What the IIRC is calling for

updated-three-shifts-diagram

Through engaging with influential decision-makers worldwide, the IIRC is calling for three gear shifts in terms of global economic governance.

The first is a shift from financial capital market system to inclusive capital market system. The IIRC is encouraging Governments, central banks, stock exchanges and standard setters to recognise the interconnection between finance, people, planet and knowledge, and embed systems of governance and reporting that enable integrated thinking and reporting to become mainstream. Other advocates of <IR> have leant their support at organised events, and these will continue throughout 2015.

The second is a shift from short-term capital markets to sustainable capital markets. To end the incentive systems that perpetuate short-term thinking and decision-making, the IIRC is encouraging the introduction of reporting codes focused on strategy, resource allocation and value creation over the short, medium and long-term.

Finally, a shift from silo reporting to <IR>. The IIRC is leading the drive to bring about a corporate reporting system that is both principles-based and cohesive, and urging policymakers to remove all regulatory barriers to <IR> adoption and introduce policies that are consistent with its principles of connectivity of information, multiple capitals and future orientation.

 

Examples of the IIRC putting the three shifts into action

 

From financial capitalism to inclusive capitalism:

  • The IIRC has promoted a multi-capital approach to decision making in recommendations to the Financial Stability Board Task Force on Climate-related Financial Disclosure and the European Commission’s consultation on the guidance on non-financial reporting.
  • In written evidence to a UK Parliamentary Select Committee examining the future of corporate governance the IIRC recommended a, “comprehensive broadening of the capitals base in the UK economy.”
  • In October 2016 the Coalition for Inclusive Capitalism endorsed Integrated Reporting at its conference in New York City.

From short-term to sustainable capital markets: 

  • The IIRC has long promoted policy ideas that would help to extend the disclosure horizon and address the issue of ‘the tragedy of the horizon’ outline by Mark Carney, Chairman of the Financial Stability Board (FSB). As long ago as September 2015 the IIRC set out these ideas: ““First, we believe that Stewardship Codes, with clear principles and institutional support within countries, can deliver important incremental improvements to corporate governance and specifically lead to a better and deeper flow of information between the board and institutional investors based on the business model, strategy and value creation over the short, medium and long-term.  Second, perhaps the time has come to establish a global business and investor-led taskforce, under the auspices of the Financial Stability Board (modelled on the Enhanced Disclosure Task Force) to identify ten globally accepted principles of corporate reporting that contribute to financial stability and long-term investment”.
  • In a speech to the inaugural meeting of the FSB Task Force on Climate-related Financial Disclosure the IIRC set out five clear recommendations:
    • Embed the principle of connectivity of information. Information must flow through a business – this means ending the silo culture and putting in place cross-cutting themes to consider climate issues and how they impact the business model.
    • Start with strategy. This puts boards in control and means data and information flows from – and to – strategic decision-making.
    • Seek explanations. This forces consideration by the board. How does climate impact our business model?
    • Extend the disclosure horizon over material climate change informationHow does climate change impact our business model over the short, medium and long term?
    • Underpin corporate governance and stewardship codes. Signal the intention that climate-related issues should form part of the key consideration of risks by boards and investors as they undertake their governance and stewardship obligations.

From silo reporting to Integrated Reporting: 

  • Through the IIRC Chief Executive’s participation in the Energy, Resource Efficiency and Climate Change Task Force of the B20 our key recommendation is to bring an end to silo reporting and ensure greater consistency with the recommendations of the FSB Task Force on Climate-related Financial Disclosures.
  • This is also reflected in all our engagement with policymakers, including governments, stock exchanges and securities regulators. Examples of recent engagement include with stock exchanges in Singapore and Malaysia, securities regulators in the Netherlands, India and Malaysia and capital market regulators in the US and the UK.