The Bruce Column — The encouraging future for integrated reporting and integrated thinking

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31 Jan, 2018

It is a year since the Chief Executive of the International Integrated Reporting Council, Richard Howitt, took up that role. Here Robert Bruce assesses Howitt’s progress during that year, what has been achieved and what lies ahead.

In a video interview he talks about progress with our regular columnist Robert Bruce. 

Richard Howitt is confident about the future.  And he has, he says, good reason to be so. Just as it took a while for the concept of integrated reporting to take hold around the world there are now clear signs that integrated thinking, the key concept that underlies integrated reporting, is equally taking hold, the two concepts ‘go hand in hand’ he said. He points to, for example, the global professional accounting body, IFAC.

It described integrated reporting as ‘the future of company reporting’. He points to the High Level Experts’ Group on Sustainable Finance. It described integrated reporting as ‘the ultimate ambition’. For Howitt it is recognition that the journey of the concept of integrated reporting is still on course.

1600 global companies in 62 different countries use the system. And he hopes that the result is that people have: ‘A holistic, more connected, more long-term, more forward-looking, more strategic view of their business and that the reporting system that supports that is very well advanced in companies across the globe’. It is, as he says, ‘very encouraging’. 

And Howitt was also encouraged by the IASB’s recent decision to revise its Management Commentary practice statement so that it was ever more closely aligned to integrated reporting. ‘That was’, he said, a very, very significant decision’. 

Change is also coming to Europe with the introduction of the European Directive on non-financial information this year. It is the first year that companies will have to produce reports under that directive. ‘The EC guidelines say that if companies use integrated reporting that will suffice’, said Howitt. ‘I hope that a good cadre of companies will choose to apply the directive by referring to the integrated reporting framework’. 

And this progress brings other issues into play. The issue of investor protection now becomes more critical. A global feedback exercise carried out by the IIRC last year indicated that the concepts of integrated reporting are now fully understood. And that has led to investor groupings insisting on its use. ‘There are increasing numbers of investors wanting this’, he said. Last year a group of global investors, representing some $2 trillion of assets, was formed. ‘They combined to ask companies to do integrated reporting and to state that they were using integrated reporting in their day-to-day decision-making’, he said. And that leads to calls for assurance and audit. In the early days the idea that integrated reports should undergo some form of assurance was downplayed, no one wanting the initial progress to be tripped up by issues that could be dealt with further down the line. But that time has now come. ‘There was a hesitation to confront assurance’, he said, ‘but there is a shift in emphasis now’. The system is robust enough and well-grounded internationally. Howitt’s view is that traditional reports are audited and so integrated reports should be as well. ‘How soon and which way are questions, but we are definitely moving in that direction’, he said. ‘There is a real sense of direction now that this will be a core part of the audit function and profession’. 

He also looked to the international success and cited the reasons why companies in Asia, and particularly Japan, have been perhaps the most enthusiastic. The Indian financial regulators have asked the top five hundred companies to introduce integrated reporting. The top thirty companies in Malaysia have all committed to use it. And in Japan 300 companies, with an increase to the top 500 this year, all take part in integrated reporting. And, in part driven by this progress, the annual conference of the IIRC takes place in Tokyo at the end of February. The progress is influenced by cultural differences. ‘There is a deeper culturally embedded approach to the long-term and there is a tradition of the social responsibility of business’ he said. Integrated reporting and integrated thinking underpin and emphasise this. And there were, he thought, lessons for the wider world. ‘We need to move the debate on from the old philanthropic corporate social responsibility mindset, honorable as that is, and I would never criticise it’, he said, ‘but for companies to understand it is not just an add-on after they have done the business, but it is about how they do their business. Integrated reporting is about how you do business more successfully because the value creation is value for the company and the stakeholders at the same time’. 

One of the obstacles that companies cite as a barrier is the absence of a global Standard for metrics, outside the mainstream financial numbers. There are many frameworks and standard-setting bodies in the this field and Howitt sees the Corporate Reporting Dialogue, which sits in the IIRC structure as a means of removing this obstacle. Within the membership of the CRD you have many different organisations, from global standard-setters in the form of the IASB and the US standard-setter, FASB, but also SASB, the Sustainable Accounting Standards Board, GRI, the Global Reporting Initiative, and the Climate Disclosure Standards Board, amongst others. And the Corporate Reporting Dialogue has been working on a plan to align the different frameworks. ‘It is not about competition, but about collaboration’, he said. They have used the recent recommendations of the Task Force on Climate-related Financial Disclosures as the catalyst. ‘It very clearly said that it wanted an integrated approach to risk management’, he said. So the Corporate Reporting Dialogue is instigating a major project for all the major frameworks to align to the TCFD recommendations. It hasn’t quite happened yet. But Howitt is confident. ‘It will send such a strong signal to the world that this whole integration of financial and non-financial reporting with an alignment between the two is actually happening’. 

There will be many a bump along the road ahead. The concept of integrated thinking as the ultimate transformative goal needs more emphasis. But progress is being made.

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