International trends and <IR> Framework feedback Sarah Grey, Markets Director International Integrated Reporting Council

Transcription

1 International trends and <IR> Framework feedback Sarah Grey, Markets Director International Integrated Reporting Council AECA International Symposium 28 September 2017

2 Over 1,600 organizations in 62 countries adopting <IR> Over 50% of CEOs, CFOs and COOs are moving towards <IR> And over 35% say they will 2,000 participating in <IR> Networks worldwide <IR> adopted by businesses in all G20 economies

3 2017: A year that leads to integration European Union's High Level Expert Group on Sustainable Finance Interim Report FSB Task Force on Climate-related Financial Disclosures Recommendations European Commission Guidelines on Non-Financial Reporting International Federation of Accountants, Enhancing Organizational Reporting International Federation of Accountants, The Global Accountancy Profession's Call for Action by G20 Countries Hans Hoogervorst, Chairman, International Accounting Standards Board London Stock Exchange Guidance Institut Français des Administrateurs

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5 Preview Simplify Clarify Amplify

6 Feedback by region Feedback by stakeholder group

7 Multiple capitals approach General support but: early stage; can be tricky; terminology? Call for guidance/examples to reinforce: - Only need material capitals - Use whatever terminology suits (but comparability?) - Use capitals as a completeness check - not necessary for report structure Trade-offs between capitals - approach needs improvement Call for IIRC to collaborate on metrics Financial and non-financial links need better articulation

8 Connectivity and integrated thinking Critical & least understood?! Clear implementation challenges in practice guidance needed Senior management buy-in key to successful integrated thinking Connectivity in a report may not always reflect integrated thinking Mature integrated thinking > improved decision-making Some call for stronger IIRC focus on integrated thinking and collaborations with third parties and CRD

9 Key stakeholders legitimate needs and interests Mixed views about the current state of play Some confusion re Framework Some question primary audience multiple stakeholders? Nature of stakeholder engagement? Formal or ordinary course of business Materiality matrix? Not required by the Framework Are financial capital providers ready to act on this info? Guidance, examples and actions by others requested

10 Materiality and value creation Central importance to <IR> - call for clarification, also innovation Operationalizing the concept is challenging - can be misunderstood Use of the value creation lens: - difference in materiality definitions across standards / frameworks - role of financial capital providers and other stakeholders re the materiality definition and materiality decisions Materiality over multiple timeframes (short, medium and long term) - need for greater emphasis on the longer term Suggestions for collaborations with third parties

11 Conciseness Considered an important - but poorly applied Link to materiality was noted Natural tension between conciseness and completeness. Guidance, examples and collaborations suggested

12 Business model outputs and outcomes Leading practice useful - room for improvement in practice Business model reporting is evolving - need for change management Formulaic at times? Tension: comprehensive v simplicity / ease of underdanding Outputs and outcomes - problematic area Competitive advantage and multiple business models - issues for some Requests for guidance, examples, collaborations

13 Involvement of those charged with governance & identification Framework Consensus about the role of those charged with governance Identification of those charged with governance important Varied views on governance statement (para 1.20) not often seen When included, don t always indicate level of compliance Requested guidance, examples, collaborations with third parties

14 Other comments Call for support on standardised metrics Benefits of examples, guidance, support role of IIRC and CRD Concern about <IR> being being seen as additional Importance of regulation as enabler where: - allows experimentation/ voluntary adoption - supports mature narrative reporting - demands non-financial info - but compliance mindset? Enablers: - Alignment with global and national policy - Sharing experiences, examples and guidance

15 Guidance: proposals Materiality Getting started Multiple capitals Value creation Business model outputs and outcomes Statement from those charged with governance Pathways to Integrated Reporting Integrated thinking) Business model reporting by conglomerates Guidance: Outputs Frequently Asked Questions Leading practice in <IR> Examples Database Practice aid: Summary of Framework requirements Practice aid: Getting started Practice Note: Materiality Integration of feedback into training programme Research: proposals Use of narrative and non-financial information by providers of financial capital Corporate reporting developments Incentives and barriers to balanced reporting, including legal liability Implementation by SMEs, public sector entities and not-forprofits Disclosing stakeholders needs and interests Connectivity and decision making Ongoing discussion with CRD and others Multiple capital metrics Integrated thinking Watching brief over other materiality approaches Materiality and materiality determination process Emphasis on balanced reporting Alignment Guiding Principles Credibility and trust audit and assurance Explaining the reporting landscape

16 CAPITALS CONNECTIVITY & INTEGRATED THINKING STAKEHOLDE R NEEDS MATERIALITY AND VALUE CREATION BUSINESS MODEL OUTPUTS & OUTCOMES THOSE CHARGED WITH GOVERNANCE BUSINESS MODEL OUTPUTS & OUTCOMES GUIDING PRINCIPLES

17 2017 <IR> Business Network Report Critique project: preview

18 Report Critiques initial findings Stengths Organisational overview: explaining what the organisation does, and the circumstances under which it operates Strategy and resource allocation: where does the organisation want to go? Value creation: how the organisation create value for itself Strategic focus: insights into the organisation s strategy Consistency: information on a consistent basis over time

19 Report Critiques initial findings Opportunities for improvement Governance responsibility for <IR> Basis of preparation: Identifying material matters Evaluating/quantifying material matters Outlook Materiality through the lens of value creation Strategic focus: use of and effects on the capitals

20 PROGRESS THROUGH

21 Appendix

22 Corporate governance and stewardship codes driving <IR> adoption South Africa Malaysia The Netherlands Japan The Philippines The UK With government and regulatory support from China, India, Brazil, EU

23 The strong points are: Organisational overview: explaining what the organisation does, and the circumstances under which it operates Strategy and resource allocation: where does the organisation want to go? Value creation: how the organisation create value for itself Strategic focus: insights into the organisation s strategy Consistency: information on a consistent basis over time 23 09/10/2017 Title of presentation - enter in the Header & Footer field ACCA

24 <IR> Network Report Critique project Context - <IR> adoption Does the report state that it is an integrated report? (2016: 51%) No 40% Yes 60% Does the Report state that it follow the principles of the <IR> Framework? (2016: 59%) No 26% Yes 74% 24 09/10/2017 Title of presentation - enter in the Header & Footer field ACCA

25 Context Reporting package To which reports are cross-references made? Identify the type of reports(s) reviewed 25 09/10/2017 <IR> Business Network Report Critique debrief ACCA

26 Context Other frameworks Does the report reviewed aim to comply with other regulatory framework (tick all that apply)? 26 09/10/2017 <IR> Business Network Report Critique debrief ACCA

27 Context Size of reports In total, how many pages does (do) the report(s) reviewed contain (excluding financial statements? 27 09/10/2017 Title of presentation - enter in the Header & Footer field ACCA

28 Strategic focus and future orientation Does the report provide insights into the organisation s strategy? 0% 7% 21% 50% 22% Does the report explicitly tie the organization s strategy to its use of and effects on the capitals? 12% 34% 14% 14% 26% 28 09/10/2017 Title of presentation - enter in the Header & Footer field ACCA

29 Strategy and resource allocation Where does the organisation want to go? 33% 0% 10% 33% 24% What differentiates the organisation? 12% 0% 17% How does it intend to get there? 10% 2% 12% 50% 26% 38% 33% 29 09/10/2017 <IR> Business Network Report Critique debrief ACCA

30 Areas for improvement are: Governance responsibility for <IR> Basis of preparation: Identifying material matters Evaluating/quantifying material matters Outlook Materiality through the lens of value creation Strategic focus: use of and effects on the capitals 30 09/10/2017 Title of presentation - enter in the Header & Footer field ACCA

31 Materiality Does the report disclose materiality through the lens of value creation? 7% 33% 13% 20% 27% /10/2017 Title of presentation - enter in the Header & Footer field ACCA

32 Other potential areas of focus Governance Connectivity Capitals 32 09/10/2017 <IR> Business Network Report Critique debrief ACCA

33 Connectivity Does the report show a holistic picture of the combination, interrelatedness and dependencies between factors that affect the organization's ability to 37% 12% 5% 14% 32% Please indicate the forms of connectivity demonstrated /10/2017 <IR> Business Network Report Critique debrief ACCA

34 Capitals Overall, does the report provide information on the capitals? 17% 48% 5% 9% % On how many capitals does the report provide information? % On which capitals does the organization report? 1-2 2% % 34 09/10/2017 <IR> Business Network Report Critique debrief ACCA

35 IIRC s report critique project 2016 First things to improve External environment Strategy Business model Risks and opportunities Material matters Stakeholder relationships Adopt a neutral tone How value is created for the organization and for others What most are still working on Governance - acknowledging responsibility for the report Connectivity two thirds only partially making the links Conciseness Outlook only 30% say what challenges are likely and what implications for the business model and performance? Materiality determination process - 60% do not explain Resources or capitals they rely on to create value 50% provide acceptable information

36 Trend: management information Increasingly savvy management and board reporting - supported by systems that cover all the information (across multiple capitals and time horizons) needed to run the business resulting in improved decision making

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38 Trend: Connectivity In successful companies data will not be stuck in silos the connectivity of information and the relationships between different capitals or resources will be clearer.

39 Connectivity of information: SAP Annual Report 2015

40 Financial statements Sustainability report Integrated report Other communications Other reports Other interactions

41 Financial statements Sustainability report Integrated report Other communications Other reports Other interactions

42 Fin. Info Sus. info Integrated report Other communications Other info Other interactions

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44 Trend: focus on maturity & materiality Developing analytical tools to assess the maturity and materiality of the new information needed

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