Three Challenges for Integrated Reporting

Eight years ago, the International Integrated Reporting Council (IIRC) was born. Its founding vision, which ICAEW has always supported, was and is to “align capital allocation and corporate behaviour to wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking”.

I believe the IIRC has made significant progress towards realising this vision. The Council’s influence can be seen every year in some fantastic examples of integrated disclosure, at the Finance for the Future Awards. ICAEW established these awards with the Prince’s Accounting for Sustainability Project (A4S), and we now run them in partnership with Deloitte. Over the past three years, we have included a specific category for “communicating integrated thinking”, which has attracted some exceptional quality nominees.

However, I believe there are three key challenges that we must meet in order to build further progress and fully realise this vision.

A Basis in Integrated Thinking

Firstly, is the need for integrated reporting to be firmly based in actual practice or integrated thinking. Without businesses or other organisations integrating all the capitals into mainstream decision-making, there simply won’t be much to report.

ICAEW hosts the Natural Capital Coalition, established in 2012 to drive the integration of nature into mainstream business decision-making, which it does through the Natural Capital Protocol.

Businesses, whilst enthusiastic, have experienced difficulty in applying the Protocol, as the impacts are often not what or where people assume, and often require a complete re-framing of how a business views its relationship with nature. To complete an assessment is extremely data-intensive and even if the data exists, it very rarely flows to the people who need it in a format that is useful.

Many businesses also come up against significant questions about the way they operate and are having to make fundamental changes before they can begin to understand the value they can create. It’s a huge task, but the ultimate result is a more profound understanding of the business, its ability to adapt and the value it does and can create beyond financial returns.

Rigorous Testing

A second challenge is the need for integrated reporting to be rigorously tested. It needs to be seen by markets and the public as reliable and authentic if it is to inform the decisions of investors and other stakeholders. The markets need to believe that measuring different forms of capital can benefit decision-making.

As new forms of capital become operational, new audit and assurance models may be required to collect and measure that data – models that can earn and maintain public trust.

In a world where the consideration of business’ impact on society and nature becomes the new norm, the bar on trust will almost certainly be raised.

The Wider Context

Finally there is the need for integrated reporting to be understood as part of a wider toolkit of policy and market levers for driving behaviour. Corporate behaviour is driven by a complex web of factors, including corporate strategy, employee engagement and government policy. It is also impacted by having to respond to demands from a range of stakeholders, including consumers, campaigners and investors.

We have to understand disclosure within this wider context, consider the outcomes we want to achieve and experiment with how to achieve them. Integrated reporting therefore becomes part of more widely integrated policy-making and market action.

Integrated reporting already plays a pivotal role in the wider sustainability agenda, but we must continue to work to ensure corporate reporting and business strategy become fully sustainable for the long-term.

  • I agree with John Ward and think Michael Izza is pointing the way forward more widely too.   Business needs a license to operate, and regularly suffers from specific campaigns from those challenging our behaviour.  Our goal is an acceptably purposed business community in a sustainable world.   Reporting must be seen in this context - we are no longer talking only to the financial / investor community.  We need to be purposeful on behalf of a much wider set of stakeholders and transparency is a good discipline.  The question is whether we can do it for ourselves.  I doubt it!

  • I see this as a key topic to address in helping to resolve the confusion over the purpose and focus of an audit. The IAASB is working hard to develop guidance on its ten key challenges to assuring EER by capturing knowledge that already exists amongst the few who know how to address these matters. However, it will also need legislative and regulatory changes to enable progress as well as some enterprising business leaders prepared to develop and issue an assured Integrated Report for the first time. Unless a business wants to start a trend by defining the content itself...One thing to be wary of: Integrated Reports should reflect the business, its business model and strategy and so look very different from one another; I'm for establishing principles defining the content but heavily against over-prescription as we currently have in Annual Reports and Financial Statements.