The growing momentum for integrated reporting: Part 2

Posted
19 December, 2022

Integrated reporting, now part of the IFRS Foundation materials, promotes a more cohesive and efficient approach to corporate reporting and aims to improve the quality of information available to providers of financial capital. An integrated report explains how an organisation creates, preserves or erodes value over time and provides insight about the capitals and relationships used and affected by the organisation. The IASB and ISSB encourage the continued use of the Integrated Reporting Framework and commit to using its principles and concepts to drive connected and effective corporate reporting.

Part 1 of this blog series highlighted the geographical and sectoral results of a study conducted in early 2022 to determine where and how integrated reporting adoption is occurring, revealing significant adoption across all sectors worldwide. IFRS staff conducted a deeper analysis of integrated reporting adoption data to determine the degree of alignment between reports from around the world and the Integrated Reporting Framework. The results are shown below.

Study finds strong alignment with the Integrated Reporting Framework

The Integrated Reporting Framework is a principles-based framework that guides effective communication on strategy, governance, performance and prospects through a multi-capital lens, enabling a single integrated report that communicates a business’s holistic value. To create value, a business relies on critical resources and relationships. In the Integrated Reporting Framework, these resources are called capitals. The capitals include financial, manufactured, intellectual, human, social and relationship and natural.

The process of adopting integrated reporting is often a journey, with organisations gradually embedding the Framework’s concepts and principles within their practices and decision-making. Despite this, the study demonstrated that reports were reflecting a strong alignment with the Integrated Reporting Framework.

Out of the 2,500+ companies known to produce an integrated report, an initial sample of 1,700 was collected. Of those, listed companies were retained for analysis due to the public availability of their integrated reports. Of these, a random sample of 78 reports was selected for analysis. This random sample included an integrated report from 71 of the 77 total Sustainable Industry Classification System® (SICS®) industry categories and one report from each of the five geographic regions[1] classified in the analysis.

For each report, staff recorded the following data:

  • Name of the document
  • Type of document
  • Reference to the Integrated Reporting Framework
  • The report’s target audience
  • Reference(s) to other sustainability reporting frameworks and disclosure standards (for example, SASB Standards, GRI Standards and TCFD Recommendations)
  • Use of multi-capital language
  • Use of value creation language
  • Application of the Guiding Principles and Content Elements within the Integrated Reporting Framework

Staff reviewed the data and found that most reports are well-aligned with the Framework. Analysis revealed the following observations:

  • Most reporters are using the names ‘Integrated Report’, ‘Integrated Annual Report’ or ‘Annual Report’.
  • Target audiences identified in the report include providers of financial capital and other stakeholders.
  • Most reports are integrated into an annual report or a standalone document that includes key financial facts and sustainability summary data.
  • The vast majority (87%) specifically refer to the Integrated Reporting Framework.
  • References to other sustainability disclosure standards and reporting frameworks include SASB Standards, TCFD Recommendations, and GRI Standards.
  • There is a tendency (71%) toward adopting multi-capital language, especially in the business model and performance sections of the reports.
  • Value creation language is widely adopted, particularly in Japan.

The strongest alignment with the Framework occurred in the following areas:

    • Strategic focus and future orientation (Guiding Principle)
    • Connectivity (Guiding Principle)
    • Organisational overview and external environment (Content Element)
    • Business model (Content Element)
    • Performance (Content Element)

The results from this study reflect a number of interesting findings. Firstly, the principles-based approach of the Integrated Reporting Framework enables companies to think and report in a more holistic manner from the start of their integrated reporting journey, reporting their value creation story in a way that reflects the individual nature of their organisation. It also encourages those charged with governance to view the entity through a more connected, multi-capital lens. Secondly, the study reflects that an integrated report connects financial and sustainability-related information, providing more consistent and decision-useful data for the providers of financial capital as well as other stakeholders.

Using the Integrated Reporting Framework can help any organisation to embed integrated thinking in the corporate annual reporting cycle and lead to more complete and concise reports. If your organisation is looking to prepare an integrated report for the first time or build upon your existing process, the Integrated Reporting Framework and Transition to integrated reporting: A guide to getting started are helpful resources.

We will continue to keep you updated as IFRS Sustainability Disclosure Standards are developed, providing further insights on how the Integrated Reporting Framework can support connectivity to IFRS Accounting Standards, and support an interconnected, holistic disclosure landscape.

[1] Regional Classification System: Asia Pacific, North America, Europe, Latin America and the Caribbean, Middle East & Africa