International trends and Framework feedback · Trend: management information Increasingly savvy...

AECA International Symposium

28 September 2017

International trends and <IR> Framework feedbackSarah Grey, Markets Director

International Integrated Reporting Council

© International Integrated Reporting Council

Over 1,600 organizations in 62countries adopting <IR>

And over 35% say they will

2,000 participating in <IR> Networks

worldwide

Over 50% of CEOs, CFOs and COOs

are moving towards <IR>

<IR> adopted by businesses in all

G20 economies


2017: A year that leads to integration

• European Union's High Level Expert Group on Sustainable Finance Interim Report

• FSB Task Force on Climate-related Financial Disclosures Recommendations

• European Commission Guidelines on Non-Financial Reporting

• International Federation of Accountants, Enhancing Organizational Reporting

• International Federation of Accountants, The Global Accountancy Profession's Call for Action by G20 Countries

• Hans Hoogervorst, Chairman, International Accounting Standards Board

• London Stock Exchange Guidance

• Institut Français des Administrateurs


Preview

SimplifyClarifyAmplify


Feedback by region Feedback by stakeholder group


Multiple capitals approach

• General support but: early stage; can be tricky; terminology?

• Call for guidance/examples to reinforce: - Only need material capitals- Use whatever terminology suits (but comparability?)- Use capitals as a completeness check - not necessary for report structure

• Trade-offs between capitals - approach needs improvement

• Call for IIRC to collaborate on metrics

• Financial and “non-financial”” links need better articulation


Connectivity and integrated thinking

• Critical & least understood?!

• Clear implementation challenges in practice – guidance needed

• Senior management buy-in key to successful integrated thinking

• Connectivity in a report may not always reflect integrated thinking

• Mature integrated thinking > improved decision-making

• Some call for stronger IIRC focus on integrated thinking and collaborations with third parties and CRD


Key stakeholders’ legitimate needs and interests • Mixed views about the current state of play

• Some confusion re Framework

• Some question primary audience – multiple stakeholders?

• Nature of stakeholder engagement? Formal or “ordinary course of business”

• Materiality matrix? Not required by the Framework

• Are financial capital providers ready to act on this info?

• Guidance, examples and actions by others requested


Materiality and value creation

• Central importance to <IR> - call for clarification, also innovation

• Operationalizing the concept is challenging - can be misunderstood

• Use of the value creation lens: - difference in materiality definitions across standards / frameworks - role of financial capital providers and other stakeholders re the materiality definition and materiality decisions

• Materiality over multiple timeframes (short, medium and long term) -need for greater emphasis on the longer term

• Suggestions for collaborations with third parties


Conciseness

• Considered an important - but poorly applied

• Link to materiality was noted

• Natural tension between conciseness and completeness.

• Guidance, examples and collaborations suggested


Business model – outputs and outcomes

• Leading practice useful - room for improvement in practice

• Business model reporting is evolving - need for change management

• Formulaic at times?

• Tension: comprehensive v simplicity / ease of underdanding

• ‘Outputs’ and ‘outcomes’ - problematic area

• Competitive advantage and multiple business models - issues for some

• Requests for guidance, examples, collaborations


Involvement of those charged with governance & identification Framework

• Consensus about the role of those charged with governance

• Identification of those charged with governance – important

• Varied views on governance statement (para 1.20) – not often seen

• When included, don’t always indicate level of compliance

• Requested guidance, examples, collaborations with third parties


Other comments• Call for support on standardised metrics

• Benefits of examples, guidance, support – role of IIRC and CRD

• Concern about <IR> being being seen as ‘additional’

• Importance of regulation as enabler where: - allows experimentation/ voluntary adoption - supports mature narrative reporting- demands non-financial info - but compliance mindset?

• Enablers: - Alignment with global and national policy- Sharing experiences, examples and guidance


Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Guidance:

proposalsMateriality

Getting started

Multiple capitals

Value creation

Business model outputs and outcomes

Statement from those charged with governance

Pathways to Integrated Reporting

Integrated thinking)

Business model reporting by conglomerates

Guidance:

OutputsFrequently Asked Questions →

Leading practice in <IR> Examples Database →

Integration of feedback into training programme →

Practice aid:Summary of Framework requirements

Practice aid: Getting started

Practice Note: Materiality

Research:

proposalsUse of narrative and “non-financial” information by providers of financial capital

Corporate reporting developments

Incentives and barriers to balanced reporting, including legal liability

Implementation by SMEs, public sector entities and not-for-profits

Disclosing stakeholders’ needs and interests

Connectivity and decision making

Ongoing

discussionwith CRD and others

Multiple capital metrics → Integrated thinking → Watching brief over other materiality approaches →

Materiality and materiality determination process → Emphasis on balanced reporting → Alignment – Guiding Principles →

Credibility and trust – audit and assurance → Explaining the reporting landscape →

CAPITALS CONNECTIVITY & INTEGRATED THINKING

STAKEHOLDER NEEDS

MATERIALITY AND VALUE CREATION

BUSINESS MODEL –OUTPUTS & OUTCOMES

BUSINESS MODEL –OUTPUTS & OUTCOMES

THOSE CHARGED WITH GOVERNANCE

GUIDING PRINCIPLES


2017 <IR> Business Network Report Critique project: preview


Report Critiques – initial findings

Stengths

• Organisational overview: explaining what the organisation does, and the circumstances under which it operates

• Strategy and resource allocation: where does the organisation want to go?

• Value creation: how the organisation create value for itself

• Strategic focus: insights into the organisation‘s strategy

• Consistency: information on a consistent basis over time


Report Critiques – initial findings

Opportunities for improvement

• Governance responsibility for <IR>

• Basis of preparation:

• Identifying material matters

• Evaluating/quantifying material matters

• Outlook

• Materiality through the lens of value creation

• Strategic focus: use of and effects on the capitals

PROGRESS THROUGH

Appendix


Corporate governance and stewardship codes driving <IR> adoption

• South Africa• Malaysia• The Netherlands• Japan• The Philippines • The UK

With government and regulatory support from China, India, Brazil, EU

©ACCA

The strong points are:

Organisational overview:

explaining what the organisation does, and

the circumstances under which it operates

Strategy and resource allocation: where does the organisation want

to go?

Value creation: how the organisation create value for itself

Strategic focus: insights into the organisation‘s strategy

Consistency: information on a consistent basis over time

09/10/2017 Title of presentation - enter in the Header & Footer field23

©ACCA

<IR> Network Report Critique projectContext - <IR> adoption


Yes60%

No40%

Does the report state that it is an integrated report?

(2016: 51%)

Yes74%

No26%

Does the Report state that it follow the principles of the <IR> Framework?

(2016: 59%)

©ACCA

Context – Reporting package

09/10/2017 <IR> Business Network Report Critique debrief25

0

10

20

30

To which reports are cross-references

made?

05

10152025

Identify the type of reports(s) reviewed

©ACCA

Context – Other frameworks


05

1015202530

Does the report reviewed aim to comply with other regulatory

framework (tick all that apply)?

©ACCA

Context – Size of reports


0

5

10

15

In total, how many pages does (do) the report(s) reviewed contain

(excluding financial statements?

©ACCA

Strategic focus and future orientation


0% 7%

22%

50%

21%

Does the report provide insights into the

organisation’s strategy?

1

2

3

4

5

14%

14%

26%

34%

12%

Does the report explicitly tie the organization’s strategy to its use of and effects on the

capitals?

©ACCA

Strategy and resource allocation


0% 10%

24%

33%

33%

Where does the organisation want to

go?

1

2

3

2%12%

26%50%

10%

How does it intend to get there?

0%

17%

33%38%

12%

What differentiates the organisation?

©ACCA

Areas for improvement are:

Governance responsibility for <IR>

Basis of preparation:

Identifying material matters

Evaluating/quantifying material matters

Outlook

Materiality through the lens of value creation

Strategic focus: use of and effects on the capitals


©ACCA

Materiality


7%

13%

20%

27%

33%

Does the report disclose materiality through the lens of value creation?

1

2

3

4

5

©ACCA

Connectivity


5%

14%

32%37%

12%

Does the report show a holistic picture of the

combination, interrelatedness and dependencies between

factors that affect the organization's ability to …

1

2

3

4

5

05

101520253035

Please indicate the forms of connectivity demonstrated

©ACCA

Capitals


5% 9%

21%

48%

17%

Overall, does the report provide information on the

capitals?

1

2

3

4

1 - 2 2% 3-4

22%

5-676%

On how many capitals does the report provide

information?

0

20

40

60

On which capitals does the organization report?


First things to improve

• External environment

• Strategy

• Business model

• Risks and opportunities

• Material matters

• Stakeholder relationships

• Adopt a neutral tone

• How value is created for the organization and for others

What most are still working on• Governance - acknowledging

responsibility for the report

• Connectivity – two thirds only partially making the links

• Conciseness

• Outlook – only 30% say what challenges are likely and what implications for the business model and performance?

• Materiality determination process - 60% do not explain

• Resources or capitals they rely on to create value – 50% provide acceptable information

IIRC’s report critique project 2016


Trend: management information

Increasingly savvy management and board reporting - supported by systems that cover all the information (across multiple capitals and time horizons) needed to run the business…resulting in improved decision making


Trend: Connectivity

In successful companies data will not be stuck in silos – the connectivity of information and the relationships between different capitals or resources will be clearer.


Connectivity of information: SAPAnnual Report 2015


Integrated report

Financial statements

Sustainability report

Other reports

Other interactions

Other communications


Integrated report

Other interactions

Other communications

Fin.Info

Sus.info

Otherinfo


Trend: focus on maturity & materiality

Developing analytical tools to assess the maturity and materiality of the new information needed

International trends and Framework feedback · Trend: management information Increasingly savvy...

Documents

Transcript of International trends and Framework feedback · Trend: management information Increasingly savvy...