Can you briefly explain in lay terms what integrated reporting is? How is it different from conventional reporting?
Over the last decade, many businesses and investors realized that conventional reporting is too complex, lacks relevance and wasn’t enabling them to communicate with each other sufficiently. Annual reports had evolved to be backward-looking and much more for the regulator than for the business itself.
Integrated Reporting turns that on its head. First and foremost, it is a vehicle for long-term value creation for and by the business itself. It helps them think, plan and report the story of their business.
Integrated Reporting is achieved by connecting different functions to form a holistic view of the business, recognising the value, risks and opportunities represented in a long-term and wider view of the ‘capitals’ with which it operates and applying the reporting to the core business model and strategy of the organization.
The Framework categorises these wider resources and relationships an organisation uses as the ‘six capitals’: natural, human, manufactured, social and relationship, intellectual as well as financial. Businesses are not asked to report against all six, but to ask themselves the questions of which and how might each be material to them? The integrated report helps businesses think holistically about their strategy and plans, make informed decisions and manage key risks and opportunities to build investor and stakeholder confidence and improve future performance. Stakeholders – especially investors – can then use the information to make more informed decisions about capital allocation and investing in the long term.
Ultimately corporate reporting is not an end in itself, but a means to an end – which is better business. Therefore we put equal emphasis not just on the reporting, but on the ‘integrated thinking’ which is integral to changing the mind-set in business and in society about what truly constitutes successful business. The International Integrated Reporting Council (IIRC) is a coalition of major global businesses, investors, accountancy and other likeminded organizations that came together with the clear objective of making integrated reporting the global norm. Already 1,500 global businesses use Integrated Reporting and Indian businesses who want to stay ahead, should move towards Integrated Reporting as quickly as possible.
According to you, why is integrated reporting important in the Indian context? What have you learnt from working with Indian companies that have signed up?
There has been an impressive early adoption of Integrated Reporting by leading companies in India. Major businesses such as Yes Bank, Wipro and Tata Steel have come together to champion this new approach as part of an ” Lab” set up under the auspices of our partners in the Confederation of Indian Industry.
But India especially is fast growing as an economic player in the world, with its own capital markets developing and Indian companies becoming major global businesses in their own right. It is no coincidence that the BRICS
economies – including India itself – are some of the leading countries for implementation of Integrated Reporting. It can help ‘fast track’ good international reputation for companies and for the whole country. It can help overcome concerns about corporate governance and demonstrate responsible leadership. It can put Indian companies at the heart of today’s international debates about maintaining trust in business, shifting to long-term investment and of inclusive capitalism.
That’s why I strongly welcome the official circular published by the Indian security regulator SEBI this month, calling on the top-500 listed companies in India to produce an integrated report. It’s Chair has already said “it is not whether but when” Integrated Reporting will be adopted in India.
This new announcement is a sure sign that this time is now.
How do you foresee the future of sustainability reporting? How do you think it can become more ongoing and timely?
Integrated Reporting must be seen not as additional reporting but as changing existing corporate reporting. Many companies produce integrated reports in their Directors’ Report and financial filing. We recognise ‘reporting fatigue’ in business and Integrated Reporting is seeking to make reports more concise and material to business success.
Therefore, Integrated Reporting does not seek to prescribe detailed performance metrics for each of the capitals, but recognises that for natural capital in particular, many companies have chosen to do sustainability reports, to better understand and manage their impact on environmental sustainability and to provide information to wider stakeholders. What Integrated Reporting does is turns this focus around, so businesses can understand and manage the environments impact on their business model and strategy.
We work in partnership with the major sustainability reporting frameworks and together we have formed a ‘Corporate Reporting Dialogue’ to seek to align and harmonise reporting over time.
For companies who choose to undertake sustainability reports, the IIRC welcomes that. These companies can then take the information produced for their sustainability report that is material to how the company creates value over time and integrate it into the organization’s broader story of value creation through their integrated report.
Where do you see regulation and reporting moving in India?
The ‘Business Responsibility Report’ was a recognition by Government in India of the wider and long-term impact of business and the fine tradition of philanthropy from Indian business to the wider society. The vision of Integrated Reporting moves to the next stage which harnesses the way business is conducted to maximise opportunities and minimise risks in this broader context.
In my recent speech in Mumbai, I talked about not just utilising the ‘2 per cent’ but the ’98 per cent’.
In my discussions in India, we discussed how Government, the regulator and stock exchanges through their listing requirements could endorse or advocate Integrated Reporting – and the SEBI circular is a direct outcome of those discussions. We thank SEBI for their leadership in this regard and the signal it sends to markets around the world. That does not necessarily mean hard regulation but can mean ‘soft law’.
For example, the BSE has agreed to introduce Integrated Reporting within the corporate governance scorecard it uses with its listed companies, and to host the launch of new guidance on Integrated Reporting which is being developed within the Lab. Accountancy companies and associations have also played a leading role internationally in moves towards Integrated Reporting and similar developments are taking place amongst the profession in India. Just as corporate reporting is evolving internationally to embrace Integrated Reporting, I expect it to do so in India.
Businesses, investors, financial institutions, regulators and Government all have their role to play in achieving this.
How do you look at the IIRC’s future? In what direction do you see it evolving?
The IIRC is moving from its’ ‘Breakthrough phase’ which was about introducing the Framework into the market and building awareness and adoption – which we’ve done with over 1,500 companies adopting in around thirty countries – to the ‘Global Adoption Phase’. This new phase will see increasing numbers of companies adopting Integrated Reporting and ‘whole system’ adoption of Integrated Reporting in countries and regions of the world with the support of international organisations.
Nearly 200 companies have chosen to share learning about Integrated Reporting by joining our international business network, and I would like to see some more leading Indian businesses do so in the future, as well as taking part in a global training programme for Integrated Reporting which is being rolled out in India and all countries across the world.
Integrated Reporting is already the leading practice in Japan and the norm amongst listed companies in Brazil and South Africa. The Ministry of Finance China has put Integrated Reporting firmly on the agenda in China and it is cited in relation to new disclosure requirements for larger business agreed in the European Union. In the next phase, I see Integrated Reporting growing through country-by-country adoption in which recent developments in India form an outstanding example.
At the global level, the IIRC is also active amongst the B20 grouping of leading business representatives in the world. We will champion recommendations for integration from the Financial Stability Board Task Force on financial disclosure in relation to climate risk in which we have collaborated and which G20 Governments will be asked to endorse later this year.
G20 Governments have already recognised Integrated Reporting for the first time two years ago, and India’s representation in the G20 and other international fora, can help take this to the next stage this year and in the future. As an organisation the IIRC does not seek to become an institution in its own right, but to grow its ‘coalition’ of champions worldwide to bring about worldwide change.
Our strategy is based on two key pillars – the first is about embedding Integrated Reporting as a key principles of 21st century corporate governance – and the second is about Integrated Reporting being a catalyst for a more cohesive corporate reporting system.
I don’t know of any company that has started adopting Integrated Reporting and then changed its mind. That’s quite powerful – it’s clear that those that are using the Framework are finding it useful and benefiting from doing so. So I’m confident that as more and more companies adopt Integrated Reporting we will see it increasingly becoming the norm for corporate reporting in both the private and public sectors.
In Conversation with Mr. Richard Howitt, Chief Executive Officer of the International Integrated Reporting Council. (Original Post)