Richard Howitt on what really drives value

This is an interview Q&A with CEO Richard Howitt by Pivot Magazine and CPA Canada. The original article can be read here.

Richard Howitt has a long history of pushing companies to do good. Born in England, he spent nearly two decades as an elected member of the European Parliament, where he served as special rapporteur on corporate social responsibility for 12 years and was a key architect of the EU’s groundbreaking 2014 directive on non-financial corporate disclosure. He’s now CEO of the International Integrated Reporting Council, a London-based organisation that advocates for improved corporate reports worldwide. Pivot magazine talked to Howitt at a CPA Canada event in February.

Just briefly, can you explain the principles behind integrated reporting?
The nature of corporate information is changing. We now live in a multi-capital world. We still need financial reporting, of course, but there’s also environmental, social, human resource and intellectual capital. These are the true value drivers of the future. So firms need an integrated report that captures all these, and has as its objective long-term value creation. The IIRC was created to transform corporate reporting worldwide based on these principles.

And how is that going?
We are making extraordinary progress, but we’re tempered by the size of the task. Right now we have 1,700 companies in 72 countries doing integrated reporting, and it’s already the leading practice in Japan and South Africa. We’re also seeing big numbers in Brazil and Europe. In five years it will likely be the norm in China. And we’ve seen big-name adopters in the United States as well, such as General Electric, Southwest Airlines and Jones Lang LaSalle.

But keep in mind that financial reporting itself developed over hundreds of years. Our target is to make integrated reporting the global norm for corporate reporting by 2025. So that’s a huge challenge.

How would you assess Canadian progress?
Canada is a priority market for us. There is a lower level of awareness here when compared to some other markets, but let’s not underestimate your strengths. CPA Canada has been an important force as a leading and active member of the IIRC globally. [Canadian Dominic Barton is its current chair.]

What explains the low level of awareness in Canada? Is part of the problem that people feel much of this information is already included in Management’s Discussion and Analysis (MD&A) documents?
If so, then that’s a good problem to have. Let’s be honest, Canada is an advanced economy with a pretty good system of reporting. So you are starting from a high point. And if these ideas are already included in MD&As in Canada, then we should consider that a success, not a failure. But can we maximise the benefits of this process? CPA Canada did an analysis and found that integrated reporting is compatible with existing reporting requirements. So that presents a wonderful opportunity for companies here to improve their reporting. And you already have some outstanding examples of integrated reporting in this country.

Such as?
Vancity [Vancouver City Savings Credit Union] was right there at the start of the IIRC. And it produces an outstanding integrated report. Co-operators Insurance also produces a very high-quality report. TransAlta in the energy sector is noteworthy, particularly for showing how its transition to renewable energy has been incentivized by integrated reporting. So I give three cheers to the organisations here that are already doing it.

What will be required to achieve full-scale adoption in this country?
It’s all about a mindset shift—from short-termism to having companies look to the long-term and adopt a holistic view of all their different resources and relationships and impacts. Only when this new mindset comes through will we have truly succeeded. I am always being questioned: “Is this about more reporting?” No. It is less but better reporting. More concise information that is more material to the company. It’s cutting the clutter.

Is concern about reporting on climate change spurring action on this front?
Climate is top of mind for many businesses right now. And so we can see climate change disclosure gaining traction among Canadian firms. It’s a stepping stone. But it doesn’t stop there. There’s population change, demographic change, technological change. All these megatrends are as big in terms of impact as climate change. And only by having a connected—integrated—view can companies really know what is material to their long-term value creation.

What role will accountants play in this transition?
The IIRC was set up as a result of the efforts of the International Federation of Accountants [IFAC, of which CPA Canada is a member]. If accountants are going to ensure their reporting remains relevant in the future, then this work is absolutely essential. Information is changing. The difference between the old days and now is the difference between a tap and a lake. Before, the tap turned on the information once a year, and then turned off again. Now information is coming from all directions. Companies will have to decide whether they want to tell their own story, or if they want to let others do it for them.

Two years ago, IFAC said integrated reporting is the future of corporate reporting. No hesitation. No qualification. And pay credit to accounting schools and the big accountancy firms for their thought leadership and support. The whole profession is behind this mission.

Written by Peter Shawn Taylor, editor-at-large of Maclean’s magazine and a columnist at the Record newspaper in Waterloo, Ontario.