Integrated reporting: Time for “profound change”?: IR Framework launches

11 Dec 2013

The final Integrated Reporting Framework has been launched, providing a tool intended to help businesses explain to investors and others their vision and strategy for longer-term sustainability and profitability.

IIRC “taken aback”

“The framework brings technical rigour and cohesion to a process that has grown organically and through market pressure over the last three years” said Paul Druckman, CEO of the International Integrated Reporting Council. The IIRC has found itself “taken aback” by “overwhelmingly positive” business and investor engagement in the pilot programme and consultation process.

At an integrated reporting event in the City of London, the Lord Mayor Fiona Woolf described the framework as more than a tool: “it is underpinned by a new vision for how business goes about business... it is a catalyst that can bring about profound changes in business and investor behaviours.” She added that it has the potential to lead to “responsible capitalism”.

Long term financial stability?

“An integrated report should be viewed as the ‘back end’ of the process of integrated thinking,” said PwC Corporate Reporting director, Mark O’Sullivan. “It’s the final presentation of a company’s business model, its value creation strategy and financials, all connected, and looking both backward and forward. It’s pointless to collect information just for external reporting purposes alone – the information needs to be useful and relevant for management and board decisions about the business too.”

The ultimate aim of integrated thinking and reporting is to bring businesses to a position of self-knowledge and clear communication that sees them contributing to a “more financially stable global economy”.

“It is a catalyst that can bring about profound changes in business and investor behaviour”
- Lord Mayor Fiona Woolf

The Framework has the support of a range of large businesses. In a question and answer session at the Lord Mayor’s event Russell Picot, chief accounting officer at HSBC, was asked why the financial industry should commit to IR. Mr Picot placed integrated reporting in the context of long-term financial stability. “Excessive focus on the short term”, he said, does not allow for the efficient allocation of capital and resources and nor does industry “making up” its own measurement basis for success. He further suggested that businesses now need a “societal license to operate, without which “you will not prosper”. Integrated Reporting, he argued, can help complex businesses communicate beyond the “terminal value in a spreadsheet”.

The CEO of Hermes EOS, Colin Melville, echoed this, saying that those who hold investments for longer periods of time require “more context” and a “broader perspective” beyond extra data. Integrated reporting, he added, “supports investment decision making and analysis over the long term” and will help to uphold the “principles of responsible investment.”

Some questions from the audience expressed disillusionment over investors’ seemingly inconsistent approach to sustainability and management’s wide-ranging approach to materiality.

“The time for IR has come”

The IIRC’s next step will be to move beyond the pilot programme and reach out more broadly to businesses now starting to think about integrated reporting for the first time.

“The time for integrated reporting has come” said Professor Mervyn King, chairman of the IIRC. “Boards that do not take into account the impacts of the business are not discharging their duty of care.” He added that the financial crisis demonstrated that a financial report, “though critical, was not sufficient”. “We’ve been steering our companies down the street of lost opportunity. Integrated Reporting can help us turn the corner onto the avenue of sustainable capitalism.”