What is integrated reporting?

Integrated Reporting brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how an organization demonstrates stewardship and how it creates and sustains value.

An Integrated Report should be an organization’s primary reporting vehicle.

Why do we need integrated reporting?

Since the current business reporting model was designed, there have been major changes in the way business is conducted, how business creates value and the context in which business operates. These changes are interdependent and reflect trends such as:

• globalization,
• growing policy activity around the world in response to financial, governance and other crises,
• heightened expectations of corporate transparency and accountability,
• actual and prospective resource scarcity,
• population growth, and
• environmental concerns.

Against this background, the type of information that is needed to assess the past and current performance of organizations and their future resilience is much wider than is provided for by the existing business reporting model. While there has been an increase in the information provided, key disclosure gaps remain.

Reports are already long and are getting longer. But, because reporting has evolved in separate, disconnected strands, critical interdependencies between strategy, governance, operations and financial and non-financial performance are not made clear. To provide for the growing demand for a broad information set from markets, regulators and civil society, a framework is needed that can support the future development of reporting, reflecting this growing complexity. Such a framework needs to bring together the diverse but currently disconnected strands of reporting into a coherent, integrated whole, and demonstrate an organization’s ability to create value now and in the future.

International differences in reporting

Reporting requirements have evolved separately, and differently, in various jurisdictions. This has significantly increased the compliance burden for the growing number of organizations that report in more than one jurisdiction and makes it difficult to compare the performance of organizations across jurisdictions.

The benefits of Integrated Reporting

Research has shown that reporting influences behaviour. Integrated Reporting results in a broader explanation of performance than traditional reporting. It makes visible an organization’s use of and dependence on different resources and relationships or “capitals” (financial, manufactured, human, intellectual, natural and social), and the organization’s access to and impact on them. Reporting this information is critical to:

• a meaningful assessment of the long-term viability of the organization’s business model and strategy;
• meeting the information needs of investors and other stakeholders; and
• ultimately, the effective allocation of scarce resources.

An international framework

• The IIRC is developing an International Integrated Reporting Framework that will facilitate the development of reporting over the coming decades. The core objective of the Framework is to guide organizations on communicating the broad set of information needed by investors and other stakeholders to assess the organization’s long-term prospects in a clear, concise, connected and comparable format. This will enable those organizations, their investors and others to make better short-and long-term decisions.
• The initial focus is on reporting by larger companies and on the needs of their investors. The Framework will help to elicit consistent reporting by organizations, provide broad parameters for policy-makers and regulators and provide a focus for harmonizing reporting standards.

The building blocks

• Five Guiding Principles underpin the preparation of an Integrated Report.
• Strategic focus
• Connectivity of information
• Future orientation
• Responsiveness and stakeholder inclusiveness
• Conciseness, reliability and materiality
• These Principles should be applied in determining the content of an Integrated Report, based on the key Content Elements summarized below. The presentation of the Elements should make the interconnections between them apparent.
• Organizational overview and business model
• Operating context, including risks and opportunities
• Strategic objectives and strategies to achieve those objectives
• Governance and remuneration
• Performance
• Future Outlook

Future direction

• The development of Integrated Reporting is designed to enhance and consolidate existing reporting practices and, through collaboration, consultation and experimentation, to move towards a reporting framework that provides the information needed to assess organizational value in the 21st century. The next steps that the IIRC will take in this direction are listed below.
• Undertake a Pilot Programme to encourage experimentation and innovation among companies and investors.
• Develop an International Integrated Reporting Framework Exposure Draft, reflecting responses received to this Discussion Paper and the experience gained from the first year of the Pilot Programme.
• Work with others to support the development of emerging measurement and reporting practices relevant to Integrated Reporting.
• Raise awareness among investors and other stakeholders and encourage organizations to adopt and contribute to the evolution of Integrated Reporting.
• Explore opportunities for harmonizing reporting requirements within and across jurisdictions.
• Develop institutional arrangements for the ongoing governance of Integrated Reporting.

The full report can be found at www.theiirc.org/the-integrated-reporting-discussion-paper.