 Integrated Reporting Nick Laughlin Crystal Pewitt

The Notebook

Spoiler Alert

Integrated Reporting  Integrated Thinking  Reports designed to encourage creation of value over time  Six Capitals  South Africa has been using since 2011  IR is provided to stakeholders and community  Materiality is considered anything that substantially affects the company’s ability to create value over time.

Regulators  International Integrated Reporters Council (IIRC)  Council is made up of regulators, investors, companies, standard setters and the accounting profession.  Chaired by Professor Mervin King and CEO is Paul Druckman  Mission – to enable Integrated Reporting to be embedded into mainstream business practice in the public and private sectors.

Capitals  Financial  Funds available to the company  Form of financial statements and annual reports  Manufactured  Manufactured physical objects used to produce goods and service  Includes buildings, equipment and infrastructure  Intellectual  Knowledge based intangibles  Includes patents, copyrights, software, and rights and license

Capitals cont’d  Human  Competencies, capabilities and experience, and the motivation to innovate  Should view expenditures on training and development not as expense but as investments  Social and Relationships  Relationships within the company as well as within community  Measurements include corruption, anticompetitive labor, customer health and safety, privacy and human rights.  Natural  Environment resources that support the company’s value  Most advanced field with numerous initiatives such as: Global Reporting Initiative, Carbon Disclosure Project and the Economics of Ecosystems and Biodiversity

 The impact of integrated reporting

Top Five Benefits – According to Paul Druckman 1. Establishes the basis for a more meaningful engagement with investors 2. Breaks down silos 3. Discloses more than financial information alone 4. Conveys information clearly and concisely 5. Focuses on the future

But what does that actually mean?

Tian Yu 17 years old From Southern China Worked for Foxconn’s Longhua facility

The Rana Plaza Clothing Factory

“ Managing redundancies” despite “some labor disruptions”

 Do investors care?

Steve Waygood “There is now evidence that doing sustainable business is positively related to long term financial performance, reduced share-price volatility, and lower costs of capital.” “If investors believe they have a fuller picture of a company’s longer term prospects and therefore of the risks associated with investing their funds, they will do so for a lower return of cost”

 The Main Struggle of IR How do we quantify the non tangible capitals?

Quantifying Human Capital  Particularly controversial  How could you put a dollar value on a human life?  Replacement costs method  Discounted wages and salaries model

Puma’s E P&L  World’s first environmental profit and loss report  Goal: to “put a monetary value on their environmental impact and the range of ecosystem services it uses to source, produce, market, and distribute its products”  Calculated that they had used $198 million worth of nature in that year

Sustainable Accounting Standards Board (SASB)  In 2011, SASB was launched in the US  Goals:  Research what sort of nonfinancial information was most significant  Figure out a way to make this information useful to the providers of financial capital so they can use it in their investment decision making.

Bloomberg  One of the world’s biggest players in the financial information world  Developing methods to price environmental, social, and governance (ESG) externalities to “legitimize them in the eyes of financial capital”  Have added over 750 ESG fields to date

 Is internal reporting the future?

Is Integrated Reporting the Future?  Yes, but there are hurdles to clear  IR is a different type of report as well as a fundamental shift in the way we look at a business and define its success.  Emphasizes sustainability and a long-term mindset over short-term financial gains or losses.  It’s not a practice, it’s an idea, and ideas take time to spread.

Resistance  Cultural differences  US has been one of the slowest countries to even attempt to implement the IR framework.  Only 7 companies in the IIRC’s pilot program are headquartered in US, only 2 actually issue integrated reports  Lack of regulatory authority  Until infrastructure is in place to regulate, enforce, and audit internal reports, the widespread implementation of IR is impossible

TIME

 Right…but how does this affect real change?

MONEY RULES THE WORLD The aggregate revenue of the top 1,000 businesses in the world is equal to 70% of the global GDP

Robert Eccles “Corporations are huge. And there’s a handful that rule the world. Corporations are now the organizing entities on Earth and nations aren’t, for the most part. Globalization has concentrated economic power within a group of large companies who are now able to change the world at a scale historically reserved for nations. They virtually control the global economy. This vast concentration of influence should be the starting point for any strategy of institutional change towards a sustainable economy ”

Ross Gittins How do you get economists and business people to take the environment and its relationship with the economy seriously? Change its name to one that resonates with commercial values. What’s a word that denotes great value, preciousness to a capitalist? I know – “CAPITAL”

How accountants can save the world 1. Translate the intangible capitals into a language that investors understand 2. Let investors do what they do best Easy, right?

Summary  IR is not only the future, but in many ways it’s the present.  The road to get there will inevitably be bumpy, and how long it will take is anyone’s guess.  In the end, the audience has spoken and they want the whole movie, not just the last thirty minutes, and IR is well on its way to giving them just that.

 THE END “Accountants as agents of revolution? Now there’s a thought” - Jonathan Watts, 2010