Integrated Reporting applies principles and concepts that are focused on bringing greater cohesion and efficiency to the reporting process, and adopting ‘integrated thinking’ as a way of breaking down internal silos and reducing duplication. It improves the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital. Its focus on value creation, and the capitals used by the business to create value over time, and how this contributes towards a more financially stable global economy.
The International Integrated Reporting Council (IIRC) is now seeking feedback on the Integrated Reporting Framework, originally published in 2013. This will allow them to clarify and add more detail to the framework, and improve the adoption of the principles and concepts discussed.
A number of adjustments are suggested such as changes to the required statement of responsibility from those charged with governance, and adding clarity around the business model disclosures to include more information around outcomes.
Required statement of responsibility
The required statement of responsibility from those charged with governance is frequently not included in integrated reports. To improve the adoption of these disclosures, the proposed changes aim is to simplify them. It is important that this statement has greater emphasis in integrated reports, as to truly live up to integrated thinking and integrated reporting, buy-in from leadership is essential. Including this statement will force consideration from leadership on integrated reporting in the company, and also give greater confidence to readers of integrated reports, that the leadership of the company fully supports the adoption of integrated reporting.
Many business models do not adequately address outcomes and confuse outcomes with outputs. The output of a business model is the products or services that the company delivers, whereas the outcomes are the internal and external consequences of the value chain and outputs of the business model. The changes to the Framework seek to improve adoption of reporting on outcomes and improve the disclosure around it. Outcomes are key as they give the reader a clear idea of the impacts that the company has on its stakeholders and the external environment, and the value that it creates and destroys. Many reports do not explain the impacts well, will overly focus on positive impacts, and do not give evidence to back up their claims around impacts. The changes to the Framework seek to give more evidence-based and balanced disclosures around outcomes.
In addition to altering the Framework itself, greater adoption of the concepts and ideas within the Integrated Reporting Framework could be achieved if the IIRC gave more guidance on how companies should go about implementing the ideas of the Framework to their company. Integrated reporting requires considerations about sustainability and non-financial value to be integral to decision-making and discussions around strategy, performance and risks. It requires the organisation to have sustainability considered throughout the organisation and for there to be a lack of silos and joined-up thinking. This is quite a tall order for companies to achieve, especially as many companies have limited stakeholder engagement and sustainability strategies. Moving from a company with limited sustainability considerations to one that has integrated thinking will require gradual change over a long period of time. If the IIRC gave more guidance on how they believe that companies could approach this challenge, particularly with a focus on how this should be organised internally, this would improve adoption.
Additionally, it would alleviate the misconception that many people and companies have about integrated reporting, which is that it is solely about reporting. When considering integrated reporting, companies are often not aware that it requires the way the organisation is run to be changed as well as how the company reports. Giving greater emphasis to the process and journey involved in achieving integrated reporting would assist with improving companies' understanding.
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