The Future of Reporting: Five steps towards Integrated Reporting in business

Posted
30 September, 2016

The chances are, if you’re reading this then you’re considering changing your company’s reporting process. If you’re thinking about engaging with Integrated Reporting for the first time, ‘evolution not revolution’ is a useful mantra to adopt.

By shifting slowly to an integrated model over two or three reporting cycles, rather than trying to do it overnight, companies can embrace change in a way that does not cause undue disruption or disorientation. An extended period of transition will enable you to put processes and systems in place and engage with the broader range of stakeholders required.

It’s often a concern that the adoption of integrated reporting will involve huge amounts of time, work and resource. As with any change in corporate system or process, the transition will involve a degree of thought, effort and application.

But it needn’t be as onerous as you might think. Most companies find that a lot of the prerequisites for integrated reporting are already in place. For UK companies of a certain size, for example, the preparation of strategic reports in line with Financial Reporting Council (FRC) requirements demands a focus on quality and materiality not dissimilar to that of the International Integrated Reporting Council’s (IIRC) International Integrated Reporting Framework.

As part of this process, the following first steps could help set the would-be practitioner on the path to integration:

Step 1 – Issue a ‘statement of intent’:
Let your stakeholders know of your intentions; set out your aims and ambitions and your reasons for making the switch. As part of this statement, you could reaffirm your commitment to good governance, transparency, long-term strategic thinking and corporate sustainability. You should also scope out your anticipated journey towards integration; how long you expect it to take and anticipated milestones along the way.

Step 2 – Conduct stakeholder mapping and engagement:
Cast your net wide to identify your principal stakeholders. You need to understand who they are, what they expect of your company, and what they consider the most material issues for you to address. As Integrated Reporting looks beyond the investor community, your report will need to reflect a broad range of stakeholder opinions.

Step 3 – Think about value creation:
In addition to the financial aspect, what are the different ways in which your company creates value? Does it manufacture goods? Does it invest in the local community? Does it look after its employees? Does it provide important advisory services? Try to match up these value creation points with the ‘six capitals’ set out by the IIRC.

Step 4 – Consider your business model:
How well does your business model support value creation, and how well does it link to your company strategy and connect to sustainability? Does your business model reflect your stakeholders’ expectations? Do you need to adjust your business model and strategy in light of your stakeholder mapping/engagement and value creation analysis? If your business model is too narrowly focused, if it doesn’t yet take account of your non-financial resources and relationships, it needs reworking.

Step 5 – Embrace integrated thinking and behaviours:
Integrated Reporting is dependent on, and helps to achieve, integrated thinking. An Integrated Report is all about making connections; in order to provide connected and cohesive information, you need a connected and cohesive workforce and set of systems. Are the right people talking to each other internally? Are you doing enough to break down silos? Are you encouraging cross-organisational communication and engagement with your strategy?

The benefits of integrated reporting

It’s true that so far the internal benefits of integrated reporting (a more holistic view of business, increased investor confidence, a breakdown of silos, among others) are the most tangible, but there is evidence supporting claims for external benefits. The IIRC’s Realizing the Benefits research quotes a number of practitioners on this subject.

Of course, the quotes are anecdotal but there is a firm belief that the external benefits of integration are real. It’s also worth remembering that these benefits will take time to realise. Many companies are not yet in a position to quantify the impact of integrated reporting, as this will only come after several reporting cycles and as processes and reports mature.

So, what does the future of Integrated Reporting hold for business?

The benefits of Integrated Reporting speak for themselves, and it is hoped that the process will become the norm as emerging social and environmental risks require companies to develop initiatives that transform these challenges into opportunities and sustained value drivers. ‘We believe Integrated Reporting will eventually be the mainstream of reporting,’ says EY’s Ernest Lee. Globally, pressures are mounting to increase the quantity and quality of financial and non-financial disclosure, and Integrated Reporting allows businesses to respond to these demands.

At Stratton Craig, we have been helping companies tell their story for over 25 years through corporate communications, annual and sustainability reporting and, more recently, Integrated Reporting.

You can find out more in our recent whitepaper: Evolution not revolution: Getting Started with Integrated Reporting.