Integrated Reporting: Strategic and Forward Looking (part 2)
This is part two of ACCSR Consultant Josh Appelboom’s interview with Dr Cornis van der Lugt, facilitator of the upcoming IIRC-approved courses on integrated reporting in Melbourne and Sydney. Following on from part one which focused on the background and value of integrated reporting, we now turn to the current trends in integrated reporting, its impact on today’s business landscape and what the future holds for integrated reporting in Australia.
Integrated reporting lends itself to companies from all sectors. Are there any particular sectors that are leading the market in integrated reporting at present?
There has been significant interest in integrated reporting from the service industries, notably finance, information and communications technology (ICT). For enterprises where intellectual capital is more important, the discrepancy between value on paper and the market value is especially evident. That reflects the growing importance of intangible assets, which are not effectively captured in conventional financial statements. Integrated reporting offers the framework to converse with investors about how enterprises define, manage and strengthen their intangible assets.
The ICT sector is increasingly active in this domain. For this sector a company’s intellectual capital and the talent it is capable of attracting and retaining is of key importance. For ICT there is also an additional motivation: to effectively demonstrate how new information technologies (IT) including digital applications can facilitate and communicate the integration and connectivity between the different forms of capital. For the ICT sector, it is therefore also about the opportunity to showcase its capabilities on the basis of the services that can be offered in intelligent use of IT. One of the best examples of online reporting and displaying interconnectivity between different types of capital comes from SAP in Germany.
In your view, has integrated reporting had an impact on the business landscape already?
Integrated reporting has started to change the business landscape in the sense that senior and executive level managers from leading corporations worldwide are becoming engaged in critical discussions about the use and availability of different types of capital. Consider for example the debate in the extractives industry, specifically the oil and gas industry, about stranded assets and the risks posed by climate change. The Financial Sustainability Board’s Taskforce on Climate Related Financial Disclosures highlights the importance of risks related to the availability of different capitals, for example water availability in the face of climate change. For businesses associated with the direct exploitation of natural resources, including mining and agri food, the dependence on and value of Natural Capital is of special interest.
The integrated reporting movement is also bringing CFOs and accountants into the discussion. The idea of “integrated thinking” requires a link made between financial accounting and sustainability accounting, and consideration for more holistic creation (or destruction) of value with a forward-looking and longer term focus. Leading corporations worldwide are showing greater interest in the implications of the six capital model and different pre-financial factors for the longer term financial performance of a corporation. This reflection has also led to new interest from the management accounting profession, as reflected in the work of the Chartered Institute of Management Accountants (CIMA).
How has integrated reporting already made an impact on the Australian market and how do you see this evolving over the next five to ten years?
Rather than simply following what is happening in London or New York, the Australian market has an opportunity to become a leading innovator in the Asia-Pacific region. There is a real challenge for Australian enterprises to apply a more integrated assessment and strategic planning related to global challenges such as climate change, diversity and human development. Many Australian industries are directly dependent on the health and availability of natural resource supplies, none more so than the extractives and agri food industries. These industries will be challenged in coming years to communicate to investors how they diversify and adapt business models.
Resilient business models display an awareness that resource extraction and exploitation is not just about taking, for example, minerals out of the ground. It is also about alternative design in manufacturing systems and products, including the productive use and recycling of materials. Approaches of the circular economy, including closed loop manufacturing and its reflection in new business models, implies an analysis that also requires integrated thinking and informed discussion through integrated reporting.
Australian companies can yield significant value from integrated reporting because the process offers avenues to communicate more effectively with the providers of financial capital. The IIRC has an investor network in which some responsible investors from Australia have been active over the past five years. Those asset owners and asset managers committed to the Principles for Responsible Investment (PRI) can lead by example, improving their ability to ask the right questions. Early feedback form investors has indicated that integrated reporters are better able to display quality of management and an ability to converse on strategic, longer term issues around value creation.
The framework for sustainability reporting most widely used by Australian companies is the GRI Standards. Are integrated reports compatible with GRI reports?
Our IIRC-approved training program makes clear that integrated reporting does not replace sustainability reporting and annual financial reporting. Rather, these different types of reporting are complimentary and will continue to co-exist. The integrated report is more forward looking, concise and strategic in the sense of taking sustainability factors into core business strategy. To produce a quality integrated report, you need to have a good sustainability reporting system and annual financial reporting system in place. GRI reports will continue to communicate with stakeholder audiences that are not necessarily the primary user audience targeted by integrated reports. While the IIRC Framework promotes more effective communication with financial stakeholders, notably investors, the GRI Guidelines facilitates communication with a broader range of stakeholders that have different information needs.
If you or your company is interested in furthering your knowledge about integrated reporting, make sure to register for our IIRC-approved courses. The training sessions are being held under the auspices of ACCSR in partnership with Swiss-based global consulting group BSD and hosted by IAG.
Register here for Integrated Reporting, Strategy and Excellence in Performance, Melbourne 21 – 22 March.
Register here for Integrated Reporting, Strategy and Excellence in Performance, Sydney, 27 – 28 March.