Director, Singapore Exchange Limited
A basic tenet of integrated reporting is that it is as important to look forward as it is to look backward. The past is often a distorted mirror to the future. In 2010, in a world still reeling from the Global Financial Crisis, an eclectic group of members of the accounting profession, bankers, regulators, standard setters, industry leaders, investors, sustainability experts and thought leaders met to create a different way of thinking and reporting.
Inspired by the visionary work of Professor Judge Mervyn King and assisted by His Royal Highness, Prince Charles’ Accounting for Sustainability, this gathering commenced a journey which was to transform corporate reporting around the world. It was agreed at this meeting that the then current corporate reporting system was no longer fit for purpose.
The world was becoming increasingly aware of the challenges, risks and opportunities which were offered by the environmental, social and governance issues facing corporates and which were inadequately reflected in the then available corporate reporting frameworks, system and standards. A conceptual framework integrating financial and non-financial information, based on integrated thinking, was globally canvassed and finally agreed. With intense intellectual input and worldwide consultation, the International <IR> Framework was developed, established and adopted around the world.
Few in that early meeting in 2010 could have imagined the pace of this development and its ready acceptance around the world. Of course, the corporate world was also changing over this period. Over this decade, major global players increasingly reflected business models whose value creation was in off balance sheet items or intangible assets, which were underreported and difficult to value. The impact of climate change, its risks and opportunities became real.
Investors and other stakeholders were hungry for more granular, measurable data about the ‘non-financial’ aspects of corporate behaviour and impact. Often corporates reported twice, once according to international financial standards and separately their sustainability reports. These reports did not speak to each other. The <IR> Framework enabled corporates to show shareholders and stakeholders that they had undertaken integrated thinking and how their business model created value over the short, medium and long term.
A little over halfway through the last decade the United Nations announced an ambitious set of Sustainable Development Goals (SDGs) to be implemented by 2030. The UN SDGs provide another way of looking at corporate behaviour and impact and raise the issue of how corporate business models can move the dial in relation to these goals. They provide an additional way of looking forward in corporate activity and value creation.
Today the world is reeling from a different crisis and a different set of challenges. COVID-19 has affected millions of people and tragically taken hundreds of thousands of lives. It has disrupted business models, closed borders, restricted global travel, and limited global commerce. It has greatly increased the efficiency, effectiveness and use of technology.
Just as the jolt the financial crisis gave to the global economy stimulated new ideas, similarly the current crisis may well stimulate energy and action on the corporate reporting front.
Currently there are a number of different standards, frameworks and settings for the reporting of non-financial data. Adoption of these different data descriptions and measurement methods can lead to confusion, and a lack of comparability between industries and corporates, particularly in valuation.
There are currently a number of initiatives to set up a non-financial standard setter, which will hopefully coalesce into a set of clear, comparable, globally adaptable standards. The <IR> Framework is the only globally accepted framework to enable the two sets of global standards, financial and non-financial to be fully integrated into a complete, useful global reporting process.
The technological transformation accelerated by COVID-19 provides a superb opportunity to truly ‘integrate’ both sets of standards. The current confusion of metrics, descriptions and measurement methods in current standards would be eliminated through the development of a carefully calibrated taxonomy enabled by machine readable technology, which would enable immediate comparability, and facilitate valuation. The excellent work of the Corporate Reporting Dialogue could contribute significantly to this effort.
The <IR> Framework would be the ‘roof’ of a ‘house’ housing both sets of standards; a twin structure of financial and non-financial reporting standards, transformed by the use of technology to be truly integrated.
Including the impact of the entity’s business model on relevant UN SDGs, measured by technology, as a further integrated step, would enable stakeholders and shareholders to examine how progress towards implementation of the UN SDGs is being assisted by reporting entities.
This is the future of corporate reporting.