4.2.5 Integrated reporting critics

The integrated reporting framework as developed by the IIRC has been subject to critics. To begin with, the IIRC’s legitimacy as a globally recognized body to require integrated reporting from companies as been questioned. Despite support from a few relevant institutions and signing a number of Memoranda of Understanding, recognizing complementarity between the different frameworks, with organizations such as, the GRI, CDP (former Carbon Disclosure Project), International Federation of accountants (IFAC) and the International Accounting Standards Board,1 the IIRC lacks formal support from organizations such as, the International Organization of Securities Commissions (IOSCO) or the European Commission.

As we saw in chapter 2, the International Accounting Standards Board’s strong governance structure backed by the International Organization of Securities Commissions and the European Commission has empowered it with legitimacy to become a globally accepted financial standard setter. Currently, the IIRC did not prove to have a strong governance structure, such as the one of the International Accounting Standards Board and therefore, does not enjoy such legitimacy as yet.

For the critics of the integrated reporting framework, it is thought that it sets the bar unrealistically high,2 it is unclear for companies what exactly they are required to do according to the framework and the costs are expected to be high (AFM, 2015). The IIRC itself acknowledged from the responses to the Discussion Paper in 2011, that there was a “degree of confusion, about the definition of Integrated Reporting; about what Integrated Reporting is, or is intended to become; and how Integrated Reporting should relate to existing reporting strands (…)”.3The concerns with the meaning and practical content of integrated reporting was not clear, and continued when the integrated reporting draft framework was launched in April 2013.4 Besides, Humphrey, O’ Dwyer & Unerman, (2014) also refer to the limited evidence supporting the urgent need for integrated reporting, and clarification about “how and why IR [integrated reporting] was the answer for meeting the needs of the ‘emerging more sustainable global economy’”.5 These authors summarize the launch of integrated reporting as “promoted as an irresistible idea whose time had come”.6

John Flower has criticized the IIRC’s framework and pointed out four areas in which the IIRC’s current approach contradicts its initial objectives.7 These are, (1) the integrated report will not be the firm’s primary report, allowing firms to choose how to report, therefore, being easier for the reporting organizations; preparers of integrated reports may also differ from the IIRC’s framework in respect of the six capitals (IIRC, 2013, 2.17)8 (2) the integrated report is not meant to cover sustainability, as this part would be covered by other organizations, as the GRI;9 (3) the integrated report does not need to include comprehensive information about the firm’s impact on stakeholders;10 and (4) The IIRC places very few specific obligations on the preparer of an integrated report.