Just released: the IIRC’s 2016 Integrated Report – a review

By Carol A Adams

The International Integrated Reporting Council (IIRC) has today released its 2016 Integrated Report.  A little late in the year perhaps but it makes up for it in other ways.

Right at the beginning the report covers two issues which too few reports are tackling: a statement from the Board accepting their responsibility for the report and their involvement in it; and, a statement of commitment to the SDGs.  But disclosure supporting both is limited (conciseness wins).

Value creation and the business model

The value creation statement is interesting.  I liked the crisp description of inputs, outputs and outcomes (although I think the use alternative terms for some of the capitals was not enhancing), and was intrigued about the statements of value created “for us” (meaning “the organisation” it seems) and “for others” given the <IR> Frameworks focus on ‘providers of capital’.  This is perhaps in response to criticisms of this aspect of the Framework or perhaps highlights the difficulty (or maybe inappropriateness?) of identifying ‘providers of capital’ and/or the report audience in some cases.

Those who provide funding to the IIRC in cash or in-kind support are presumably convinced that integrated reporting adds value to organisations and/or society. But this created value is lost in a number of bubbles given equal prominence in the business model diagram (p 4) such as ‘enhanced stewardship of natural resources’ and ‘committed and knowledgeable team’.

I would have liked to have seen created value discussed in terms of achievement of what appears to be the vision: “Align capital allocation and corporate behaviour with the wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking”.

Connectivity

All organisations struggle with connectivity in some way and I’ve mentioned some issues above.

Sustainable development and inclusive capitalism (as a means of addressing income inequality are listed as ‘external trends’ (p5).  Certainly, sustainable development ought to be a trend, but is it yet?  I don’t think so.  I think the discussion of external trends should talk about the issues that make integrated reporting and stewardship of the capitals important, rather than possible solutions. Climate change, people living in poverty and the inability of financial reports alone to convey long term value creation come to mind as external trends that are relevant to the IIRC’s work.  Surely, it is the issues that give rise to the IIRC’s vision and which may interfere with its achievement that are the trend that the IIRC needs to be cognisant of?

The strategy is clear and well presented with some exciting work ahead.  There will be no rest!

The SDGs don’t get an explicit mention in the strategy, but on the up side there is more to come.

Information on who the key stakeholders are, what their interest is and how the IIRC engages with them is important to support the value creation statement.  The IIRC provides this and more information about how it engages with regulators and stock exchanges, critical to its vision and important in terms of the ability of integrated reporting to create value, is provided in the strategy (p18).

Material issues

All  too often reports have insufficient coverage of risks and little or no coverage of opportunity, yet understanding both are important in achieving strategy.  This report identifies both risk and opportunity.  I didn’t understand what was meant by ‘Effective IIRC relationship’ as an opportunity (relationship with whom and in what context?), but a supportive regulatory environment and an increasing business understanding of the importance of sustainable development do provide opportunities for the IIRC to create value.

Enhancing credibility

The need for greater credibility of integrated reports is identified as material risk (p 10).  So how has the IIRC addressed this? Page 11 sets out what the IIRC is doing to enhance the credibility of integrated reports.  The focus of its activities will be training and best practice and example dissemination, rather than encouraging disclosure of governance processes or assurance which addresses key integrated reporting processes. Yet governance processes are critical to enhancing the credibility of integrated reporting.

Statements from the Boards taking responsibility for integrated reports are important to enhance credibility and the IIRC provides one up front.  But I would expect to see more information about the management and governance processes in place to ensure the integrity of a report.

Governance failures and overpayment of the former CEO and President at CPA Australia, widely covered in the Australian Financial Review, make a mockery of that organisation’s integrated report and statement of how it creates value for members.

The inclusion of a statement of ‘Adherence to the International <IR> Framework’ in the IIRC’s report is a positive step which others could follow either in their report or as additional information on their website.

The assertion that the Board is involved in determining material matters is important, but again linking to more information (not necessarily in the report itself) would have provided some credibility.

Note: Picture is the front cover of the “IIRC Integrated Report 2016 Copyright © July 2017 by the International Integrated Reporting Council. All rights reserved. Used with permission of the IIRC”

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