Updates on IR reporting !

The revised Framework has been launched few days ago after a comprehensive market consultation with 1,470 individuals in 55 countries. The conceptual thinking and principles on which the framework was founded are still as relevant as when the IIRC was formed 10 years ago. The revisions, the first since the framework was originally published in 2013, therefore focus more on clarification than substance, and strengthening the quality of disclosures.

I. What is IR?

Integrated reporting focuses on disclosing the ability of an organization to create value in the short, medium and long term. An integrated report is a concise communication about how an organization interacts with the external environment, stakeholders and available resources – ‘capitals’ – to deliver value over time.

There are six capitals – i.e. stocks of value that increase and decrease through the organization’s activities : financial, manufactured, intellectual, human, social and natural.

Financial : The pool of funds that is available to an organization for use in the production of goods /services ; obtained through financing, such as debt, equity or grants, or generated through operations or investments
Manufactured : Physical objects that are available to an organization for use in the production of goods/services (buildings, equipment, infrastructure – e.g. roads, ports, bridges, waste and water treatment plants)
Intellectual : Organizational, knowledge-based intangibles, including intellectual property (patents, copyrights, software, rights and licences) & organizational capital (tacit knowledge, systems, procedures and protocols)
Human : People’s competencies, capabilities and experience, and their motivations to innovate : alignment with and support for an organization’s governance, values), ability to develop and implement an organization’s strategy, loyalties and motivations for improving processes, goods and services
Social : The relationships within and between communities, groups of stakeholders and the ability to share information to enhance individual and collective well-being: common values, trust and willingness, brand & reputation, social licence to operate
Natural : All renewable and non-renewable environmental resources that provide goods or services that support the past, current or future prosperity of an organization (air, water, land, minerals and forests, biodiversity and eco-system health)

While capitals might be categorized differently, organizations are required to consider all the forms of capital they use or affect.

Check some good examples of value creation models so far:

Engie – page 45
OCP – pages 24/25

The framework provides organizations with guiding principles and content elements to be included in the integrated report but does not provide KPIs or measurement methods.

Guiding principles

Strategic focus and future orientation: An integrated report should provide insight into the organization’s strategy, and how it relates to the organization’s ability to create value in the short, medium and long term, and to its use of and effects on the capitals
Connectivity of information: An integrated report should show a holistic picture of the combination, interrelatedness and dependencies between the factors that affect the organization’s ability to create value over time
Stakeholder relationships: An integrated report should provide insight into the nature and quality of the organization’s relationships with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to their legitimate needs and interests
Materiality: An integrated report should disclose information about matters that substantively affect the organization’s ability to create value over the short, medium and long term
Conciseness: An integrated report should be concise
Reliability and completeness: An integrated report should include all material matters, both positive and negative, in a balanced way and without material error
Consistency and comparability: The information in an integrated report should be presented: (a) on a basis that is consistent over time; and (b) in a way that enables comparison with other organizations to the extent it is material to the organization’s own ability to create value over time.

Content elements

Organizational overview and external environment: What does the organization do and what are the circumstances under which it operates?
Governance: How does the organization’s governance structure support its ability to create value in the short, medium and long term?
Business model: What is the organization’s business model?
Risks and opportunities: What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium and long term, and how is the organization dealing with them?
Strategy and resource allocation: Where does the organization want to go and how does it intend to get there?
Performance: To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
Outlook: What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
Basis of presentation: How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?

Find out more on best practices here

II. Revised version : main changes

No fundamental changes has been implemented – 3 focus areas:

Clarity

Difference between outputs and outcomes: diagram refinements (cf bellow), definition, illustrative examples – pages 22, 42, 43
Clarification on governance considerations: scope of those in charge, entity including in the reporting – 1.20 & 1.22 page 14

Simplicity

Simplifies statement of responsibility: lower reporting burden & recognition of journey – 1.20 page 14
User-friendly features & designs

Quality

Reinforces balance: value creation (both preservation & erosion), positive and negative outcomes – 4.19 & 4.20 pages 42-43
Reinforces robustness: process disclosures (1.23 & 1.24 page 14 insisting on disclosing the methodological steps taken to prepare the report), importance of qualitative and quantitative information (especially for comparison) – 4.20 page 14

Download here the revised framework

This latest version applies to reporting periods commencing 1 January 2022.

More insights and best practices? Check out the webinar

III. More to come: merger with SASB

End of 2020, the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) announced their intention to merge into a unified organization, the Value Reporting Foundation.

Capital markets still need sound information linked to enterprise value creation, and can’t efficiently process information from a fragmented reporting landscape. The merger will enhance the work of CDP (Carbon Disclosure Project), CDSB (Climate Disclosure Standards Board), GRI (Global Reporting Initiative), IIRC and SASB in the Statement of Intent To Work Together Towards Comprehensive Corporate Reporting, highlighting a vision for a comprehensive corporate reporting system. The Value Reporting Foundation could eventually integrate other entities focused on enterprise value creation – CDSB signalled interest in entering into exploratory discussions in the coming months. The Foundation is also ready to engage with the efforts of the IFRS (International Financial Reporting Standards) Foundation, IOSCO (International Organization of Securities Commissions), EFRAG (European Financial Reporting Advisory Group), and others working towards global alignment on a corporate reporting system underlined Janine Guillot, CEO of SASB who will lead the Foundation.

The IR Framework and the SASB Standards are indeed complementary. IR describes all relevant value creation topics and the approach to integrating them in corporate thought and reporting. SASB provides the precise definitions of the data that should be reported for these topics in each industry. The Value Reporting Foundation will facilitate the use of both together.