The International Integrated Reporting Council Publishes 2013 Consultation Draft and Partners with TSX for Canadian Launch
Last month the International Integrated Reporting Council (IIRC) partnered with the TSX for the Canadian launch of the 2013 Consultation Draft of the IIRC’s International Integrated Reporting Framework.
The IIRC, a global coalition of regulators, investors, companies, standard setters, accounting professionals and NGOs, share the belief that business value lies beyond just the financials and that as such, corporate reporting must evolve to give providers of financial capital a concise yet holistic understanding of a company’s strategy, governance, performance, and prospects, in relation to its external environment.
The Integrated Reporting Framework takes a principles-based approach. It does not provide rules for measurement or specify mandatory KPIs; rather, it gives leaders flexibility to determine which matters are material to an organization’s ability to create value over the short, medium and long-term and report on these matters accordingly.
From April 16 – July 15, interested parties have the opportunity to review and comment on the Consultation Draft of the Framework and by December 2013, the first version of the Framework should be released. Currently adoption of the Integrated Reporting Framework is voluntary, but the IIRC’s vision is that the Framework will eventually become the norm in corporate reporting.
The Six Capitals
At the launch, Lisa French, Head of the IIRC’s External Relations in the Americas, spoke about the six capitals that organizations need for success, including: financial, manufactured, intellectual, social, human and natural capital. French argued that because these six capitals create value for an organization, they are integral inputs into a company’s business model.
By including these capitals into corporate reporting, the IIRC argues that organizations will be able to:
- Enhance their accountability and stewardship by establishing more meaningful investor engagement;
- Promote transparency by providing greater insight into a company’s future outlook and value creation, and;
- Improve the identification, analysis and management of material issues thus, mitigating risk and reducing the cost of capital.
For the providers of financial capital, what does this really mean?
Ultimately, Integrated Reporting should allow for greater access to asymmetrical information which should help individuals better understand and compare the value of organizations. It comes down to giving individuals the opportunity to make better-informed decisions.
For integrated reporting to be truly effective, its proponents argue that organizations must be ready to adopt an “integrated thinking” approach.
According to IIRC, financial and non-financial strategy creation has traditionally occurred in silos. For example, corporate and social mandates for an organization are usually developed in isolation of one another; business teams across the organization seldom work together to develop a cohesive roadmap; rather each business unit usually develops its own strategy with consideration for the greater goals and objectives of the company.
Panelists at the launch argued that integrated reporting will help build internal bridges and promote cross-collaboration, fostering an internal culture open to integrated strategy creation. This integrated thinking will help organizations better identify the risks and opportunities they face and maximize value creation over both the short and long term.
‘An idea whose time has come’
There is no question that financial metrics alone cannot provide investors and other providers of financial capital with sufficient understanding of a company’s value. Despite this, the movement towards full comprehensive reporting has been staggered. According to IIRC, a paradigm shift is required and it must start from the top. Senior leadership must promote a culture where silos are broken down and corporate strategies are created collaboratively across the organization.
Integrated Reporting has the potential to change the way we tell a company’s story. It’s focused on looking forward, which places the emphasis on communicating how a company’s strategy and business model will create value.
Whether Integrated Reporting will be the answer remains to be seen. But clearly, as it was echoed repeatedly at the launch, it’s an idea whose time has come.
For more information, please contact Marina Proskurovksy.