The Editor’s blog


Interlinked and interdependent reporting



The integrated report does what it says on the tin

For many the news that a new framework has been agreed on for what has come to be known as integrated reporting will pass by unmarked. No fanfare, and little acknowledgement, yet this is indeed a milestone, even if the fruits of these labours may only be enjoyed in years to come.

The integrated report does what it says on the tin. It brings together all material information about a business - from governance and strategy to prospects and performance - into one document that focuses on the future outlook of a company.

It’s not about creating yet more paperwork but linking together the various corporate reports - financial reports, governance and remuneration reports, among others - into one neat, concise report that shows how every aspect of a business is interlinked and interdependent.

So much has changed in how companies operate and how they impact on individuals, governments and the wider society that corporate reporting has struggled to keep apace of these developments and offer investors and others the information they need about a business. The result is that reporting sometimes doesn’t fully reflect what investors and other stakeholders in society need and want to know about a business, its potential for growth and its ability to withstand shocks wherever they may come from.

What once appeared a solid, well-functioning and enduring company, can - as we have seen in recent years - disintegrate before our eyes in an instant. Look at Lehman Brothers, for example. Its disintegration was frighteningly immediate.

Integrated reporting is about the long-term as well as the short- and medium-term. It’s about the sustainability of jobs, investment and the environment in which a company operates as well as the more traditional financial data that we’re reliant on. If we want businesses to be an integral part of a sustainable society then the integrated framework is the one initiative that can get us there if we consider the global consensus the project is enjoying.

We only have to look back just a few years to see how the impact of a great number of seemingly non-business related issues can affect a company, its reputation, share price and bottom line, but also the environment and its inhabitants, both people and wildlife.

In 2010 the Deepwater Horizon explosion in the Gulf of Mexico killed 11 people and resulted in 4.9m barrels of oil being discharged, endangering marine life and hundreds of miles of coastline. The clean-up, litigation, not to mention the reputational damage has cost the company tens of billions of pounds and will continue to impact on the business for years to come.

I’m not suggesting that a fledging initiative like integrated reporting would have been able to prevent such disasters, but it could arm investors and others will the vital information they need to decide whether or not to invest in or work for a particular company.

Today’s announcement says Paul Druckman, CEO of the International Integrated Reporting Council, will be used to accelerate the adoption of integrated reporting across the world. It is currently being trialled in over 25 countries, 16 of which are members of the G20. Global comparability is another great benefit that the project is aiming for.

Heavy-weights behind the initiative - PepsiCo, HSBC, Unilever, Hyundai and Tata Steel to name a few of the 100-plus strong business network - not only lend the initiative credibility but also illustrate the determination to make it work. These companies would not be spending time, effort and resources in altering their reporting processes, which are undoubtedly complex and vast, if they did not consider the project beneficial.

“Today we have fired the starting gun on a period of global adoption that will begin in early 2014 by showcasing practical examples of reporting innovation, including how businesses are demonstrating value creation using the ‘capitals’ model and principles such as the connectivity of information,” Druckman says.

Other organisations are behind integrated reporting too. ACCA, the global body of accountants, is backing the initiative and its CEO Helen Brand makes a valid point, that of rebuilding trust in business.

“Ultimately, I hope that IR will restore trust in business - reporting models have been criticised in the past, but now is the time for change,” Brand says.

KPMG, which also welcomes today’s launch, says it is a chance to “move business reporting beyond merely a discussion of past financial performance”.

David Matthews, partner and leader of KPMG’s integrated reporting team, says it’s a great opportunity for boards looking to move their investor dialogue beyond short-term earnings to explaining how the business has been developed.

Tags: corporate reporting, iirc, integrated reporting, non-financial data, paul druckman

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About Author

Michelle Perry joined IDG in September 2010 as editor to launch CFOWorld. She has over 15 years’ experience working as a business and finance journalist across a broad range of publications. Michelle began reporting on the role of finance a year before the collapse of Enron, – then the world’s largest energy company, whose management caused the biggest corporate fraud on record. She has since closely followed the changing face of finance and the role of CFOs

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