Insights Into Integrated Reporting - ACCA Global
Insights intoIntegratedReportingChallengesand bestpracticeresponses
About ACCAACCA (the Association of Chartered Certified Accountants)is the global body for professional accountants. It offersbusiness relevant, first-choice qualifications to people ofapplication, ability and ambition around the world who seeka rewarding career in accountancy, finance and management.ACCA supports its 188,000 members and 480,000 studentsin 178 countries, helping them to develop successful careersin accounting and business, with the skills required byemployers. ACCA works through a network of 100 officesand centres and more than 7,110 Approved Employersworldwide, who provide high standards of employee learningand development. Through its public interest remit, ACCApromotes appropriate regulation of accounting and conductsrelevant research to ensure accountancy continues to grow inreputation and influence.Founded in 1904, ACCA has consistently held unique corevalues: opportunity, diversity, innovation, integrity andaccountability. It believes that accountants bring value toeconomies in all stages of development and seek to developcapacity in the profession and encourage the adoption ofglobal standards. ACCA’s core values are aligned to theneeds of employers in all sectors and it ensures that, throughits range of qualifications, it prepares accountants forbusiness. ACCA seeks to open up the profession to peopleof all backgrounds and remove artificial barriers, innovatingits qualifications and delivery to meet the diverse needs oftrainee professionals and their employers.This report examinesthe reporting practicesof organisations in theInternational IntegratedReporting Council’s IR Business Network.It highlights the concretebenefits and challengesthat the early adoptershave experienced,and gives practicalrecommendations toguide more organisationson the path toIntegrated Reporting.In June 2016 ACCA formed a strategic alliance withChartered Accountants Australia and New Zealand (CA ANZ).The alliance represents the voice of 788,000 members andfuture professional accountants around the world, who sharethe commitment to uphold the highest ethical, professionaland technical standards.More information is available at: www.accaglobal.comACKNOWLEDGEMENTS The Association of Chartered Certified AccountantsApril 2017ACCA would like to thank the IIRC for giving us theopportunity to take part in the IR Business Network ReportCritique project. We are grateful to Prof Marvin Wee of theUniversity of Western Australia and Jo Cain of MaterialityCounts for participating on the expert review panel, as wellas all the interviewees listed in Appendix 1 for giving theirtime to be interviewed for this report.
ContentsAbout the authors. 4Foreword. 5Introduction. 6Benefits of IR . 8How well are integrated reporters doing?. 11Spotlight on value creation. 13Spotlight on five principles. 191.2.3.4.5.Connectivity of information .19Materiality.22Conciseness.26Reliability and completeness.29Consistency and comparability.33Advice for new adopters. 36Case study: the road to IR . 37Conclusion. 38Appendices. 39
About the authors4YEN-PEI CHENYen-Pei Chen is a qualified accountant and works as a corporate reporting and tax manager in the Professional Insights team of ACCA.Her role focuses on influencing international policy on corporate reporting and tax, through carrying out research on technical andpolicy developments and working with policymakers, including the FRC and the UK government, as well as the International IntegratedReporting Council, the International Accounting Standards Board, the International Federation of Accountants, the EU Commissionand the Organisation for Economic Co-operation and Development. To support ACCA’s policy positions, she convenes ACCA’s GlobalForum for Corporate Reporting and Global Forum for Taxation. She has been involved in research related to Integrated Reporting,including on investors’ views of integrated reporting1 and the materiality determination process2. Future research will explore theinteraction between Integrated Reporting and mandatory disclosure requirements.SARAH PERRINSarah Perrin ACA is a freelance business writer. Having qualified as a chartered accountant with Arthur Andersen in London, she movedinto journalism in 1993, joining leading trade weekly Accountancy Age. Sarah now writes for professional magazines on topics relatedto accounting and finance, audit and assurance and general business management. She also drafts and edits reports, newsletters andarticles for professional firms and institutes. She is co-author of books on career development, recruitment and high performance.1 porting2 grated
Foreword5The International Integrated ReportingCouncil (IIRC) has been highly successfulin defining and promoting the conceptand practice of Integrated Reporting – IR – globally.As IR moves towards its ‘GlobalAdoption’ phase next year, this new reportexplores the progress pioneering adoptersof the IIRC’s International IR Frameworkhave made – what they have learnt, thechallenges they have faced, and theorganisational value they’ve gained.It’s clear from this report’s findings thatIntegrated Reporting is enabling a rangeof companies to articulate more clearlyand fully what truly drives them forward.This, in turn, is leading to greater clarityon, and management of, challenges andopportunities. In essence, integratedreporting is a means to an end, rather thanend in itself – and that final destinationis integrated thinking. The reportersfeatured in this report talk powerfully aboutthe broader and more insightful approachto managing their organisation that IR has enabled.Stakeholders rightly expect today’sorganisations to safeguard all forms ofcapital – financial, natural, human,intellectual and social – and so wider formsof corporate stewardship have never beenmore important. Only by adopting thisapproach can we instil the public trust andconfidence that is so vitally important tothe health of the global economy.I hope this report encourages those notalready practising Integrated Reporting toexplore it – because its benefits are clearlymanifold, for companies themselves andfor the world we share.Helen Brand OBEChief executiveACCA
IntroductionIt is now widely accepted thattraditional financial reportingno longer meets the needs ofbusinesses seeking to developand maintain resilient andresponsible operations, not justin the immediate future but alsoin the medium and long term.6It is now widely accepted that traditionalfinancial reporting no longer meets theneeds of businesses seeking to developand maintain resilient and responsibleoperations, not just in the immediate futurebut also in the medium and long term.Financial statements draw on historicalinformation and are therefore backwardlooking. They also focus heavily on financialcapital, whereas success for manyorganisations today depends on otherresources – such as the expertise of theirpeople, their intellectual propertydeveloped through research anddevelopment, and their interaction withthe environment and the societies inwhich they operate.Integrated Reporting ( IR ) was developedto fill such reporting gaps. The InternationalIntegrated Reporting Council (IIRC) haspromoted the concept, inspired by the goalof a world where integrated thinking andreporting are embedded in mainstreambusiness practice. Its vision aligns capitalallocation and corporate behaviour withwider goals of financial stability andsustainable development through the cycleof integrated reporting and thinking.Since the release of the International IR Framework (the Framework) in December2013, the pace and scale of adoption byorganisations has steadily increased. From2018, the IIRC plans that IR will enter its‘Global Adoption Phase’, aiming toposition it firmly at the centre of corporategovernance and corporate reporting.There are almost 2,000 participants in IR networks worldwide. The IIRC’s IR Business Network, its flagship programmeof organisations committed to adoptingthe Framework, now has over 80 members.The networks serve as a forum whereorganisations can share their experienceswith a view to improving the quality ofintegrated reports and, in doing so, help toprove the business case for IR adoption.
Insights into Integrated Reporting:challenges and best practice responsesThis report exploreshow organisationsare addressing thechallenging areasidentified, and sharesexamples of good practice.Introduction7As this report highlights, organisations areexperiencing benefits from adopting IR ,anticipating further benefits in future.reports, sustainability reports, corporateresponsibility reports and a combinationof the three.From July to October 2016, ACCA workedwith the IIRC to review 41corporate reportsby participants in the IR BusinessNetwork3 . This was the IR BusinessNetwork Report Critique Project 2016.The reports covered accounting periodsup to 31 March 2016. The review projectprovided confidential feedback toparticipants, aiming to encouragecontinued improvement in reporting byhighlighting both areas of strength andgaps in implementation of the Framework.The findings were encouraging, pointingto a high overall level of reporting quality.Nonetheless, the reviews showed thatorganisations find some aspects of IR particularly challenging. (See Appendix 2 forthe aspects of the Framework considered.)The reviews reflected the diverse reportingpractices of organisations at differentstages of their Integrated Reportingjourney: 21 of the 41 reports reviewedwere clearly identified as integratedreports, while three stated that they followthe principles of the Framework; withoutbeing called integrated reports. Seventeenorganisations had not explicitlyimplemented Integrated Reporting. Inthese cases, the organisations providedthe expert review panel with the corporatereports that they intended would formtheir integrated reporting package:these included the front end of annualThis report builds on the observations thatemerged from the report reviews, aimingto provide further insight into howorganisations are implementing IntegratedReporting in practice. To this end, inFebruary and March 2017, we conductedinterviews with representatives from nineorganisations at different stages of IR adoption, eight of whom were among the IR Business Network participants whosereports ACCA and the IIRC reviewed in2016, along with another, Solvay S.A.,which took the first step towards IntegratedReporting in its 2015 annual report. Thisreport explores how organisations areaddressing the challenging areasidentified, and shares examples of goodpractice. It provides practical insights tohelp not only organisations alreadypreparing integrated reports, but alsothose just starting to adopt IR .3 The expert panel reviewers constituted staff from the IIRC and ACCA, Prof Marvin Wee of the University of Western Australia and Jo Cain of Materiality Counts.
Benefits of IR The participants of the IR Business Network interviewedfor this report identify manybenefits from adoptingIntegrated Reporting.8The participants of the IR BusinessNetwork interviewed for this report identifymany benefits from adopting IntegratedReporting. These include: more integrated thinking andmanagement greater clarity on business issues andperformance improved corporate reputation andstakeholder relationships more efficient reporting employee engagement improved gross margins.MORE INTEGRATED THINKING ANDMANAGEMENT IR is about more than corporatereporting: it is fundamentally an approach tomanaging a business that is based on a clearawareness of the many ways that entitiescreate and destroy value. IR BusinessNetwork participants recognise that theintegrated reports that businesses produceare the manifestation of their internalintegrated thinking and management.4 These are financial, manufactured, intellectual, human, social and relationship, and natural capital.‘To my mind, integrated thinking is theprize and Integrated Reporting is incidentalto that’, says Tom Roundell Greene, seniormanager of reporting and communicationsfor global sustainability at JLL, the NewYork Stock Exchange-listed financial andprofessional services firm specialising in realestate. ‘We’re focusing on how we can bringa broader understanding of value creationinto business strategy. The approach we’reconsidering is to build sustainability thinkinginto the risk-management process and thenunderstand how that carries through intothe strategy-setting for the whole business’.He adds: ‘By looking at a business in termsof the six capitals4, sustainability becomesa core part of strategic thinking forbusinesses. And it allows investors torecognise when there is a good, long-termprospect [and that the business] hasrobustly thought about all the differentfactors that impact on it and which thebusiness in turn impacts upon’. It shouldbe noted, however, that IR is not aframework focusing on sustainabilityreporting, but was developed to supportvalue creation in a wider sense.
Insights into Integrated Reporting:challenges and best practice responsesManagement teamsare finding that IR provides greater insightsinto factors drivingbusiness performance.Benefits of IR 9Massimo Romano, head of GroupIntegrated Reporting and CFO Hub atglobal insurance group Generali, based inItaly, is a passionate believer in the value ofintegrated thinking. He says: ‘We aremoving from an integrated reporting phaseto a more integrated thinking one, wherewe are really embedding this type ofapproach in our processes; for instance, inthe way we manage transformationprojects in the group, and in the way wemanage relationships with business unitsall over the globe’.Dr Monica Streck, head of strategicsustainability management, business unitstrategy and sustainability at MunichAirport, says of the benefits of IR : ‘Wehave a very good overview of our issues.We have a snapshot. It’s not divided intodifferent reports, but in just one. So whilethis is a benefit for our readers – ourreaders are pleased they have this overview– it’s also a benefit for ourselves’.Similarly, the Spanish natural gastransmission company Enagás hasachieved an increased level of engagementand more involvement between differentteams as a result of IR .PTT Global Chemical Public CompanyLimited (PTTGC), based in Thailand, seesreputational benefits from being amongthe first companies to adopt IR inSoutheast Asia. Pranee Poopair, vicepresident of sustainability management atPTTGC, says that IR is the ‘rightframework’ for bringing together financialand sustainability reporting, which shouldhelp investors to understand the businessand its outcomes. ‘It is a single source ofdata that the stakeholder or investor canaccess’, she says. ‘They can see thestrategy of the business, our growth, ourperformance, our direction’.José Miguel Tudela, organisation andcorporate responsibility director at Enagás,says: ‘The exercise of connecting contentelements with each other and connectingthe concept of past, present and future hashelped us to break existing silos betweenorganisational areas’.GREATER CLARITY ON BUSINESSISSUES AND PERFORMANCEManagement teams are finding that IR provides greater insights into factorsdriving business performance. MikkelLarsen, managing director and head of taxand accounting policy at DBS, a leadingfinancial services group in Asia, says: ‘The IR Framework allows us to delve into theunderlying factors that are driving ourbalanced scorecard approach’. Forexample, employee engagement is on thescorecard, but the material factorsunderpinning this include employeeretention and management. ‘Havingidentified that, we can think moreconcretely about the risks andopportunities, the KPIs and our initiativesto grow this resource. So our materialmatters have not changed that much, butour clarity on the material matters thatunderlie our balanced scorecard haschanged, enabling us to articulate thisbetter and measure more concretely’.IMPROVED CORPORATE REPUTATIONAND STAKEHOLDER RELATIONSHIPSMikkel Larsen at DBS says: ‘We havereceived a lot of positive feedback andfree PR. On a one-to-one basis we havehad generally good feedback frominvestors on our annual reports and howwe express our strategy better and ourapproach to value creation’.Enagás has strengthened its relationshipswith providers of financial capital as a resultof IR . ‘Providers of financial capital havea better understanding of our strategy andperformance as well as a greaterconfidence in the long-term viability of ourbusiness model’, says Tudela.‘Because of IR and other initiatives, thequality of our corporation’s disclosure isconsidered one of the top in our marketspace’, says Romano from Generali. ‘Inparticular, the improvement in our disclosurein the last three years is well recognised’.
Insights into Integrated Reporting:challenges and best practice responsesIntegrated reporters areaware, however, thatany financial benefits ofintegrated managementmay take many years tocome through.Benefits of IR ‘Year-on-year at our AGMs, investors go tothe podium to express their appreciation ofthe annual report and emphasise that theylike the fact [that] the integrated reportpresents a holistic view of the company,and they like the consistency’, says SusanneStormer, vice president of corporatesustainability at Novo Nordisk, the globalhealthcare company headquartered inDenmark. ‘We have developed a format inwhich you know as a reader that the tablesare always there and always on more or lessthe same page number’.MORE EFFICIENT REPORTING IR can make corporate reporting moreefficient for both users and preparers ofreports. Embracing the concept ofconnectivity is changing the way thebusiness operates, for example, in facingthe huge regulatory reporting challenge.‘Together with our IT vendor and our Italianinsurance association we have co-created adashboard solution to navigate theregulatory reporting ocean’, says Romanofrom Generali. This will create a more‘dynamic’ reporting experience, improvethe efficiency of regulatory reporting andcreate the possibility of extracting addedvalue information from these reports.In future, external stakeholders will beable to find the information they needmore easily, without the need to contactthe companies with separate requests.‘It is a more efficient way of communicatingwith stakeholders’, says Laura Palmeiro,sus
practice. It provides practical insights to help not only organisations already preparing integrated reports, but also those just starting to adopt . Insights into Integrated Reporting: 7 challenges and best practice responses Introduction This report explores how organisations are addressing the challenging areas identified, and shares
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