ACCA workshop on integrated reporting and its value for today’s businesses

Integrated reporting remains a key goal for stakeholders interested in understanding an entity’s performance and future sustainability prospects. It is fundamentally different to sustainability reporting in its focus on issues that are material to the business.

The keynote speaker at the workshop Santhosh Jayaram, organised by ACCA (The Association of Chartered Accountants) for CEO’s and CFO’s of leading Sri Lankan business’s which held recently at the Cinnamon Grand, said: “Integrated reporting should be the pinnacle of a company’s articulation of its approach to long-term value generation and not a response to a list of externally generated indicators and it will be essential to focus on the key issues that combine long-term societal trends with business-related risks and opportunities.

“This is therefore without doubt an exciting time in the development of integrated reporting. All interested parties need to participate fully so that the international framework that finally emerges really does deliver valuable and comprehensive information reflecting an organisation’s true accountability.”

KPMG India Sustainability Advisory Technical Director Jayaram and a member of the Standards committee at Accountability UK, a Working Group Member for the development of GRI G4 guidelines 2012, introduced the concept of integrated reporting and to outlined and explained to the participants about the international initiative around the integrated reporting framework development. He discussed topics on business case for integrated reporting, introduction to integrated reporting and Prototype Framework for Integrated Reporting and key efforts and hurdles involved.

Speaking on key aspects of integrated reporting Jayaram stated: “Fundamentally integrated reporting is about improving the basis of capital allocation. The aim of the game is business communication for capital reward. Integrated Reporting will enable a better understanding of a company’s strategy to align their models with business performance and make efficient and forward looking investments.”

He went on to explain the six capitals that were considered to be important in this context and said they would be financial capital, manufacturing capital, human capital, intellectual capital, natural capital and social capital.

He also pointed out that there were sustainability mega forces that connected business today, needed to understand the impacts of their operations. He outlined them to be climate change, food security, water security, human security, energy security and eco system security.”

Jayaram further affirmed that according to the International Integrated Reporting Committee (IIRC) the key objectives of the exercise should be to support information needs of long term investors, show broader and long term consequences of decision making and rebalancing performance metrics away from emphasis on short term practice.

He stressed that there were some guiding principles that underpin the preparation of an integrated report that consisted of an organisation’s strategic focus and future orientation, connectivity of information, stakeholder responsiveness, materiality and conciseness, reliability and comparability and consistency.

Therefore, the report should contain the organisational overview and operational context, governance, opportunities and risks, strategy and resource allocation, business model, performance and outcomes and the future outlook.     Providing further insight into the subject Jayaram said that integrated reporting sees significantly more social, environmental and ethical information included in corporate reports, and in more places throughout the report as companies have shifted from reporting that is aimed exclusively at their shareholders to reporting that expounds the directors’ claimed belief in stakeholder accountability and stakeholder engagement.

Offering  recommendations for the development of integrated reporting, he stated that the way in which information is set out could be more concise and to avoid repetition, solicit the views of their major stakeholders about the social, environmental and ethical information (and underlying policies and practices) and include these views within integrated reports, making management systems and reporting mechanisms more robust, coordinate efforts between financial accounting and sustainability teams, widen the view at the top to understand the company’s impact, performance and strategy beyond financials organisations must have a growing realisation that non-financial issues have financial implications for their firms where, and gear up for better transparency, better governance and better risk management.

Jayaram concluded by saying: “Integrated reporting therefore is a process, not a product. The primary benefit of integrated reporting is that it allows a company to understand, manage and report on multiple dimensions of value. I believe this can help companies make better decisions to manage the business in a way that creates shared value. Additionally, a properly designed set of performance measures reported on as part of regular management processes gives the incentive and ability to improve performance.

“Improved ability to identify and respond successfully to opportunities, risks and changes in the business environment through a focus on longer-term business impacts, create linkage between environmental, social and  governance performance and financial performance, better linkage of overall performance and executive compensation, competitive advantage through cost savings, operational efficiencies, brand differentiation and innovation (new product development), improved stakeholder relations by better addressing their needs and managing their expectations, improved compliance with existing and pending regulations and corporate governance requirements, and alignment and simplification of internal and external reporting for consistency and efficiency.”

For the stakeholder, the report is intended to increase the understanding of the company, its management, strategy and operations, and its perils and prospects.

In the end, integrated reporting, when executed with requisite rigor, can allow both the company and its stakeholders to make better-informed decisions.