Enabling widespread adoption of <IR> through the B20 Infrastructure & Investment Taskforce

Posted
2 October, 2015

As noted in the 2015 B20 Infrastructure & Investment Taskforce Policy Paper, every year, approximately $9 trillion is spent on infrastructure, of which $2.6 trillion goes into economic infrastructure – transportation, power and water and telecommunications. Over the next 15 years, the gap in economic infrastructure is forecast to reach $15  – $20 trillion. Solutions must be agreed upon and implemented as a matter of urgency.

The B20 Infrastructure & Investment Taskforce Policy Paper recommends a number of actions for the G20 to consider in relation to bridging the infrastructure gap, including an Integrated Reporting recommendation specified in Initiative 1.1.2 on page 9:

“To create an enabling regulatory environment for infrastructure investment, the G20 should …  Commission a review by the International Integrated Reporting Council and International Accounting Standards Board of accounting rules that may hinder investment in infrastructure and a report that recommends what G20 governments should do to promote widespread adoption of integrated reporting.

For example, it has been suggested that the use of fair-value accounting principles has led to short-termism in investor behaviour. Long-term investors argue that short-term volatility resulting from fluctuations in the market value of their investments does not provide information on real performance, as the fluctuations are not indicative of the prospects for future net cash inflows.”

This recommendation has three parts:

  1. Commissioning a review by the IIRC and IASB on how to make corporate reporting more conducive to infrastructure and other long-term investment (‘the Review’)
  2. Recommending actions by individual G20 governments on how to promote widespread adoption of Integrated Reporting (‘resolving National Implementation Challenges’)
  3. Recognising that further development of corporate reporting is not in itself the solution in relation to infrastructure and other long-term investment, but through innovation and improved transparency and relevance, it will support organisations to access longer term funding for major projects.

Much of the background work for the Review has already been conducted by the B20 Panel of six international accounting networks for their report to the 2014 B20, Unlocking investment in infrastructure – Is current accounting and reporting a barrier?

The second part of the recommendation seeks to identify the practical legislative and regulatory barriers to adoption of Integrated Reporting across G20 nations, and identify ways to resolve them.  By working within the grain of regulatory thinking on a country by country basis the IIRC has had some initial success, for example in South Africa,  the UK, Germany, Japan and Brazil, in aligning regulatory practice with the principles of Integrated Reporting.

Certain G20 nations have already dealt with challenges faced by other G20 nations. For example, the UK regulatory approach to ensuring that directors can make the forward-looking and risk-oriented statements required in Strategic Reports under UK corporations’ law may provide a model for Australia to follow as Australia grapples with Director Liability for such statements made in the interests of providing better information to capital markets.

The resultant action plan will identify the challenges and determine potential approaches to resolve them based on actions in other jurisdictions to facilitate change in how companies report, such that reporting delivers the information needed by long term investors to better understand the strategy, performance, risks and outlook for long term infrastructure projects.

The Review and development of the implementation action plan would result in existing evidence and case studies being drawn together, and a mapping exercise conducted to understand the implementation issues across each G20 country and recommendations for resolving them.  In practical terms, the work performed would draw out issues that have delayed the adoption of Integrated Reporting, both in Australia and other jurisdictions, such as concern over Directors’ Liability in relation to forward-looking information. Models that both protect directors and deliver the corporate reporting reforms that will encourage investment in infrastructure and other long term investment could be identified and the pathways to global adoption of integrated reporting be smoothed.