The IIRC (which was created in 2010 to help coordinate and promote consistency among all relevant parties) defines an integrated report as “a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.”
Juan Costa Climent, EY’s Global Leader for Climate Change and Sustainability Services, says increasing adoption of IR “is the outcome of a process that has to do with integrated thinking and with the fact that non-financial performance is becoming increasingly important. This is because how a company performs from an environmental or social perspective has an impact in terms of future financial performance.” This, in turn, leads to the need to integrate thinking about these factors, both internally and in external reporting.
Druckman reports that the momentum behind the framework has been greater than anticipated. “Around 130 Japanese businesses are currently practising IR,” he says. “In Europe, many corporates are moving forward with their first integrated report. South Africa has also endorsed the framework.”
He says reaction has been positive because the framework is flexible, not prescriptive. For example, it shows how to report around six categories of capital. But if an organization does not want to work with those six and would prefer to use a different framework, it can, provided it explains why and references the IIRC framework as its starting point.
However, there have been challenges to the framework in the areas of directors’ liability, the assurance and credibility of information, and reporting fatigue.
Druckman explains that the framework guides directors to provide transparent, forward-looking information, but some fear litigation if that information proves to be incorrect. These fears are understandable but unfounded, he says.
“An integrated report could be perceived as a positive story and perhaps not representative of the complete strategy – so we need it to be credible,” he adds. “Also, some think, ‘Here’s another report we have to produce.’ They miss the point that it isn’t another report – it is the report. We are trying to evolve the whole system.”
However, he agrees that there is tension between the immediate requirements of stakeholders for more, and more detailed, information and the ability of companies to measure and report on different capitals consistently and effectively.
“The ever-growing data and transparency requirements from regulators and other stakeholders will not go away,” he says. “Companies will just have to cope with it. I hope IR can ensure that information is made transparent and put in context.”