Integrated reporting aims to provide broad view of organisation's performance

Next month marks giant step forward

By LACHLAN COLQUHOUN
There is a big difference between a reporting framework and a reporting standard, says Druckman.
There is a big difference between a reporting framework
and a reporting standard, says IIRC chief executive Druckman.

When he moved into accountancy from teaching, Paul Druckman may have thought he had left the world of education behind.

But the chief executive of the International Integrated Reporting Council (IIRC) is finding his current role is as much about education as it is about the world of corporate reporting.

The Zimbabwe-born Briton was in Australia earlier this year and spoke about the progress of the IIRC initiative, which – after a pilot program involving 96 corporates in 25 countries – will release its version 1 Framework in December.

The initial integrated reporting (IR) framework comprises six measures of capital: financial, manufactured, intellectual, human, social and natural.

 

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All are factored into a single report with the aim of delivering a far more holistic and complete view of organisational performance.

A large part of the IR task, says Druckman, has been to explain to corporates that there is a big difference between a reporting framework and a reporting standard.

“Trying to do this on a global basis with a common understanding means that ‘one size fits all’ just doesn’t work,” Druckman says.

“So, rather than making allowances, we have made it as flexible as possible so that it can be implemented country by country. We don’t talk in the language of standards, we talk in the language of a framework, and the idea is to create an overarching concept that is fundamentally consistent.”

There has been quite a lot of repositioning to do, however. “People have been expecting to report in terms of each of the six capitals, when in fact they exist purely to explain what IR actually is,” Druckman says.

“We’ve had to do quite a lot of clarification and that is nobody’s fault but ours, but it is still worrying that this impression is out there.”

Chartered Secretaries Australia, for example, recently called on the IIRC to rethink the framework, saying corporates could not approach IR with “pragmatism” if strict adherence to the six capitals was mandated.

The not-for-profit organisation produced its first integrated report in March, but says it did not report against all of the six capitals “as they were not all relevant”.

Another major barrier, Druckman says, has been “reporting fatigue” and a sentiment that the IR represents just another compliance burden that will expend resources and blow out the size of the annual report to a point where it is unreadable by anyone.

Global bank HSBC’s annual report, for example, now runs to about 700 pages.

 International Integrated Reporting Council chief Paul Druckman.
International Integrated Reporting
Council chief Paul Druckman.

“Getting the essence of IR through to the companies themselves, regulators and the investment community has been a hard task,” Druckman acknowledges.

“We have had to make people understand that we aren’t just another layer of reporting, we are just trying to bring the whole thing together. Outside of our program, companies are very pressed with the complexity and enormity of corporate reporting. Looking at something new is very hard, but I call it lifting your eyes to grasp your future.”

Despite the difficulties, there is already encouraging momentum for IR.

A Black Sun report, commissioned by the IIRC last year, found that 93 per cent of the companies involved in the program said IR was helping them overcome silos between areas such as IT, investor relations, finance, strategy and corporate communications; 98 per cent agreed IR would deliver a better understanding of how the organisation created value; while 95 per cent said it contributed to a better understanding of their business model and helped focus on the right key performance indicators.

Institutional investors, a key stakeholder group for many of the companies involved, are also getting behind IR as they understand that the current short-term thinking creates volatility and financial instability, and can undermine long-term performance.

About 50 institutional investors have become involved directly with the IIRC.

The response, however, is patchy. According to a survey by the Global Sustainable Investment Alliance, 22 per cent of assets managed by institutional investors around the world take non-financial information, such as corporate social responsibility, into consideration.

In Europe that figure is 49 per cent, while it falls away to 11 per cent in the US and 0.2 per cent in Japan.

Momentum among regulators is also building. The Johannesburg Stock Exchange, for example, has committed to having IR as a listing requirement as soon as the IIRC publishes its final reporting framework.

Within Asia-Pacific, APEC’s Business Advisory Council is looking at whether IR can significantly accelerate long-term investment in strategically important sectors such as infrastructure.

In the technology sphere, software giant SAP – whose enterprise resource planning systems are used by so many top corporates around the world – is using its own software to combine financial and non-financial information about its own performance, making clear connections between the different components and pointing out interdependencies.

In Australia, key members of the pilot program are Stockland and NAB, but Druckman says many companies are already moving in the IR direction “even if they probably don’t recognise it”.

Events surrounding companies such as property group Centro and building products manufacturer James Hardie had put such issues “more to the forefront of the mind in Australia than elsewhere”.

Druckman adds: “What I am saying to everyone is that this whole IR approach is not necessarily new.

It’s just bringing an overarching structure and a clarity and consistency to innovation that is going on already in the market.

Stockland, for example, has been doing this for some time and is actually its own strongest critic, but in reality it is a global trailblazer in this area.”

Druckman says the IR process is set to move from the creation phase, which has included the consultation and awareness process, to the implementation phase next year.

“In 2014 the implementation will be led by the markets and many of the companies are in the reporting cycle now where they are preparing for next year’s report. These innovators will be utilising the consultation draft and they will be the ones driving quite a significant step change in the journey.”

 

Career moves


Paul Druckman was born in Zimbabwe and spent his early childhood in Africa before moving to London.

After qualifying as an accountant in 1979, he left the profession and moved into teaching, working at a comprehensive school in North London.

From there he moved into the IT industry and became an entrepreneur, founding his own technology company in 1991.

In this role he reconnected again with accountancy, providing software to businesses dealing with accountancy and e-commerce.

After selling his firm to an international IT group in 2000, Druckman took on accountancy body roles such as becoming president of the Institute of Chartered Accountants in England and Wales (ICAEW), chair of the executive board of HRH The Prince of Wales Accounting for Sustainability project, and chair of the Sustainability Group at the Fédération des Experts Comptables Européens.

He is CEO of the IIRC and co-chair of the council’s Working Group.


This article is from the November 2013 issue of INTHEBLACK magazine.

 

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