European Commission Fitness Check: Show your support for integrated reporting

Posted
14 May, 2018

The European Commission has launched a public consultation to review its current public reporting requirements to assess whether the EU reporting framework is still fit for purpose. This consultation will help set the path for the future of corporate reporting across Europe.

As an increasingly used and important reporting framework, the European Commission are asking about the benefits that integrated reporting could bring and the role it should play in the future of reporting in Europe.

The IIRC is calling on all of its stakeholders to respond to this consultation, giving your support for integrated reporting.

The consultation asks:

  • Do you agree that integrated reporting can deliver the following benefits?
    • More efficient allocation of capital, through improved quality of information to capital providers
    • Improved decision-making and better risk management in companies as a result of integrated thinking and better understanding of the value-creation process
    • Costs savings for preparers
    • Cost savings for users
    • Other differences
  • Do you agree with the following statement?
    • A move towards integrated reporting in the EU should be encouraged
    • The costs of a more integrated reporting would be proportionate to the benefits it generates (would be efficient)
  • Is the existing EU framework on public reporting by companies an obstacle to allowing companies to move freely towards more integrated reporting?
    • Yes
    • No
    • Don’t know/no opinion/not relevant

The Commission asks for evidence and concrete examples to substantiate any responses. Here, we share some of the latest evidence demonstrating the importance of integrated reporting:

  • There has been a clear shift in direction over the last couple of years, all reiterating the importance of connectivity and integration of information, including: FSB Task Force on Climate-related Financial Disclosure Recommendations, European Commission Guidelines on Non-Financial Reporting, International Federation of Accountants: ‘Enhancing Organization Reporting’ report, High Level Expert Group on Sustainable Finance Final Report and the United Nations Sustainable Development Goals Target 12.6.
  • Beyond Europe there is a similar trend with efforts happening around the world such as the integrated corporate disclosure and company investor dialogue in Japan and reporting guidelines in corporate governance codes in countries like South Africa, Malaysia and New Zealand.
  • For the last four years, the corporate communications agency ‘Message’ has been reviewing the reports of the top listed companies in Europe to identify current trends in reporting. In this year’s research, they have identified ‘integration’ and ‘conciseness’ as the key trends driving how the biggest companies are reporting. According to Message, the majority of companies have moved from publishing both CSR and Annual Reports to focusing on one single report, including ESG aspects in one single report.
  • Many companies are already using the International Integrated Reporting Framework to support them with implementing the Non-Financial Reporting Directive with companies in over 20 EU states now voluntarily innovating with integrated reporting including half of the CAC40 in France, a third of Dutch listed companies and over forty companies in Spain. This is because the <IR> Framework is a tool for businesses looking to provide forward looking information, to identify risks, to describe their business model and to embed the principle of connectivity.
  • The <IR> Framework acknowledges the importance of information about sustainability – but encourages the company to think about this in terms of inputs, outputs and outcomes. It makes non-financial information strategically relevant. For example, in its Integrated Report the German technology firm SAP states that a change by one percentage point in employee engagement would have an impact of between 45 and 55 million euros on their operating profit. They are making it clear for all stakeholders why the non-financial information they report on is strategically relevant (although the <IR> Framework does not prescribe for monetization).
  • A Eurosif survey found that 83 of 90 European institutional investors asked said they supported the Non-Financial Reporting Directive and believe it should lead to integration with financial information. There are many reasons for wanting this. Academic evidence demonstrates that integrated reporting is positively associated with both stock liquidity and firm value (Stanford University). Research also concludes that companies that disclose more than just financial information out perform those that don’t (University of Singapore) and that the better a company’s integrated report gets the higher its market valuation (Nanyang Business School). Integrated reporting leads to a longer-term investor base (Harvard Business School), with a connection between larger holdings from long term active investors and stock market advantages (KPMG). Investors have welcomed integrated reporting as essential for their investment decision making. Eighteen investor organizations have confirmed this via this statement.
  • Feedback from the participants of our global <IR> Network suggests that whilst embarking on integrated reporting may initially involve some outlay of cost, once companies progress they are able to significantly improve efficiencies in their approach to reporting.
  • Companies adopting integrated reporting are adamant that it helps with better internal decision making, future performance, and helps build trust with stakeholders (see Purpose Beyond Profit, 2018, AICPA and Black Sun). There is a clear benefit to businesses themselves in adopting integrated reporting.

If you have any questions about this consultation and how it relates to integrated reporting or require further information about the benefits and evidence of its adoption, then please contact Juliet Markham on juliet.markham@theiirc.org