International developments in IR

By Richard Howitt
CEO of the IIRC

Based on a speech at the IIRC-ICGN Global Conference in Tokyo, Japan on 1 March 2018

Stock Exchanges from Tokyo to Johannesburg, Singapore to São Paulo, Botswana to Frankfurt have played an important role in advancing integrated reporting amongst their members. They have done so because they recognise that where companies adopt integrated reporting, it increases investor confidence.

I want to use these few words to update you on some of the key staging posts worldwide for integrated reporting in 2018. I have described the impressive growth of numbers of companies adopting integrated reporting – in Japan and across the world. But this isn’t just about numbers. It’s about leading companies in the market sending a message back to the market to adopt integrated reporting.

Insurance companies Unipol and AXA. Banks Credit Agricole and TKSB Turkey. Chemical companies from America, Clorox, and Europe, Solvay. Big conglomerates including Ayala from Philippines, Mahindra Mahindra in India. Energy company TransAlta. Technology company ASML. Brewer Heineken. All produced integrated reports for the first time in 2017.

Integrated reporting is probably the best reporting in the world..! And all of these reports can be found on our free good examples database on the IIRC’s website – which is a great place to learn how to do your own integrated reporting.

Major progress right across the world

  • Establishing a network of integrated reporting companies in the United States – our U.S. community.
  • A new partnership to deliver integrated reporting by the French financial market, Paris Europlace.
  • A call from the financial regulator the Securities and Exchange Board of India for the country’s top 500 companies to adopt integrated reporting.
  • The new committee set up to extend integrated reporting in ten African countries.
  • Our international business network has launched special interest groups to help companies to work together to advance their integrated reporting. One for financial institutions. One on integrated thinking and strategy. One on human and intellectual capital – which we think are less well understood and have coined the term ‘hidden capitals’.
  • Last year, 15 of the world’s leading investors got together not simply to ask companies to undertake integrated reporting – but to make the point that they use the integrated reports in their day-to-day investment decisions. Investors representing two trillion USD assets under management.
  • To make the point that this is not additional reporting, but changing existing financial reporting, we were delighted that the International Accounting Standards Board has started a review of its Management Commentary Practice Statement. The IASB have asked us to be an advisor in its development and – although of course this is not exactly integrated reporting – we see this as an important further step of alignment towards it. The IASB Chair Hans Hoogervorst has told the IIRC he “concludes that there is considerable common ground between financial and integrated reporting.” The decision to undertake the review said that “integrated information provides the context for financial statements.” And to make the point that this is not about more reporting, but better reporting.
  • The global Corporate Reporting Dialogue – the CRD – convened by the IIRC but bringing together the main financial and non-financial reporting frameworks, has begun to make real progress in getting the frameworks to align.
  • The Financial Stability Board TCFD Task Force is very important to us in that it has shifted climate towards being recognised as a financial issue, and specifically recommends an integrated approach in risk management. The TCFD Secretariat involved us throughout the process of producing their recommendations and have now invited the Corporate Reporting Dialogue to align all the frameworks with their recommendations. I am proud that all of the frameworks have agreed a detailed, three year project to do so – to the TCFD and further. We are in the final phase of timetabling and I am very hopeful that in the next weeks, we will be in a position to publicly announce the project. I tell you this because, if and when we announce the project, it would be a huge step towards alignment of financial and non-financial reporting frameworks in the world. I think it would give the strongest possible signal to the market that the problem of proliferation and fragmentation of reporting frameworks is being addressed. And therefore for those companies who do not yet report, to give them extra confidence and incentive to do so.
  • We are also committed to making it easier for companies to undertake integrated reporting. Whilst strictly keeping to the principles-based approach which is fundamental to integrated reporting, we have started a two year-programme of advice and guidance, to respond to the difficulties identified in the global feedback organised last year. On issues like materiality, conciseness and stakeholder interests, our technical programme will clarify how these apply to integrated reporting – which businesses told us is what they want.
  • We will also harness the evidence base to demonstrate that that integration is a benefit not a cost. Including the research by TAKARA Disclosure and Investor Relation Research presented to us, that amongst the 1,700 companies in the first section of the Tokyo Stock Exchange where we are today, those that integrate their reporting have a stock price 72.8 points higher compared to the rest of the index.
  • In May, we plan to publish not one but a database of three hundred pieces of research, which reinforce that integrated reporting companies have access to a longer-term investor base, a lower cost of capital and enjoy a higher stock price. And we are seeking to develop our relationships with universities and business schools worldwide, to secure a pipeline of future research to further develop this understanding.
  • The AICPA research – Purpose before Profit – (stated) that 83 per cent of executives surveyed for the report believe that adopting integrated reporting supports business success.
  • And the ACCA report critique project that the number of integrated reports which are genuinely concise – 100 pages or less- has increased from 30 to over 50 per cent this year for the first time.

But I want to remind you that we are not trying to change companies, but that we are companies trying to change the system. There is now a powerful range of actors collaborating towards the common aim of shifting the world towards a sustainable financial system. The World Bank and the Principles for Responsible Investment are two of those forces who are leading members of the IIRC Council and important partners for the IIRC. The whole integrated reporting family stands with those forces – whilst integrated reporting itself is a tool to help realise the common aim.

The High Level Expert Group on Sustainable Finance has led these demands. And in its final report, it has described integrated reporting as “the ultimate ambition.” The draft action plan produced by the European Commission in response proposes experimentation with integrated reporting at the EU level. So there is every prospect for these recommendations to be put in to action.

And similarly, we are cooperating in a number of complementary initiatives to help business understand and report its contribution to the UN Sustainable Development Goals. What was called by integrated reporting company Novo Nordisk as creating ‘system value’. I remind that the single part of the SDGs which is directly aimed at business is Target 12.6: “to integrate sustainability information into their reporting.”

That is the challenge to us all. Already we have published a guide showing how integrated reporting companies can integrate the SDGs in their reporting. This year we will follow-up that work, and are partnering with the UN Global Compact, the GRI, UNCTAD, the European Commission and the Green Economy Coalition to contribute to this work – as well as with all our partners in the Corporate Reporting Dialogue itself.

The model we favour is one of collaboration. We are deeply committed to ending wasteful duplication and competition – where it exists – between different initiatives. Of course much of the talk here as well, is of ‘ESG integration’ which is not exactly the same as the six capitals of integrated reporting. When we listened to Professor Ito describe the growing value of intangibles – including intellectual capital in this era of digitalisation, and manufactured capital when the world is crying out for long-term infrastructure investment – this conference will understand that these are not picked up in the ESG model as it has emerged. It is important to remember that. But it is equally important to remember that change is happening. The argument for ‘integration’ has been won.

Of course it is proper that we should continue to work on specific frameworks, metrics, protocols and other approaches. But the common ground is that it is narrow, short-term and historic financial reporting which may not be broken – but which is increasingly losing relevance. There is an emerging consensus that the new approach is one of integration. And that the IIRC will continue to be a convening point, inclusive to other initiatives, and providing the principles and the process which seek to drive the integration of financial and what is today called non-financial reporting. Integration must be the new consensus.

And what constantly surprises me – always pleasantly – is the visionary Chair of the IIRC Council, Mervyn King. The King codes in South Africa have led thinking on corporate governance across the world. And of course Mervyn is founder and architect of integrated reporting in the world. Our own good corporate governance means Mervyn reaches his term limit later this year, as our Council Chair. But today I’m delighted to share with you is that he has accepted the appointment of Chair Emeritus of the Council and will continue his global advocacy role on integrated reporting on our behalf. Thank-you Mervyn for what you do and what you will continue to do.