundation has competence in standards setting, credibility in the business and investment communities, and regulatory support around the world, it does not currently have the capabilities to do standard setting for sustainability. The merger of the IIRC and SASB which was announced on November 25 is a catalytic event that will enable the SSB to get a fast start. The combined entity, ‘The Value Reporting Foundation’, could eventually integrate other entities focused on enterprise value creation, and the Foundation and CDSB have jointly signalled interest in entering into exploratory discussions in the coming months.
The proposed SSB and the Value Reporting Foundation are the convergence in market and regulatory forces that many have been waiting for to make integrated reporting the way companies and investors communicate and engage with each other. This is a clear window of opportunity, but the window won’t be open forever. Somewhat ironically, the U.S. can play a key role here. To date it has lagged most other countries in terms of quality and quality of integrated reporting. Our view is that this is largely due to specious arguments regarding litigation risk.
At the same time, SASB has strong support in the U.S. investment and business communities.. This is an asset it brings to the merger. There is nothing in U.S. securities law that would prevent companies from publishing integrated reports based on standards set by the SSB. We suggest that a top priority for the Value Reporting Foundation is to put together an aggressive strategy for speeding up the adoption and quality of integrated reporting in the U.S., the largest capital market in the world.