The International Integrated Reporting Council (IIRC), a global coalition of investors, companies, regulators, standard setters and the accounting profession, has opened a 90-day consultation on a framework aimed at enhancing corporate reporting.
The IIRC’s blueprint, released for consultation on 16 April 2013, is intended to encourage a more cohesive approach to corporate reporting with a focus on how an organisation creates value in the short, medium and long term. The focus is also to enhance accountability and stewardship, and support integrated thinking and decision-making in the wake of traditional business models becoming increasingly obsolete.
Companies are being urged to make sure they present more integrated information on how their strategy and critical decisions are made to underpin a higher level of investor confidence and trust, and put them in the best possible shape for the next decade.
Evidence suggests that a poorly defined and explained business model has adverse consequences. A PwC experiment with a small group of investors showed how their valuations are influenced by a company’s reporting. 80% of investors recommended ‘sell’ when they didn’t have any quantified non-financial information, but most recommended ‘buy’ when presented with more integrated information.
The framework was tested during its development process through a pilot programme involving over 85 companies and 50 investors around the world - providing further evidence that integrated reporting delivers benefits both for the organisation and for its stakeholders, including its investors.
A survey of the pilot programme companies revealed that they believe integrated reporting provides a clearer view of the business model (95%), breaks down internal silos (93%) and increases board focus on exactly what the key performance indicators (KPIs) for the business should be (95%).
In Hong Kong, Hong Kong Exchanges and Clearing recently introduced an Environmental, Social and Governance (ESG) reporting guide as a recommended best practice to encourage listed issuers to disclose ESG information in their annual reports or in separate reports.
Several companies have started to include some ESG disclosures in their 31 December 2012 reports and PwC expects the trend towards greater transparency to continue in Hong Kong.
"It’s becoming increasingly clear that if companies provide a more cohesive view of their business, it can improve their access to capital and resources," says says Gayle Donohue, PwC Hong Kong Assurance Partner. "Companies with the best information to inform their decisions are also far more likely to develop the right strategies and business models to succeed.”
Integrated reporting can make a critical contribution towards financial stability. Companies that make their performance and prospects visible in a credible and well-structured way will avoid the risk that investors undervalue their organisation.