The Integrated Reporting Movement: Meaning, Momentum, Motives and Materiality

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1 The Integrated Reporting Movement: Meaning, Momentum, Motives and Materiality Robert G. Eccles and Michael P. Krzus. With Sydney Ribot Chapter 10 Four Recommendations Copyright 2015 by John Wiley & Sons, Inc. All rights reserved.

2 The Chapter In Brief Chapter 10 presents four recommendations to ensure the success of the integrated reporting movement The first concerns the role the International Integrated Reporting Council (IIRC) can play in certifying the quality of integrated reports The second describes how best to marshal market and regulatory forces to spur the adoption of integrated reporting The third concerns the role of accounting firms and professional accounting associations The fourth emphasizes the need for the major NGOs supporting the movement (CDP, Global Reporting Initiative, and the Sustainability Accounting Standards Board) to collaborate as much as possible

3 A Very Brief History of Financial Reporting History appears to indicate that developing an institutional infrastructure to support integrated reporting will be a long, slow process Development of the U.S. financial reporting infrastructure began in the late-1880s, accelerated with the 1929 Stock Market Crash, the 1933 Securities Act, the 1934 Exchange Act and continues today through the Sarbanes-Oxley and Dodd-Frank Acts.

4 Balancing Experimentation and Codification Integrated reporting emerged from company experimentation and continues with eye towards informing codification (The IIRC Pilot Programme) A tension exists between the need for standards and the desire for customized approaches Standards issued by NGOs such as the GRI, IIRC, or SASB run the risk of seeing their standards as an outcome rather than a means to an end

5 Recommendation One The International Integrated Reporting Council should establish a process for companies to get voluntary certification of whether their integrated report and website qualify as integrated reporting under the brand of the IIRC

6 Balancing Market and Regulatory Forces One approach to pushing the widespread adoption of integrated reporting is to pursue a regulatory strategy, i.e., lobby government agencies to issue a mandate require listed companies to issue an integrated report A second approach is a market-based strategy of persuasion to encourage voluntary adoption In reality, both approaches are necessary a regulatory strategy is suitable for the European Union or China, whereas a market-based strategy is more appropriate for the U.S.

7 Recommendation Two Members of the integrated reporting movement should engage in a dialogue to establish a global strategy for the balance and timing of market- and regulatory-based strategies to speed the adoption of integrated reporting, adapting this strategy to take account of country and sector context as necessary

8 Greater Advocacy from the Accounting Community The integrity of the world s capital markets depends on audits performed by the Big Four accounting firms who audit major global corporations whose market cap is almost 100% of the equity held by investors These firms are active supporters of the IIRC and have collectively issued several white papers on integrated reporting The Big Four plus BDO and Grant Thornton can influence their not only clients and but the broader conversation about integrated reporting

9 Recommendation Three The Big Four firms should work with other accounting firms and professional accounting associations to establish a proactive campaign to create awareness and understanding of integrated reporting among their clients and to work with the IIRC develop assurance standards for integrated reporting

10 Achieving Clarity Regarding the Roles of Key Organizations Four organizations CDP, GRI, IIRC, and SASB each in their own way, are working to create an infrastructure supportive of integrated reporting Companies, investors, and other stakeholders struggle to understand whether these organizations complement or compete with each other Even though these entities have signed mutual memoranda of understanding, the market remains confused about how to respond to these organizations

11 Recommendation Four CDP, GRI, IIRC, and SASB should work together to clarify for companies, investors, and other stakeholders how their missions are related to each other; they should also form collaborations which are mutually beneficial in support of the movement

12 Discussion Questions Which of the four recommendations do you think will be the most important to the growth of the <IR> movement? What recommendations would you make? If you were Chairman of the Board of a large corporation, would you direct your firm to adopt <IR>? If so, what would be the first steps you would have your firm take in the adoption of <IR>?

13 Optional Readings Busch, Lawrence. standards: recipes for reality. Cambridge, MA: The MIT Press, c Sustainable Development Knowledge Platform. Sustainable Development Goals, Topics, Open Working Group, Post-2015 process. Aviva. A Roadmap for Integrated Capital Markets: Aviva s proposals for how the UN Sustainable Development Goals and the UN Framework Convention on Climate Change can harness the capital markets.

Preparing an integrated report: A practical guide

Mike Krzus Consulting www.mikekrzus.com Preparing an integrated report: A practical guide June 2014 Contents About this guide 3 The integrated report 4 An overview of concepts in this guide 7 The key elements