Integrated reports allow companies to address non-financial elements that affect their long-term business value. An organization’s integrated report must communicate its strategy, governance, performance – both financial and non-financial – and outlook to showcase how it is creating, financial, social, environmental, and commercial value for its stakeholders.
The Integrated Reporting <IR> framework has been laid down by the Value Reporting Foundation (VRF), formerly the International Integrated Reporting Council (IIRC). Integrated thinking forms an inseparable part of Integrated Reporting. According to the ‘Integrated Thinking & Strategy: State of Play’s report, integrated thinking is ‘a multi-capital management approach that enables organizations to deliver their purpose to the benefit of their key stakeholders over time. It is about creating and preserving value and enabling better decision-making based on interconnected, multi-capital information.’ In simpler words, an integrated report is a complete report of components involved in the creation value over the short, medium, and long term.
While the VRF has laid down the guidelines for the preparation of dedicated integrated reports, companies often use these for the preparation of annual reports and more often than not integrate some of its elements in other corporate reports as well.
The building blocks of integrated reporting
The framework of integrated reporting lays down 7 guiding principles and 8 content elements that govern the overall report. Although the framework has been built targeting private, for-profit companies, it can also be applied when reporting for non-profits and public companies.
The 8 content elements
The integrated reporting framework has outlined 8 content elements that are fundamentally linked to each other and are not mutually exclusive. This means that all these elements are required to be reported but not necessarily in the same order that they have been presented.
Organizational overview and external environment
What does the organization do and what are the circumstances under which it operates?
This is the very first question that all integrated reports should answer. This includes stating the company’s culture, ethics, values, and position in the value chain. Certain other quantitative key information is also to be disclosed such as the number of employees, revenue, and any significant changes that occurred in the company’s external environment.
How does the organization’s governance structure support its ability to create value in the short, medium, and long term?
In this section, the company details its leadership structure, specific processes that it may have implemented, the relationships it holds with its stakeholders, and its governance policies.
What is the organization’s business model?
This part of the report explains the business model of the company in depth — including its inputs, activities, outputs, and outcomes. Its inputs are the material resources that the company utilizes to create value in the short, medium, and long term. The business activities of the organization include all the initiatives that the company undertakes to differentiate itself, generate revenue, innovate and adapt. The output is the products and services produced by the company and also includes by-products and waste. The company’s outcome can be either negative or positive and is the external consequence that the company has on the 6 defined capitals of integrated reporting.
Risks and opportunities
What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium, and long term, and how is your organization dealing with them?
The risks and the opportunities that affect the company can be internal or external or a mix of both. Although identifying these is a crucial exercise for assessing the company, there is an element of uncertainty involved in this process as it is difficult to predict the magnitude of the given risk or opportunity. Further, companies can also state the risk mitigation measures they have employed and the value creation plan they have in place to utilize the available opportunities.
Strategy and resource allocation
Where does the organization want to go and how does it intend to get there?
This content element entails the company’s short, medium, and long-term strategies, existing strategies, resource allocation plan, and the method it will use to measure its overall performance. It can also include details about how all its activities are linked together and point out factors that differentiate it from its competitors.
To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capital?
The companies should demonstrate their progress with the use of quantitative and qualitative information. They can also highlight their key performance indicators that combine their financial measures with non-financial measures to illustrate the connectivity between the 6 capitals. Further, if any change in regulation has had a significant impact on the company, they can report it here.
What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
In this section, the company lays down anticipated changes in the company’s external environment and the manner in which the company plans to address the change. It also lays down the reasons for predicting the said changes while ensuring a realistic evaluation of its competitive landscape, market positioning, and risks.
Basis of presentation
How does your organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?
The report also includes a summary of the company’s materiality determination process, a description of its reporting boundary, and the frameworks and methods used to quantify material information.
Preparing an integrated annual report requires a specialized team that can effectively convey your message and create the desired impact.
Report Yak is a purely business reporting design agency that conceptualizes, creates content, and designs integrated annual reports, annual reports, CSR reports, ESG reports, and impact reports for corporations.
Feel free to check out our award-winning work here or get in touch and we’d be happy to discuss your next report.