Financial and sustainability information must converge - IIRC response to EU High-Level Expert Group on Sustainable Finance

The International Integrated Reporting Council (IIRC) has welcomed the significance placed on the integration of information for investors made by the European Union’s High-Level Expert Group on Sustainable Finance, in their interim report released today. The Group, which is made up of highly respected leaders from the business world across Europe, specifically cites integrated reporting as key to the ‘ultimate ambition’ of convergence to low-carbon growth.

Commenting, Richard Howitt, CEO, IIRC said, “The High-Level Expert Group has had the vision to see that to see that the scale of the challenge cannot be met by green investment vehicles alone, but by integrating the opportunities and costs related to climate change for mainstream investors. The findings are an important recognition of the role Integrated Reporting can play to help reform the capital markets system in the EU towards sustainable growth.

“Whilst welcoming the recognition of the work of the IIRC in the integration of financial and non-financial information, we recognise that this is only an interim report and accept our responsibility to work with partners across Europe to bring about the shift to long-termism and integrated thinking.

“The concept of Integrated Reporting is built on the premise that financial stability and sustainable development go hand-in-hand, and the EU High-Level Group has signaled a decisive step towards this for the European Union itself.”

The Group in its report says that, “Firms typically report on their financial performance quarterly, which requires continuous attention to short-term indicators, potentially at the expense of a longer-term focus. When this happens, it is clearly an obstacle to promoting sustainable, long-term investments. At the same time, investors’ demand for information is legitimate to oversee and steer the allocation of scarce resources. An important development in that regard is the establishment of the International Integrated Reporting Council…”

One of the key findings the Group has put forward is the need to prioritise the integration of environmental, social and governance (ESG) factors into financial decision making. Recognising the investor demand for information beyond the purely financial, the Group states, “climate change and its related risks have become a crucial issue in fiduciaries’ decision-making process” – reaffirming the IIRC’s belief in the importance of communicating a holistic story of value creation.

The Group has concluded that the, “Ultimate ambition has to be the convergence of financial and sustainability information,” continuing, “Integrated reporting supports this convergence qualitatively through reporting that links sustainability factors with firms’ strategy.”

The IIRC welcomes the call from the High-Level Expert Group for the European Financial Reporting Advisory Group (EFRAG) to formally “ask the IIRC to work on how sustainability factors can be captured in dedicated accounting standards, in addition to those for financial reporting.”