The International Integrated Reporting Council on why integrated reporting is a highly effective tool for both big and small businesses.
In the past, financial balance sheets and profit statements represented over 80 percent of the value of a business. Unsurprisingly, all the attention was on financial capital; where it came from, what happened to that capital through the activities of the business, and what financial outcomes could we focus on.
Today, such a focus on financial capital only explains a fraction of the value of East Asia’s top companies – yet our tools of measurement are only now starting to change. We still too often use financially-based tools, decisions and incentives, even when the real drivers of value today are ideas, relationships, brands and natural capital. To shift the focus to the real value drivers of today’s world, integrated reporting is one of the most effective tools for any organization, no matter how big or small. The reporting methodology balances a company’s performance across financial, social, human, intellectual, manufactured and natural capitals – though fast growing, it’s still developing as a nascent discipline.
At the International Integrated Reporting Council (IIRC), our mission is to establish integrated reporting within mainstream business globally.
Entering the momentum phase
In October, we announced the next phase in our strategic journey: the momentum phase. Building on the achievements of the breakthrough phase, this phase of our strategy is designed to create impetus and energy across our target markets and in key sectors to accelerate the adoption of integrated reporting, so that businesses and investors are communicating about value creation.
We will also be focusing on making progress towards greater alignment of the corporate reporting system with a coalition of organizations called the Corporate Reporting Dialogue – reducing reporting burden and misunderstanding between the different frameworks and standards in the markets.
In a “better alignment” project launched this month, we signalled to the market our commitment to alignment and cohesion, giving clarity to organizations worldwide on how to use reporting frameworks and standards effectively, with the ultimate aim being a paradigm shift towards the integration of information in reporting.
Having consulted with the market and with the businesses in our global Network, we will also focus on advancing the concept of integrated thinking as a driver of effective corporate governance. Making sure principals central to integrated reporting are led by the board, setting a sense of purpose, culture and long-term thinking.
A leading practitioner of integrated reporting is China Light and Power (CLP). CLP’s Jeanne Ng, who sits on the IIRC Board, has described the benefits of integrated reporting to them, saying, “there’s so much more interaction between different departments now as a result of integrated reporting. We now build better relationships and collaborate. This is one of the big value points of doing integrating reporting.”
Recently, the IIRC has formed an Integrated Thinking and Strategy Group – part of our global Network – which brings together some of the world’s most innovative companies so that they can collaborate, learn from each other, challenge each other’s thinking, and share leading practices for themselves, and those who follow them. We encourage you to join.
Achieving mainstream adoption
The International Federation of Accountants (IFAC) stated that integrated reporting is “the future of corporate reporting.” This statement by IFAC was a major breakthrough in our global message, but integrated reporting is an idea that is still gaining traction. And while progress with individual stock exchanges and regulators, such as in the United Kingdom, Malaysia, India and Brazil, has been impressive, there is still further work to do to gain majority adoption.
The momentum phase will not only drive adoption of integrated reporting to new markets and sectors, it will also seek to mobilize the “investor” pull and make it easier to adopt integrated reporting.
For East Asia, and in particular, Hong Kong, we will be focusing a lot of effort in ensuring environmental, social and governance (ESG) factors become embedded in business and investor decisions. Integrated reporting is about linking ESG information to strategy and the business model – putting it at the heart of the way the organization works.
Also during this phase, we will be promoting integrated reporting as an effective tool for businesses looking to enhance their contribution to the Sustainable Development Goals, while reducing corporate risk and increasing opportunities that arise from sustainable development issues.
The corporate reporting landscape is changing. The way business is being done in 21st century is changing. We are all facing increasing pressures stemming from the likes of incessant short-termism and the need to address climate change. What we are seeking is progress in the way companies think, act and communicate on these issues.
We believe the next chapter will develop integrated reporting into an essential pillar of 21st century corporate governance.
To achieve this strategy, we will need to leverage the support of our partners, who do so much to promote integrated reporting and ensure it is a key aspect of good corporate governance globally. We look forward to working with you.
The International Integrated Reporting Council is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. The coalition is promoting communication about value creation as the next step in the evolution of corporate reporting.
This article was originally published in the November 2018 issue of A Plus. You can also read the digital edition here.