The push towards integrated reporting within the corporate space should be seen as part of a broader move to re-establish the confidence that enterprise can bring to economics.
This is the view of Paul Druckman, the CEO of the International Integrated Reporting Council (IIRC). The view comes as some of the world’s largest and most influential companies and investors meet to drive integrated reporting.
About 100 businesses from across the globe, including Deutsche Bank, The Coca Cola Company, Natura, Unilever and Tata Steel, alongside leading investors, are taking part in a pilot programme run by the IIRC to test and help develop the integrated reporting framework. Business leaders from across this pilot programme network are meeting in Frankfurt for two days, June 18 to 19, to share insights and provide feedback on the framework. The meeting is hosted by IIRC and PwC.
Druckman said “Corporate reporting is a key tool for communicating with stakeholders an organisation’s unique story of value creation. The reality is that all too often businesses focus their reporting on financial information alone, rather than the full and rich sources of value creation, such as talent, knowledge and natural resources, the management of which are critical to business success”.
He added “It’s no coincidence that this week’s G8 meeting, and the related G20 agenda, is focused on business transparency – and that will be a focus for the next two years. 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,”
The IIRC noted that integrated is gaining traction with some of the world’s largest companies. According to a report by the IIRC and Black Sun last year, 93% of companies involved in the programme say that IR helps them to overcome silos between departments such as Strategy, IT, Investor Relations, Finance, Sustainability, Corporate Communications and others.
Consulting firm PwC noted that there is still a long way to go before the reality of company reporting catches up with the ambition of integrated reporting. This is based on a PwC survey of the current reporting of large companies involved in the IIRC’s pilot programme.
The survey examined the reporting of 50 pilot companies that had already published reports by 30 April 2013.
Zubair Wadee, a Director at PwC, said “Companies that hope to see the benefits of greater stakeholder confidence and lower costs of capital understand the need for communicating in a well thought through and cohesive manner. The ability of the board to develop the right strategies and business models to succeed is also greatly influenced by the quality of the information delivered internally.”
· 84% of the companies assessed already identify one or more non-financial capitals 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 effect that is having both on the competitiveness of the business and the health of the communities they depend on.
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 the business creates value.
· Half of companies talk about what resources and relationships their business models rely on. Of that 48%, the majority discusses constraints and availability expectations – but very few companies cover all their material capitals 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 their business and encourage investment.
· 83% discuss future market trends, but only 40% of those 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 give 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.
· The majority does not yet integrate their financial and non-financial performance in 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.