PwC

pid Change ❝

The framework brings technical rigour and cohesion to a process that has grown organically and through market pressure over the last three years. Paul Druckman, CEO, IIRC

The integrated reporting framework is a catalyst that can bring about profound changes in business and investor behaviours. Fiona Wolf, Lord Mayor, City of London

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Integrated Reporting: An overview Integrated reporting is defined in the IIRC’s framework as: ‘a process founded on integrated thinking that results in a periodic integrated report by an organisation about value creation over time and related communications regarding aspects of value creation’.

An integrated report should therefore be viewed as the ‘back end’ of the process of integrated thinking. It’s the final presentation of a company’s business model, its value creation strategy and financials, all connected, and looking both backward and forward.

But fundamentally, it’s pointless to collect

information just for external reporting purposes alone – the information needs to be useful and relevant for management and board decisions about the business too.

The idea is that integrated reporting will communicate the full range of factors that materially affect an organisation’s

ability to

create value over time. And there will be better accountability for and stewardship of not just financial capital, but also, according to the IIRC framework: manufactured, intellectual, human, social and relationship, and natural capitals.

And this improved business information will help providers of financial capital to allocate capital more efficiently.

Pay close attention Integrated reporting is not a fad and it’s not something to ignore. Company information is already evolving, and reporting trends show the train has already left the station but the journey has only just started. Over the last year, we’ve looked at over 400 companies globally to see how far they have moved towards integrated reporting. The findings show a significant evolution in reporting, compared to our global research a few years ago, but not a revolution.

As you’d expect, the breadth of information in some areas has shot up – particularly around strategy, business models, risks and KPIs. And as this information becomes more firmly embedded into companies’ reporting, we’ve seen a gradual improvement in how this information is integrated and linked to business strategy. But it’s still hard to find good examples of connectivity across a whole report or future orientation.

There are clear opportunities for all organisations to significantly improve the quality of reporting, both internally and externally, even within existing regulatory constraints. The results table highlights which areas companies most need to focus on in their journey towards integrated reporting (see table on the next page).

But that’s just the ‘low-hanging fruit’ from the existing reporting model…

Need for deeper change? The actions we need to take are arguably more revolutionary, if reporting is to help us deal with the megatrends referred to above and support financial stability. This short film animation, illustrates the point. We need to think more broadly about what’s material to move away from the noise and clutter of less relevant information. And we need to think about how value is created and what impact our organisations have beyond their immediate legal boundaries. In short, we may need more focused adoption of the integrated reporting principles.

This is easier said than done. But we are already seeing and working with management teams who are starting to factor ‘integrated thinking’ into their management information and external reporting.

So we’re approaching a gear change – one that will bring speedier travel towards much more effective and relevant corporate reporting. And that’s essential if we want our organisations to be trusted and our capital markets to weather the megatrend storms in good shape.

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