2020 has undoubtedly been a crisis year. The global pandemic, climate change and the challenges of inequality and the infrastructure gap have tested organisations’ resilience like never before, and many have been forced to rapidly rethink their strategies and business models.
The impact of Covid-19 has necessitated an urgent need for companies to look inward and reprioritise the well-being and safety of their employees and customers over financial profit. Part of this has sparked a paradigm shift: the allowance and facilitation of flexible working for employees and a focus on ensuring they have the right equipment in place to work effectively from home or—if that is not available—to keep a safe distance within the workplace.
As such, there has never been a more important time for the principles and concepts of integrated reporting to be embedded within the structure of corporate reporting and the global system of decisions, incentives and asset allocation to achieve financial stability and sustainable development. Organisations urgently need to give greater consideration to a wider range of capitals—financial, manufactured, intellectual, human, social and relationship, and natural—to properly reflect the interdependencies and trade-offs necessary to achieve sustainable development.
Moving towards a comprehensive reporting system
Since 2010, the International Integrated Reporting Council (IIRC)—a coalition of regulators, investors, companies, standard setters, the accounting profession, academia and NGOs—has been promoting communication about value creation as the next step in the evolution of corporate reporting.
On 11 September 2020, the IIRC, along with four other framework and standard-setting institutions, released a joint statement of intent to collaborate on a new corporate reporting system.
Working closely with CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), we set out the role the International <IR> Framework can play in interconnecting sustainability information with disclosure on financial and other capitals to create a holistic approach to reporting.
A comprehensive corporate reporting system will enable organisations to create more concise and cohesive corporate reports, which clearly demonstrate their consideration of and impact on these capitals, through integrated reporting. Our aim is to arrive at the same level of maturity that the financial reporting eco-system has achieved through the work of the International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (GAAP).
Clarity on reporting
Mark Carney, UN Special Envoy for Climate Action and Finance and former Governor of the Bank of England, is advising the UK Government for 2021 United Nations Climate Change Conference (COP26). Speaking to an audience hosted by the International Federation of Accountants as part of Climate Week in September 2020, Carney discussed the important role integrated reporting can play, saying: “The goal of COP26 is to put in place reporting frameworks so that every finance decision takes into account climate change”. He continued: “It starts with reporting… this should be integrated reporting.”
A recent white paper by the World Economic Forum (WEF) and Big Four accountancy firms, Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, published in September 2020, has called for a greater connection between sustainability topics and financial risk and opportunity. The WEF further updated its Davos Manifesto, stating that a company’s “performance must be measured not only on the return to shareholders, but also on how it achieves its environmental, social and good governance objectives”.
The International Federation of Accountants (IFAC) published a document in September 2020, titled Enhancing Corporate Reporting: The Way Forward. This overview called for the creation of a new sustainability standards board that would exist alongside the International Accounting Standards Board (IASB) under the IFRS Foundation and connected via a conceptual framework, the principles of which would be taken from the International <IR> Framework.
The support from these leading member organisations, financial institutions and experts underlines the urgency of establishing a comprehensive reporting system but also the incredible progress that is being made and its gathering momentum.
How can a comprehensive reporting system benefit business?
Providing financial accounting and sustainability disclosure, connected via integrated reporting, leads to a wide range of very tangible benefits for organisations.
In this increasingly interconnected world, technology and social media are playing not only an important role in our social lives, but have created a new way for stakeholders, the press and the public to hold companies to account for their actions.
There is increased pressure on organisations to be transparent in their measurement and disclosure of sustainability performance not only for current, but also for future stakeholders. Incorporating core value drivers for enterprise value creation into a cohesive corporate reporting structure ensures that the voices of each of the organisation’s stakeholders are heard and accounted for, which in turn mitigates reputational risk.
By using the <IR> Framework in conjunction with other standards and frameworks, reports become more concise and accessible to all readers. The information and data are of a higher quality, easily comparable with other reports and more useful for tracking performance and goals. The proposed system will readily enable a focus on achieving the Sustainable Development Goals (SDGs), which many organisations are already incorporating into their business strategies.
Our collaboration with these four organisations is creating the building blocks for a global solution, which ultimately serves to protect the planet and create prosperity for all.
Charles Tilley OBE is CEO of the International Integrated Reporting Council (IIRC).
For more information on how to become part of the <IR> Business Network, email [email protected]