Big Businesses Growing More Interested in Integrated Reporting, PwC says

MOVES toward integrated reporting received a major lift earlier this month when 100 businesses across the globe took part in a pilot programme, run by the International Integrated Reporting Council, to test and help develop the integrated reporting framework.

BANGKOK, 25 June 2013 – As public sentiment towards business practices remains highly distrustful, some of the world’s largest and most influential companies and investors have come together in a bid to promote more open and useful business reporting.

One hundred businesses across the globe, including Deutsche Bank, The Coca-Cola Company, Natura, Unilever and Tata Steel, alongside leading investors, are all taking part in a pilot programme run by the International Integrated Reporting Council (IIRC) to test and help develop an integrated reporting framework that aims to give a more informative view of a business.

Business leaders from across this pilot programme network met in Frankfurt on June 18 and 19 to share insights and provide feedback on the framework, which is open to public comment until July 15 2013.

Sira Intarakumthornchai, CEO of PwC Thailand, said that ‘Integrated reporting’ (IR), an approach for businesses to report on their value creation including financial and non-financial key performance indicators, is gaining traction with some of the world’s largest companies.

Companies involved in the IIRC’s pilot programme say that they can now better judge the risks and opportunities of their businesses because IR facilitates a more holistic way of thinking and managing.

“I believe integrated reporting is vital to properly communicate the way we do business today, rather than 50 years ago,” Sira said. “Without it, trust in business and our capital markets will suffer, because investors and others will not have a clear picture of business – the risks and the opportunities, the performance and prospects.”

According to a report by the IIRC and Black Sun, one of Europe’s leading strategic corporate communications consultancies, in 2012, 93% of companies involved in the programme say that IR helps them to overcome silos between departments such as Strategy, Controlling, IT, Investor Relations, Finance, Sustainability, Corporate Communications and others.

Ninety-eight percent agree that IR will lead to a better understanding of how the organisation creates value, and 95% said IR also contributes to a better understanding of their business model and gives them the opportunity to focus on the right Key Performance Indicators (KPIs).

But there is still a long way to go before the reality of company reporting catches up with the vision, Sira said.

“Big businesses are acting to make reporting fit the reality of business today, our survey finds, but significant changes are needed if we are seriously to grow and create transparency in the future.”

The survey examined the reporting of 50 pilot companies that had already published reports by April 30. It was conducted by the integrated reporting specialists at PwC in preparation for the two-day meeting they hosted between the IIRC and global business leaders that have already begun to work with the basic principles of integrated reporting in their businesses. PwC hosted the conference to facilitate sharing experiences with integrated reporting and discussing examples of how they are applying the principles.

For instance, 84% of the companies assessed already identify one or more non-financial types of capital that are material to their business operations. But so far, only 15% comprehensively report on all material capitals that are relevant to their industry and circumstances in their 2012 annual reports.

When this is addressed it will be easier for stakeholders to see how they are creating value from the resources used, and what impact that is having both on the competitiveness of the business and the health of the communities they depend on, he explained.

In addition to information on financial and manufactured capital, the IIRC Framework also calls for information on human, intellectual, social and relationship capital as well as natural capital, if material to a company’s value creation.

  • About one-quarter of the participants are already successful in communicating how their business creates value.
  • Half of companies talk about what resources and relationships their business models rely on. Of that 48%, the majority of companies discuss constraints and availability expectations – but very few companies cover all their material capital in this way, and even fewer support this with data. Reporting effectively on this would build confidence that management has an accurate understanding of the risks to its business and encourage investment.
  • 83% discuss future market trends, but only 40% of these link market discussion to strategic choices.
  • 96% report their principal risks but only 23% integrate their risks into other areas of their reporting—linking to strategy, business models and KPIs. Improvements here would instil more faith in how businesses are managing their risks and making appropriate operational decisions.
  • 71% of pilot companies explicitly identify their key performance indicators (KPIs). About 47% of businesses had some targets for these indicators, but only 17% clearly align KPIs and strategic priorities; and only about a third of businesses make some link between financial and non-financial performance.
  • As might be expected under current requirements, the majority do not yet integrate their financial and non-financial performance into their reporting, which suggests that there is some distance to go on building understanding within business around how organisations create and destroy value (not just creating returns for their shareholders), and further, how this affects their future prospects.
  • “It’s important for all of us to get started and make progress with integrated thinking and reporting—but we have to remember that integrated reporting is in its early stages and is still being tested. Adopting the principles is a journey that should benefit businesses and wider society as it builds trust in our capital markets.”

    Paul Druckman, CEO of the IIRC, added that “The work to move towards integrated reporting is part of a broader move to re-establish the confidence that enterprise can bring to our economy. Market-led innovation with integrated reporting will help ensure that change achieves its ambition to re-energise capitalism and doesn’t simply become another burden on business.”

    Many businesses—not only the ones participating in the pilot programme—already use the structure, content elements and terminology of the integrated reporting framework as a point of reference. Most businesses appreciate the competition among their peers as a driver for the further development of their reporting.

    Sira concluded that the benefits of IR that companies have identified include valuable insights into strategy and corporate management, improvements to data quality and speed in collecting data and efficiencies—preparing only one integrated report instead of several reports such as an annual report and a sustainability report.

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