4.2.1 The International Integrated Reporting Council and the integrated report

The International Integrated Reporting Council (IIRC) developed the Integrated Reporting framework, released in December 2013.1 The IIRC invites companies, through integrated thinking, to communicate an integrated story, combining financial and non-financial information, explaining how the organization creates value over time, in an integrated report.23Integrated Reporting is meant to “improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.”4 The Integrated Reporting framework is principles based and does not contain indicators. Through integrated thinking, an organization will explain how it deals with the environment in which it operates, considering the relationships and interconnectivity between all the capitals (e.g. all the resources used by the organization)5 it uses or affects.6The IIRC’s framework suggests six categories of capitals, which are, the financial (e.g. funds available), manufactured (e.g. physical infrastructure), intellectual (e.g. patents, copyrights, intellectual property), human (e.g. skills and know-how), social and relationship(e.g. community, government, customers and supply chain), and natural (e.g. “which provides the environment in which the other capitals sit”7 resources that often cannot be replaced, raw materials, such as the air, forests and oceans) capitals.89 The organization will explain the interdependencies between the six capitals and how these are affected or transformed by its activities (outputs and inputs), over time.10 The long-term success of an organization depends on all six capitals and not only the financial capital.11 Through the process of integrated thinking and the application of principles such as the connectivity of information, organizations will deliver a more complete, interdependent and dynamic view of their business activity over time. The principle of connectivity of information, as defined in the Consultation Draft, is one of the guiding principles for the preparation of an integrated report. To apply this principle, the organization “should show as a comprehensive value creation story, the combination, interrelatedness and dependencies between the components that are material to the organization’s ability to create value over time.”12

The IIRC is composed by different sector international leaders, among which are the regulators, investors, companies, Non-Governmental Organizations and accountants. In mid-2011 the IIRC launched a discussion paper “Towards Integrated Reporting – Communicating Value in the 21st Century”. It was then available for public consultation to receive the feedback of prospective users and interested organizations and investors. In October 2011, the IIRC launched the Pilot Programme’s Business Network and Investor Network, giving the opportunity to a selected group of companies to participate and be the pioneers in testing the framework and issuing integrated reports.1314In July 2012 the IIRC published a draft outline and in November 2012 published a Prototype Framework. After receiving input from the pilot companies, IIRC technical task force and technical collaboration groups, in April 2013 the IIRC Working Group and Council endorsed the Consultation draft of the Integrated Reporting framework. The IIRC received feedback from all stakeholders on the released draft and after launched the initial version of the Integrated Reporting framework.

As already stated by Commissioner Michel Barnier back at the 2013 GRI conference, to improve sustainability reporting, member states may use existing financial reporting processes and tools.15 Organizations as the CDP (former Carbon Disclosure Project), the GRI, the IIRC and the Sustainability Accounting Standards Board (SASB) have the specific knowledge that can be used to add value to the exiting financial reporting framework, through an integrated reporting framework. Sustainability reporting does not need to invent a new framework separate from the financial reporting framework to show how businesses can create value in the short, medium and long term. That would be time consuming and counterproductive.

The idea of integrating financial with non-financial information and explaining how a company is managing both financial and non-financial risks in the long term is, in the interviews conducted for this research, seen as a sound idea. In the literature, renowned authors and experts in the field recognize Integrated Reporting as the future of corporate reporting. Among others, Eccles and Krzus, 2010, Eccles and Armbrester, 2011, Eccles and Saltzman, 2011, Eccles and Serafeim, 2011, Serafeim and Ioannou, 2012. The IFRS seems to be here to stay and in the way companies report, IFRS does not need to be weakened, however, other requirements must be added to the current reporting framework to increase long term value. A short and concise document with what is relevant and material, meets strategic results, sustainability risks and impacts is a very important and desirable thing. There are 6 capitals in the current IIRC draft framework, not only the financial capital but manufactured, intellectual, human, social and relationship, and natural, which might be asking too much from investors. It can succeed if it stays to its original aim that is to help investors to get comparable and strategic information.