Can integrated reporting find its way?

The new chief executive of the International Integrated Reporting Council, Richard Howitt, outlines plans to advance integrated reporting.

By Prue Moodie

Integrated reporting was considered a ground-breaking conceptual leap when it was launched in 2013 with the intention of linking a company’s current performance to measures of its long-term value.

A few years on and the excitement has abated. Some fear that the loss of energy might be accompanied by an equal loss of momentum.

The International Integrated Reporting Council’s (IIRC) new chief executive, Richard Howitt, has the job of invigorating the push to modernise reporting.

What is integrated reporting?

Integrated reporting aims to bridge the gap between a corporate report – the snapshot of the company now or recently – and its likely future performance, the information investors really want to know.

The emphasis on long-term value rather than short-term financial profit is intended to link stock market performance to a company’s future viability more explicitly than has been attempted.

Does business accept integrated reporting?

Howitt strongly refutes any suggestion that the take up of integrated reporting is slower than the IIRC had hoped.

“It’s advancing around the world. There are 1500 companies on the journey towards integrated reporting,” he told INTHEBLACK in an interview.

“Japan probably beats South Africa now. We aren’t strong in Latin America, North America and some countries in Asia, but I’d say we’re making steady progress.” 

Howitt cites a 2016 survey of members of the American Institute of CPAs and the Chartered Institute of Management Accountants as further evidence of the traction already gained by integrated reporting. The survey, Value of Value: Board Level Insights, found 83 per cent of respondents believed that adopting integrated reporting would help deliver success to their organisation.

The Global Accounting Alliance also endorsed integrated reporting in a November 2016 statement

Starting his new job on 1 November, 2016, Howitt joins the IIRC as the organisation moves into the thankless middle phase of the journey towards full acceptance of integrated reporting.

For the 55-year-old Howitt, whose career spans UK Labour and European politics, working on a specific project to which he is completely committed has great appeal.

A former member of the European Parliament, he is a corporate social responsibility enthusiast. He was one of the main drivers behind the European Union’s directive on non-financial reporting, so he is used to the hard slog of policy negotiation.

Integrated reporting goals

Howitt has already displayed a mastery of the ambitious – if ambiguous – claim aimed at rallying doubters.

“It is my goal for integrated reporting to become a reference point for 21st-century corporate governance, to create long-term value for businesses and investors together,” he says.
Although he does not have a time frame for that objective, he says his job is to build and apply the strategy.

“We’re still at a breakthrough phase. Within a year I expect we’ll be in a global adoption phase. What do we have to do before the global adoption phase? We have to consolidate and grow what we’re already doing. Things like our training program, our business network.”

How will he know when he has reached the next phase?

“Well, we’ve got 79 key performance indicators. One is the growth rate in companies [that produce an integrated report], but we are about system change. So we’re also assessing ourselves on system level changes: credibility of IR, acceptance and endorsement.”

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One of the fronts in the IIRC’s system-change battle is government support. Howitt says it is not necessary, but it definitely can be helpful. 

“Regulatory endorsement can send a strong signal.”

The IIRC works through a global coalition responsible for driving integrated reporting. That includes organisations such as the Climate Disclosure Standards Board and the Global Reporting Initiative, as well as traditional financial standards setters such as the International Accounting Standards Board.

Howitt is campaigning to get the Financial Stability Board taskforce’s recommendations for how companies should report on climate-related risks onto the agenda at the G20 summit in July 2017.

From the IIRC’s point of view, more systematic disclosure of climate change risk would be a big improvement: anything that standardises presentation of data makes it easier for investors to compare across investment targets.

Time to focus on quality of integrated reporting

No one doubts that advancing the cause of corporate transparency is hard, slow work.

At the IIRC’s operational level, three years after the publication of a formal framework for integrated reporting, the quality of the reports remains uneven, and Howitt says not everyone complies perfectly.

The IIRC has conducted two reviews and does do quality control.

“We give feedback to the companies. That’s not fully transparent, of course, but I hope that this feedback is part of the appeal. It’s a very important part of what we do.”

He says there are no plans yet to move to a form of certification for companies.

Refreshing the integrated reporting framework

Howitt says the IIRC constantly reviews its 2013 framework but this is not the time for wholesale reform. He foresees a move towards guidance notes and technical papers.

The council will call for public feedback in February 2017 and he believes the outcome could be in the form of practice notes.

Like his predecessor, Paul Druckman, who oversaw the heady early years of integrated reporting, Howitt is both an optimist and fully committed to a world of greater corporate responsibility.

Now, a focus on convincing companies to join him on that quest is the most difficult, but also most important, part of his job. 

Read next: What's happening with the Global Reporting Initiative?


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