As investors and stakeholders clamor for more transparent non-financial disclosures, the corporate reporting landscape must evolve to meet their demands. Organizations, in turn, must adhere to the new standards and frameworks that are emerging in abundance. Integrated Reporting is some such framework that organizations are increasingly adopting to showcase their value-creation efforts.
Why was there a need for this framework?
Interestingly, the idea of Integrated Report stemmed from capitalism. Until 2007, the accepted definition of capitalism was the efficient allocation of capital to deliver returns to investors over the short, medium, and long term. In 2007, the Global Financial Crisis (GFC) disrupted the world economy and raised questions about organizations’ dependence on short-term financial factors and complete misrecognition of their exchanges with nature. The need for change was evident – a reporting methodology that focuses on financial data and sustainability-related information.
Taking matters into his own hands, in 2009, the Prince of Wales held a high-level meeting of investors; companies; accounting bodies; and representatives of Unites Nations (UN), Accounting for Sustainability Project, International Federation of Accountants (IFAC) and the Global Reporting Initiative (GRI). This resulted in the establishment of the International Integrated Reporting Committee (IIRC). IIRC’s aim was to oversee the creation of an Integrated Reporting framework. In 2011, the Committee was renamed the International Integrated Reporting Council (IIRC).
What happened next?
A Pilot Programme began in 2011. It included over 90 businesses that were ready to challenge and change orthodox ways of reporting and promote responsible stakeholder communication. Two years later, in 2013, IIRC published the framework defining the guiding principles.
What is the International Integrated Reporting framework?
The framework is based on integrated thinking. Integrated thinking is the process that an organization follows while creating an Integrated Report. It ensures that the organization presents information on value creation, preservation, or erosion over time. The purpose of the framework is to establish guiding principles and content elements that govern the overall content of an integrated report and to explain the fundamental concepts that underpin them.
What is an Integrated Report?
According to the IIRC, ‘An Integrated Report is a concise communication about how an organization’s strategy, governance, performance, and prospects, in the context of its external environment, lead to the creation, preservation or erosion of value over the short, medium and long term’.
Based on the framework, the report must:
Improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital
Promote a more cohesive and efficient approach to corporate reporting
Enhance accountability and stewardship for the six capitals – financial, manufactured, intellectual, human, social and relationship, and natural – and promote understanding of their interdependencies
Support integrated thinking, decision-making, and actions that focus on the creation of value over the short, medium, and long term
Different types of Integrated Reports
Standalone Integrated Report: A separate document titled ‘Integrated Report’, which could be in addition to an Annual Report, and follows the framework
Integrated Report as a section in the Annual Report: Certain disclosures pertaining to an Integrated Report – value creation, strategy, stakeholder engagement, governance – made part of the Annual Report
Sustainability Report made using the principles: Certain elements of the framework are followed, along with GRI-related disclosures
A more evolved IIRC
In November 2020, the IIRC and Sustainability Accounting Standards Board (SASB) announced a potential merger which was finalized in June 2021, resulting in the Value Reporting Foundation (VRF).
The organization’s website says the VRF is ‘a global nonprofit organization that offers a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value – how it is created, preserved and eroded’.
These resources include:
The Integrated Thinking Principles – To guide board and management planning and decision making
Essentially, the VRF combines the resources of the IIRC and SASB to help businesses improve planning and decision-making, and better their reporting of financial and non-financial information. The Foundation also provides methods to create a feedback loop that improves processes within an organization.
By now, we hope you have a basic understanding of the history of and why it is the new paradigm in the world of corporate reporting.
As a business seeking to create an Integrated Report, it is crucial to follow the framework to the extent possible. At Report Yak, our experts will take you through the framework and build your report using the elements, as suitable for your organization.