The International Integrated Reporting Council (IIRC) has released the Consultation Draft of the International Integrated Reporting Framework. The Framework creates the foundations for a new reporting model which will enable a business to provide a concise communication of how it creates value over time.
Integrated reporting differs from the current reporting landscape in a number of important ways, in particular through the introduction of the concept of six capitals, a prism through which organisations should assess, and then report, the degree to which they are creating, diminishing or destroying value over time. The capitals are: financial, manufactured, intellectual, human, social and relationship, and natural.
Integrated reporting responds directly to the challenge faced by providers of financial capital, including investors, that intangible factors, such as intellectual property, brand, talent and environmental resource use are insufficiently integrated into the strategic decision-making and reporting by businesses, leading to the potential for a misallocation of resources and a higher cost of capital.
“The world today faces two critical and interconnected dangers: financial instability and unsustainability," says Mervyn King SC, Chairman of the IIRC. "Both of these dangers pose threats to the livelihoods of communities across our planet – to their wealth and welfare. They are risks that have been under-managed and under-reported for too long. The corporate reporting landscape has not kept pace with the scale of the changes that have taken place in the world economy, business and society in recent decades."
King notes that businesses and investors have a central role in making capital allocation decisions that will ultimately determine the resilience of the financial system and the success of the economy over the short, medium and long term.
"Integrated reporting brings businesses and investors to the centre of this debate. It charges them with the responsibility to communicate how they create value over time. It empowers them to create new tools and mind-sets that will improve the quality of decision-making by businesses and investors. And, crucially, it will lead to changed behaviour, a focus on the future as well as the past and a reporting model that reflects and communicates the reality of business, its operations and its impacts, in the 21st Century.”
IIRC urges businesses, investors, the accounting profession, regulators, standard-setters and other interested parties to contribute to the consultation and shape this corporate reporting evolution which matters so much to the future of business and the global economy”.
The goals of integrated reporting are to achieve a more cohesive and efficient approach to reporting; inform capital allocation decisions; enhance accountability and stewardship; and support integrated thinking.
The framework features fundamental concepts, such as the capitals, business model and value creation. It also includes guiding principles, such as strategic focus and future orientation, connectivity and materiality.
Content elements such as organisational overview, opportunities and risks, strategy, performance and future outlook.