Preparing an integrated report: A practical guide

Transcription

1 Mike Krzus Consulting Preparing an integrated report: A practical guide June 2014

2 Contents About this guide 3 The integrated report 4 An overview of concepts in this guide 7 The key elements 8 The basics Board and executive support 9 Readiness assessment 10 Controls over nonfinancial information 11 The core concepts Strategy and Risks & opportunities 12 Stakeholder relationships 14 Materiality 15 Connectivity of information 20 The Integrated Report Reporting 21 Assurance 24 Technology 26 2

3 About this guide This integrated reporting implementation guide is for executives and managers who have direct or oversight responsibilities for corporate communications, financial reporting, governance, investor relations, risk management and sustainability reporting.! The guide presents ten building blocks of an integrated report. It focuses on foundational concepts and IIRC Framework Guiding Principles and Content Elements that are, in my view, the critical elements of an integrated report. The guide closes with preparing a prototype integrated report, steps towards assurance and the role of technology in integrated reporting. 3

4 The integrated report An integrated report presents a company s financial and nonfinancial (environmental, social, governance and intangibles) information. However, integrated reporting is far more than simply combining a financial report and a sustainability report into a single document.! An integrated report provides a wide range of information that will enable all stakeholders to evaluate the relationships between the economic, environmental and social performance of a company and understand the decision-making and trade-offs that influence an organization's ability to create value over time. 4

5 Integrated reporting Insights Eccles, Robert G. and Michael P. Krzus. One Report: Integrated Reporting for a Sustainable Strategy. New York: John Wiley & Sons, Inc., 2010.! One Report the first book on integrated reporting won a 2010 PROSE Award for Excellence in Business, Finance & Management and was translated into Chinese, Italian, Japanese, Korean and Portuguese.! 5

6 Integrated reporting Insights Krzus, Michael P. Integrated reporting: if not now, when? IRZ Zeitschrift für Internationale Rechnungslegung, Issue 6, June 2011, pages

7 An overview of concepts in this guide The basics. A company s integrated reporting journey should be built on these foundational steps.! The core concepts. These attributes are the heart of an integrated report and must be present if a report is to be deemed integrated.! The integrated report. This section focuses on moving beyond a simple PDF document, establishing credibility through independent assurance and the role of technology in embracing the idea that economic, social and environmental ROI should be a core part of business strategy and decisionmaking. 7

8 The key elements The basics The core concepts The integrated report Board and executive support Strategy and Risks and opportunities Reporting Readiness assessment Stakeholder relationships Assurance Controls over nonfinancial information Materiality Technology Connectivity of information 8

9 Board and executive support 1. A board committee should have oversight responsibility for integrated reporting.! 2. A cross-functional team reporting to the CEO should be charged with creating an integrated report.! 3. A highly regarded senior executive should lead the integrated reporting team. 9

10 Readiness assessment 1. Evaluate the extent to which high priority ESG issues are currently incorporated into the company's strategic objectives and are a factor in compensation.! 2. Benchmark the existing sustainability report against the IIRC Framework.! 3. Identify the primary challenges to implementing integrated reporting. 10

11 Controls over nonfinancial information 1. Create an inventory of the owners of nonfinancial information.! 2. Identify systems and tools used to collect and generate nonfinancial information.! 3. Work with internal audit to evaluate controls over nonfinancial information and assign a controls specialist to the sustainability group to help make those controls compliant with Sarbanes-Oxley requirements. 11

12 Strategy and Risk and opportunities 1. Describe the company's business model.! 2. Discuss the relationship between strategic objectives and ESG issues.! 3. Discuss the company's future opportunities and risks in the context of how business managers balance the imperative for long-term viability of the company and the world it relies on to create economic value with demands for short-term competitiveness and profitability. 12

13 Strategy Insights Eccles, Robert G. and Michael P. Krzus. Novo Nordisk: A Commitment to Sustainability. Harvard Business School Case Revised June

14 Stakeholder relationships 1. Explain how the company engages with stakeholders.! 2. Describe the nature and quality of relationships with principal stakeholders.! 3. Discuss how and to what extent the company responds to stakeholder needs and expectations. 14

15 Materiality 1. Use the SASB Materiality Map and the GRI G4 Guidelines to identify material nonfinancial issues from the investor and stakeholder perspective.! 2. Create and obtain board approval of a Statement of Significant Audiences and Materiality (page 16).! 3. Prepare a Sustainable Value Matrix (page 17). 15

16 Statement of Significant Audiences and Materiality Identify stakeholders relevant to the corporation, their interests (including where they conflict), and the weight attached to each and use the IIRC Framework s four-step process to determine what information is material.! Clearly link between material issues and business strategy and risk analysis; discuss material issues in the context of risks and opportunities; and develop KPIs to measure and track performance.! Obtain board approval for the statement. 16

17 Sustainable Value Matrix Society s Issue Significance Societal Significant! Sustainability reporting! High stakeholder engagement! No capital investments, but significant engagement expenses! Minor innovation Potential / Developing! No reporting! Minimal stakeholder engagement! Minor, if any, expenses for stakeholder engagement! No innovation Society s Issue Significance Boundary Firm s Issue Materiality Threshold Material Societal! Integrated reporting! Very high stakeholder engagement! New capital budgeting! Major innovation Material! Integrated reporting! Medium stakeholder engagement! Traditional capital budgeting! Moderate innovation Firm s Issue Materiality 17

18 Materiality Insights Eccles, Robert G., Michael P. Krzus and George Serafeim. A Note on Materiality for Nonfinancial Information. Harvard Business School Note N , November

19 Materiality Insights Eccles, Robert G., Michael P. Krzus, Jean Rogers and George Serafeim. The Need for Sector-Specific Materiality and Sustainability Reporting Standards. Spring. Journal of Applied Corporate Finance 24, no. 2 (2012).! 19

20 Connectivity of information 1. Create a map to visualize the connection between key ESG issues and revenue and expense categories.! 2. Describe how performance on material ESG issues is linked to financial performance.! 3. Discuss the IIRC Framework Content Elements in the context of environmental and social factors impacting the company such as technological change, human rights issues, evolving laws and regulations, water shortages and depletion of natural resources. 20

21 Reporting 1. Prepare a prototype integrated report for publication on an internal website based on the work completed up to this point and leveraging information in the company s SEC (page 23) and sustainability reports.! 2. Create a project plan for releasing a public integrated report in one year.! 3. Work with the CEO s office to write a CEO letter on the role of the company in society that will introduce the integrated report. 21

22 Reporting Insights Eccles, Robert G., Michael P. Krzus and George Serafeim. Market Interest in Nonfinancial Information. Fall. Journal of Applied Corporate Finance 23, no. 4 (2011). 22

23 Leverage content in SEC reports SEC Regulation S-K - Selected Items IIRC Framework Content Elements Item 101-Description of Business Item 103-Legal Proceedings Item 301-Selected Financial Data Item 303-MD&A Items Management and Certain Security Holders Organizational overview and external environment X Governance X Business model X Risks and opportunities X X X X Strategy and resource allocation X X Performance X X X Outlook X X 23

24 Assurance 1. Work with internal and external auditors to evaluate the quality of controls over nonfinancial information.! 2. Engage external auditors to perform agreed-upon procedures on the prototype report.! 3. Work with external auditors to determine whether they can perform an assurance engagement with a goal of expressing reasonable assurance on the integrated report. 24

25 Assurance Insights Eccles, Robert G., Michael P. Krzus and Liv A. Watson. Integrated Reporting Requires Integrated Assurance. Effective Auditing for Corporates: Key Developments in Practice and Procedures, edited by Joe Oringel, London: QFINANCE Key Concepts, Bloomsbury Information Limited,

26 Technology 1. Publish the integrated report in an online format.! 2. Make the underlying data machine-readable to facilitate consumption and use by analysts and investors.! 3. Explore the role of cloud-based platforms, data analytics, mobile devices and social media in integrated reporting and integrated thinking. 26

27 The State of Integrated Reporting Today Insights Eccles, Robert G. and Michael P. Krzus with Sydney Ribot. The Integrated Reporting Movement: Meaning, Momentum, Motives and Materiality, New York: John Wiley & Sons, Inc.,

28 About Mike Krzus Mike Krzus is an independent integrated reporting consultant and researcher. He has provided advisory services to participants in the International Integrated Reporting Council Pilot Program, companies exploring the adoption integrated reporting and consulting organizations seeking to enhance integrated reporting capabilities for clients.! Mike is co-author, with Robert G. Eccles, of The Integrated Reporting Movement: Meaning, Momentum, Motives and Materiality (to be published in November 2014) and One Report: Integrated Reporting for a Sustainable Strategy, the first book on integrated reporting.! For more information, please visit Mike Krzus Consulting 28