Integrated Reporting

Statement on Management Accounting

About IMA®
IMA®, the association of accountants and financial professionals in
business, is one of the largest and most respected associations focused
exclusively on advancing the management accounting profession.
Globally, IMA supports the profession through research, the CMA®
(Certified Management Accountant) program, continuing education,
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IMA has a global network of more than 80,000 members in 140
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in Montvale, N.J., USA, IMA provides localized services through its four
global regions: The Americas, Asia/Pacific, Europe, and Middle East/
Africa. For more information about IMA, please visit [Link].

About the Author

George Serafeim is the Jakurski Family Associate
Professor of Business Administration at Harvard Business
School. He has taught courses in the MBA and doctoral
programs, chaired Executive Education programs,
authored more than 100 articles and business cases, and
presented his research in more than 100 conferences
and seminars. Professor Serafeim’s research interests
are international, focusing on corporate valuation,
governance, and reporting issues.

© April 2016
Institute of Management Accountants
10 Paragon Drive, Suite 1
Montvale, NJ, 07645
[Link]/thought_leadership
 Integrated Reporting

Table of Contents
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Inadequacies of Corporate Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Integrated Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Benefits of IR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Costs of IR.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Initiating the Integrated Reporting Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Adoption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Implementation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Building Momentum.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Applying the Guiding Principles.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Connectivity of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Strategic Focus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Future Orientation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conciseness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Reliability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

The Content Elements of an Integrated Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Organizational Overview and External Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Business Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Risks and Opportunities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Strategy and Resource Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Basis of Preparation and Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Developing Metrics for the Different Forms of Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Natural Capital.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Human Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Social Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Intellectual Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Manufactured Capital.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Communicating with Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

The Future of Integrated Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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Introduction
The International Integrated Reporting Council defines integrated reporting as “a process
founded on integrated thinking that results in a periodic integrated report by an organization
about value creation over time and related communications regarding aspects of value
creation.”1 An integrated report is “a concise communication about how an organization’s
strategy, governance, performance and prospects, in the context of its external environment,
lead to the creation of value in the short, medium and long term.”2
Integrated reporting is being adopted by companies around the world but is still considered
to be a practice in its early stages. Therefore, it is important to recognize how it has evolved,
costs vs. benefits, obstacles hindering a widespread adoption and how they can be overcome,
and ways that momentum can be built around integrated reporting implementation.
Because integrated reporting is still a new management practice, this Statement on
Management Accounting outlines both the guiding principles of integrated reporting and
the content elements of an integrated report. Specific examples are provided throughout to
illustrate how leading companies are putting the guiding principles into practice and to provide
information on the various content elements. Different types of capitals are discussed, and
specific examples are provided to illustrate how metrics for these different types of capitals can
be constructed. The statement concludes with a discussion of how integrated reporting can be
optimized through online technologies and communication practices in conference calls as well
as what the future holds.

Inadequacies of Corporate Reporting

The aim of corporate reporting is to disclose information on financial issues of the corporation
and thereby bring greater accountability and transparency which, in turn would facilitate future
business ventures. Credible and complete information builds confidence in investors and other
stakeholders and makes them more likely to transact with a company on a repeated basis,
thereby lowering the transaction costs for all parties. Research has found that providing credible
information is associated with better access to financing, lower cost of capital, better business
relations with customers and suppliers, and greater trust from employees.3 Therefore, a major
function of corporate reporting is to provide all stakeholders with the information they require to
conduct business transactions—defined as the “information function” of corporate reporting.
Yet corporate reporting has a second function that goes a step further in the process
of information disclosure. While the information function can be seen as a one-way form of

1
Accessed from the International Integrated Reporting Council’s website on November 20, 2015,
at [Link]
2
Ibid.
3
Robert G. Eccles and George Serafeim, “Corporate and Integrated Reporting: A Functional Perspective,”
Harvard Business School, May 8, 2014, [Link]

4
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communication (in other words, corporations reporting to stakeholders), the transformation

function enables stakeholders to use the provided information to establish an idiosyncratic
feedback mechanism.4 Through the transformation function, stakeholders are able to receive
and evaluate the information to try to actively bring change where they see opportunities to
influence corporate behavior potentially to the corporation’s benefit.5
Corporate reporting has undergone various transformations to adapt to a changing
landscape of economic, technological, social, and political drivers and to the information needs
of different stakeholders. Over time, dramatic changes to the corporate environment led to the
need for additional information beyond the basic financial statements, such as management
commentary, governance disclosures, and footnotes to the financial statement, so that
stakeholders could have a better understanding of the value-creation process. Independent
verification by external auditors was also added to help build trust among external stakeholders.
Interest in governance disclosures came as a result of managerial problems inside companies
and an increasing number of governance-related scandals (options backdating, insider trading,
and excessive pay).6
Although financial statements were accompanied by these other types of information, users
of corporate reporting still find the information to be incomplete and inadequate in explaining
the value-creation process of an organization and material nonfinancial risks. In order to better
understand how we can construct a more meaningful reporting framework that addresses the
inadequacies of the corporate reporting system, we need to understand the value-creation
process of 21st Century companies.
Companies use resources to produce and provide their products and services. These
resources can be classified as natural capital, such as water, forest, and minerals; human capital,
such as skills, capabilities, and experiences of people; and financial capital, such as funds raised
from investors or from the reinvestment of funds obtained from operations. Companies use
these resources to develop additional resources, which can be classified as physical capital, such
as factory equipment; intellectual capital, resulting from employee efforts generating intangible
assets; and social capital, deriving from the relationship between a company and the society
from which it secures its license to operate. Leveraging these additional resources, companies
are able to sell products and services in exchange for financial compensation.
Products and services are not the only output generated by a company. Externalities are
another outcome of a company’s activities. Positive externalities arise when a company’s actions
generate benefit to a third party. For example, employee training benefits the company but
it also creates benefits for other companies that these employees might join in the future.

4
Ibid.
5
Ibid.
6
Corporate governance is defined here as the mechanism through which an organization is governed. Through
corporate governance, there is a clear distinction of the rights, responsibilities, and activities of various members of
the organization, including the board, managers, shareholders, and others. The most important function of corporate
governance is namely that it establishes the ground rules for decision making. For further information see [Link]
[Link]/glossary/[Link]?ID=6778.
5
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Negative externalities, in turn, arise when a company’s actions generate costs to a third
party. Negative externalities such as pollution, climate change, and excessive risk taking have
significantly impaired many corporations’ social capital, putting at risk their license to operate.
The nonfinancial performance of companies increasingly becomes a factor in the job search of
skilled employees, the overseeing of regulators, the capital allocation decisions of investors, and
society as a whole.
Investors currently deem external corporate disclosure as insufficient for providing
comprehensive information. Financial data does not offer an encompassing account of the
interplay between strategy, risk management, and financial performance.7 According to one
study, tangible assets comprise only 20% of a company’s overall value, which points to the
concern that intangible assets—that form the majority of a company’s true value—remain
unaccounted for.8 An increasing number of investors have come to realize that sustainability
represented by nonfinancial aspects is an important factor in business performance and long-
term value creation.9
Nonfinancial reports and annual financial reports have typically been issued separately
because companies have not customarily integrated the concepts of nonfinancial and financial
performance. Sustainability reports have varied widely in terms of structure and content because
of the lack of consistent reporting frameworks/standards/guidelines or regulatory mandates on
how to report this information. Early adopters of sustainability reporting predominantly released
a single-issue report, usually disclosing environmental or workplace safety information. This
report developed into multiple-issue reports when companies began disclosing information
relative to the organization’s “triple bottom line,” which holistically represented its economic,
social, and environmental activities.10 This disclosure practice was commonly referred to as
corporate social responsibility (CSR) reporting or sustainability reporting.11

7
Ernst & Young (E&Y), “Integrated Reporting: Tips for Organizations on Elevating Value,” 2014, [Link]/Publication/
vwLUAssets/EY-Integrated-reporting-summary/$FILE/[Link].
8
Ocean Tomo, “Ocean Tomo’s Intangible Asset Market Value Study,” December 2013, [Link].
com/2013/12/09/Intangible-Asset-Market-Value-Study-Release.
9
Ioannis Ioannou and George Serafeim, “The Impact of Corporate Social Responsibility on Investment
Recommendations: Analysts’ Perceptions and Shifting Institutional Logics,” Strategic Management Journal, May 2014,
[Link]
10
The phrase “triple bottom line” was first coined in 1994 by John Elkington, the founder of consulting firm
SustainAbility in the United Kingdom. He argued that companies should be recognizing three different and separate
bottom lines, known as the three Ps: (1) “profit” as the traditional measure of the organization’s profit and loss, (2)
“people” as a measure of how socially responsible an organization was in its operations, and (3) “planet” as a measure
of how environmentally responsible the organization was. This approach aimed to measure an organization’s full cost
of doing business over a period of time. For more, see Tim Hindle, “Triple Bottom Line: It consists of three Ps: profit,
people, and planet,” The Economist, November 2009, [Link]/node/14301663.
11
“CSR reporting” and “sustainability reporting,” took on a somewhat synonymous meaning and could mean the same
thing or different things to different stakeholders. The terms were often used interchangeably in reference to multi-
issue reporting. Other terms also were used to describe these reports such as, “corporate responsibility reporting,”
“environmental sustainability reporting,” “social accounting,” and “environmental, social, and governance reporting.”

6
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Integrated Reporting
Unlike a sustainability report that is issued separately from the annual financial report, an
integrated report is a single document that presents and explains both financial and nonfinancial
information in a holistic manner.12 An integrated report is developed in response to stakeholder
groups’ and investors’ need for enhanced reporting that connects strategy, risks, key
performance indicators (KPIs), and financial performance.13 Providing an integrated report is an
effective “way of communicating to all stakeholders that the company is taking a holistic view of
their interests.”14
As expressed by the International Integrated Reporting Council (IIRC), through integrated
reporting, a company is able to demonstrate “how an organization’s strategy, governance,
performance and prospects, in the context of its external environment, lead to the creation of
value in the short, medium and long term.”15 Figure 1 illustrates the IIRC’s Framework showing
how the different forms of capital are placed in the context of the company’s business model.

Figure 1. IIRC’s Integrated Reporting Framework

Source: IIRS, International <IR> Framework, December 2013, [Link]

2013/12/[Link].

12
Robert G. Eccles, Michael P. Krzus, and Don Tapscott, Chapter 5, “Sustainable Strategies for a Sustainable Society,
“One Report: Integrated Reporting for a Sustainable Strategy, John Wiley & Sons, Inc., New York, N.Y., 2010.
13
The Prince’s Accounting for Sustainability Project, “Reporting Earnings Needs to Change,” August 2010, www.
[Link]/reporting.
14
Eccles, Krzus, and Tapscott, 2010.
7
15
Accessed on November 20, 2015 from: [Link]
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The Benefits of IR
One of the most frequent criticisms of sustainability reporting is that it fails to link the reported
information to the process of value creation inside an organization. Integrated reporting can
serve as a form of discipline for a company. It helps ensure that the company concisely reports
material information in a way that shows how well it is performing in nonfinancial dimensions that
affect the quality of the company’s formulated strategy and its execution.
Another benefit of integrated reporting is to gain a better understanding of the relation
between financial and nonfinancial performance. Because companies need to communicate
their nonfinancial performance in the context of strategy and how they create value, managers
are forced to think about when and under what conditions trade-offs and interdependencies
between financial and nonfinancial performance arise.
Another benefit of integrated reporting is improved internal measurement and control
systems for producing reliable and timely nonfinancial information. By adopting integrated
reporting, companies are forced to increase the quality of information systems as well as the
internal controls and monitoring systems [such as the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) Internal Control—Integrated Framework] for nonfinancial
information.16 This is necessary so that the integrated report can meet standards for independent
assurance by external auditors.
Lower reputational risk is another benefit of integrated reporting. First, it can reduce the
expectation-reality gap between the company and external parties by communicating in a holistic
and transparent way the performance, position, philosophy, vision, and mission of an organization
in both financial and sustainability terms. Second, it can be used as a platform for improved
dialogue, engagement, and relationships with all stakeholders. For example, customers who care
about sustainability will be more committed. Third, it can promote higher employee engagement
through internal coordination and collaboration (i.e., elimination of silos) because it requires
different units of an organization to come together to produce an integrated report.
Finally, attracting long-term investors is another potential benefit. Integrated reporting
is a mechanism to communicate a company’s vision about the future and how it addresses
nonfinancial challenges and opportunities, thereby enhancing the confidence of long-term
investors in the leadership of the company and its ability to build sustainable value.17

16
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has produced an Internal
Control—Integrated Framework that provides guidance on the systems of internal control, including their structure,
implementation, and evaluation. For further information see [Link]/[Link].
17
United Nations Global Compact, “Global Compact LEAD, PRI Introduce Strategies for Managing Impacts of Investor
Short-Termism,” May 2014, [Link]/news/1001-05-20-2014. 8
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The Costs of IR
As previously discussed, integrated reporting is much more than merely producing a report. It is
the integration of environmental, social, and governance issues in the organizational processes
of a company and, as such, costs are associated with adopting the practice. The preparation of
an integrated report involves collecting and analyzing both structured and unstructured data,
infrastructure investments in new information systems and data sets, establishing new processes
and control systems, dedicating resources, and obtaining assurance from third parties.18
Evidence and field data have shown that costs of new information systems take the highest
share of all costs related to integrated reporting. The reason for this is: organizations that embark
on the integrated reporting journey need to invest in the development of information systems
for sustainability data. Companies also need capital for skilled experts to actually make sense of
this data and incorporate it in financial reporting.19

-
Finally, it is quite possible that integrated reporting will lead to propriety disclosure costs,
which stem from communicating competitive information. Further research is required to
investigate whether this is the case or if there are other considerations to be taken into account

+
when discussing the costs of integrated reporting.
Figure 2 provides a summary of the costs and benefits for integrated reporting.

Figure 2. Costs and Benefits of Integrated Reporting

BENEFITS COSTS
• G reater clarity about the relationship • Preparation costs related to the
between financial and nonfinancial collection and analysis of new data
performance and how this affects • Infrastructure investments in new
value creation information systems and data sets
• Better internal decision making for • New processes and control systems
a sustainable strategy • People with analytics skills
• Deeper engagement and improved • Assurance from third parties
relationships with shareholders and • Potential proprietary disclosure costs
stakeholders and revelation of competitive
• Lower reputation risk information
• Improved measurement and control
systems for nonfinancial information
• Greater employee engagement
• More committed customers who care
about sustainability

18
George Serafeim, “Integrated Reporting and Investor Clientele,” Harvard Business School, February 24, 2014,
[Link]
19
George Serafeim, “Integrated Reporting and Investor Clientele,” Harvard Business School, February 24, 2014,
9
[Link]
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Initiating the Integrated Reporting Process

The success of integrated reporting depends on the global adoption of the practice by all listed
companies. Therefore, it is worthwhile to identify some of the key challenges in the adoption and
implementation of integrated reporting and then discuss how momentum can be built. Some
of the main challenges of integrated reporting are shown in Figure 3 and will be discussed in
further detail below.

Figure 3. Challenges faced by the Adoption and Implementation of Integrated Reporting

ADOPTION IMPLEMENTATION
• Support from senior leadership • Understanding materiality
• Lack of universally accepted standards • Comparability across reports
to communicate value creation • Integrated assurance
• Data quality

Adoption
Support from senior leadership
Integrated reporting requires a strong commitment by the CEO who is ultimately responsible
for the message the company is delivering to all of its stakeholders. The board of directors
has a crucial role to play, since directors are elected by shareholders, and integrated reporting
is a mechanism of ensuring long-term value creation and increasing transparency for these
shareholders. Therefore, the adoption of integrated reporting would require the support of the
board of directors and the CEO.
To overcome the challenges that can be associated with gaining support from the senior
management, the benefits of integrated reporting need to be emphasized while building the business
case for it. Key benefits that are likely to resonate with senior management are shown in Figure 2.

Lack of universally accepted standards to communicate value creation

For the reporting of financial information there are long-established procedures and processes.
Nonfinancial information covers more diverse topics, which vary by sector and involve a mix of
quantitative and qualitative information. Quantitative disclosures are usually not measured in
monetary units, and internal control systems and data collection processes are not as developed
as they are for financial information. Due to the lack of guidance and generally accepted
standards for measuring and reporting nonfinancial information, companies are struggling to
measure and communicate information that is important in providing a holistic picture of the
value creation inside the organization. To overcome this challenge, consider the proposed
standards and metrics provided by the Sustainability Accounting Standards Board (SASB), the
World Federation of Exchanges (WFE), and the IIRC.20

20
See SASB ([Link] WFE ([Link]
world-exchanges-agree-enhanced-sustainability-guidance), and IIRC ([Link]
10
advice-and-tools).
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Implementation
Understanding materiality
Understanding the material issues that should be reported in an integrated report is one of
the most challenging aspects of integrated reporting implementation. Management needs to
take the responsibility to ascertain what information its “providers of financial capital” would
want to know, as the IIRC definition of materiality would imply.21 The judgment of which matters
are “relevant and important” is firm-specific, and therefore each company needs to develop
a carefully planned process on how these matters will be defined, which stakeholders will
be addressed, how their input will be obtained, and the relative weights to assign to issues
and audience members. Defining what is material will be discussed more specifically in the
Materiality section of this SMA.

Comparability across reports / Integrated Assurance

The full value of integrated reports will be realized when these are as reliable and comparable
as financial reports. Both reliability and comparability in financial reporting come from the
associated audit. Reliability originates from the objectivity brought by a third party that has
reviewed the report to ensure that it has been prepared according to the relevant accounting
standards (e.g., the IFRS or U.S. GAAP). Comparability of information originates from the fact
that the same accounting standards and audit procedures have been used.22
Therefore, in order to establish the reliability and comparability of integrated reports, an
assurance opinion is deemed necessary. Currently, the assurance opinions provided are mostly
in the form of “negative assurance” (there is nothing significantly wrong with the report) but
ideally the required assurance will be in the form of “positive assurance,” such as, “the company
has fairly presented the necessary information” (U.S. language) or “the necessary information
presents a true and fair view” (international wording).23

Data Quality
Internal controls over nonfinancial data are not as effective as controls over financial data. Data
quality may inhibit reporting of some nonfinancial information. Also, data quality is a challenge
to the independent auditors’ ability to provide positive assurance on nonfinancial information.

Building Momentum
Currently it is difficult to assess the number of companies that have embraced integrated
reporting or the rate at which this is happening. This is due to limitations regarding the lack of
clear criteria for what qualifies as an integrated report and a difficulty in determining how many

21
International Integrated Reporting Council. “Materiality in Integrated Reporting,” [Link]
resource/materiality-in-integrated-reporting.
22
Eccles, R. G., Krzus, M.P. and Watson, L.A., “Integrated Reporting Requires Integrated Assurance.” In Effective
Auditing for Corporates: Key Developments in Practice and Procedures, 2012.
23
Ibid 11
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annual or other types of reports fit these criteria.24 The number of “self-declared” integrated
reports can be used as an indicatory number to estimate the momentum building around
integrated reporting and the rise of sustainability reporting. Sustainability reporting is a first step
to integrated reporting and most of the companies that issue an integrated report today, did
so after publishing a sustainability report for a number of years. The number of organizations
declaring the publication of an integrated report grew from 287 in 2010 to 596 in 2012.25
Regulatory forces can influence the momentum around integrated reporting. Currently, only
South Africa has mandated integrated reporting, but an increasing number of regulations that
support sustainability reporting are developing around the world. A recent report found that from
180 policies about sustainability reporting in 45 countries, 72% were mandatory.26 The European
Commission has followed this trend and adopted a directive that requires large companies
(approximately 6,000 companies with more than 500 employees) to disclose in their management
report the following items: information on policies, risks and outcomes regarding environmental
matters, social and employee aspects, respect for human rights, anticorruption and bribery issues,
and diversity in their board of directors.27 The directive entered into force on December 6, 2014,
and EU Member States have two years to transpose it into national legislation.

Applying the Guiding Principles

A set of guiding principles, as outlined in the IIRC Framework, underpin the preparation of an
integrated report, informing the content of the report and how information is presented. Next,
we review these principles and provide examples of how organizations apply them in their
integrated reports.

Connectivity of Information
Connectivity of information refers to all those factors that impact the organization and its value
creation process. It presupposes great cohesion and interconnectedness between these factors.
Another variable having an effect on the connectivity of information is the extent to which
integrated thinking28 is part of the organization and its proceedings. With higher incorporation
of integrated thinking, the connectivity of information is to encompass a greater scope of the
organization’s activities such as reporting practices and the way decisions are made.
The connectivity of information is accomplished through increased interconnection across
different types of information. These types include:

24
Robert G. Eccles and Michael P. Krzus, “The Integrated Reporting Movement: Meaning, Momentum, Motives and
Materiality,” 2015.
25
Ibid
26
KPMG, Centre for Corporate Governance in Africa, Global Reporting Initiative, and UNEP (United Nations
Environment Programme), “Carrots and Sticks: Sustainability reporting policies worldwide—today’s best practice,
tomorrow’s trends,” 2013.
27
[Link]
28
“Integrated thinking” means more extensive consideration about how capitals, resources, outcomes, and impacts that
are an integral part of the business model, which is to be formed in ways most suitable to value creation.
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• Content Elements of an integrated report that provide a holistic view of the

proceedings in an organization,
• Comprehensive accounts of the activities of an organization across time, i.e.,
past, present and future,
• The Capitals29 in an integrated report and their role in the value creation process,
• Financial information together with both quantitative and qualitative data (usually
achieved through the inclusion of KPIs to better link quantitative and qualitative
information), and
• Information regarding the management body of the organization together with
board information and outward directed information.

Materiality
Materiality is perhaps the cornerstone of the guiding principles of integrated reporting. It
presupposes that the information included in an integrated report presents material information
regarding the operations of the organization and the value creation process across time.
Materiality as a principle is not static, it is a process. Thus, for the purpose of preparing an
integrated report, organizations need to carefully distinguish material issues. It should also be
pointed out that the material information presented in the integrated report need not be only
positive. There should be disclosure on both risks, opportunities, positive and negative trends
in the future outlook of the organization. The integrated report should consist of both financial
and nonfinancial information so as to comply fully with the materiality principle. Finally, regarding
the process of identifying material matters, it is imperative that all issues having to do with
materiality are incorporated into the management of the organization.
Material matters are issues with particular relevance to the value creation process of an
organization. Such material matters are usually deliberated about with stakeholders and the
managerial body so as to establish their relevance to the organization. These material matters are
often difficult or not convenient to address. However, this is not a reason to exclude them from the
materiality determination process. The principle of materiality is complied with only when all pertinent
actors are engaged in the process of defining materiality and at the same time material matters are
identified on the basis of their utmost relevance to the value creation process of the organization.
Material matters need to be industry- and entity-specific, tailored as much as possible to
the specificities of each industry and organization. There are several definitions of materiality
for nonfinancial reporting from organizations like the IIRC, Carbon Disclosure Project (CDP),
Global Reporting Initiative (GRI G4), and Sustainability Accounting Standards Board (SASB). As
of 2015, none of these organizations have official support from the state in any country but they
contribute greatly in helping companies to identify their material issues across all industries.30

29
“Capitals” are stocks of value that are increased, decreased or transformed through the activities and outputs of the
organization. In the context of the IIRC framework, the capitals are classified as: financial, manufactured, intellectual,
human, social and relationship and natural capital. These will be discussed more fully in the Developing Metrics section
of this SMA.
13
30
Eccles and. Krzus, 2015.
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Case Study: Eskom

Organization type: Publicly listed company
Region: Africa
Industry: Utilities

Eskom, in its integrated report, provides

a description of the process followed to
determine materiality. Extensive consultation
with the company’s stakeholders is used to
determine what is “material,” while taking into
consideration Eskom’s strategic objectives and
the way its value chain operates. A summary
of the resources used during this process is
presented (reports submitted to the board
and Executive management committee for
discussion, shareholder’s compact, Eskom’s
corporate plan, Eskom’s key risks, parliamentary
questions received, formal and informal
stakeholder feedback including media coverage,
and so on).
The materiality matrix is presented as quadrants
that map the issues based on their significance
to stakeholders and impact to the organization.
The matrix includes some navigation icons,
which serve to connect related themes
throughout the integrated report.

Source: Eskom Holdings SOC Limited Integrated Report 2011, p. 9.

Strategic Focus
Strategic focus implies consideration about the relationship between strategy and value creation,
i.e., the organization’s capacity to harness its strategy in value creation over time. The attention
to strategy also brings greater clarity on important risks, opportunities and factors related to
the organization’s operations and business model. Still, the most vital point to be taken from
this guiding principle is namely that the integrated report needs to address the capitals and the
role they play in the organization’s strategic decision making. We discuss the different forms of
capital in detail in the Developing Metrics section of this SMA.

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Case Study: Eni

Organization type: Publicly listed company
Region: Europe
Industry: Oil and gas

The Eni Annual Report 2013, with regards to the principles of strategic focus and future orientation, offers a review of the
major developments and challenges in the energy industry and at the same time expands on Eni’s strategic moves to
guarantee that the company is well prepared for all future challenges. The report provides an evidence-based, quantified
view for the future. The performance of the company and all relevant targets can be very easily spotted, because they are
quantified, and in this way clearly making a claim about the future of the company. Eni presents with quantitative metrics
the performance of the year and the 2017 targets.

Source: Eni Annual Report 2013, pp. 16-17.

Future Orientation
Future orientation as a guiding principle includes both the importance of forward-looking
information as well as considerations about the time horizon over which the organization’s
strategic priorities are spread. Apart from focus on the future and the value creation process in
the short, medium and long term, it is important to demonstrate linkages between past actions
and future prospects of the organization. Even more significant is the evidence shown in the
integrated report that the organization has taken into account oversights in the past, and has
adjusted its operations and strategic decisions accordingly so that future proceedings are better
informed and strategically aligned.

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Conciseness
Conciseness as one of the guiding principles means that the integrated report should be
succinct and to the point. There should be enough information for the reader to comprehend the
particulars of the organization’s strategy, business model, goals etc. At the same time there should
be only relevant information without unrelated details. It is important that the organization takes
a balanced approach to its integrated report since achieving conciseness should not be at the
expense of other guiding principles and presentation. Thus, a concise integrated report should:
• C
 arefully present the procedures regarding materiality determination,
• H
 ave clear structure that does not disturb the overall flow of the report and avoids repetition,
• E
 xplain important concepts with clarity and eschew technical or overcomplicated terms, and
• Disclose information that is specific to the organization and avoid generic phrases.

Reliability
The reliability guiding principle in an integrated report means information that does not contain
errors (in other words, it is trustworthy). A variety of control mechanisms, the presence of external
and internal inspections, and other practices can help guarantee the reliability of information.
The governance structure in an organization is accountable for its functioning, strategy, and the
overall process of producing the integrated report. It is important to have close supervision and
careful evaluation by the senior management regarding the reliability of the information in the
integrated report. Organizations might even include further disclosure behind the preparation of
the report to assure the reliability of forward-looking information in the report.

Case study TNT Express

Organization type: Publicly listed company
Region: Europe
Industry: Courier Services

In order for integrated reports to realize their full value, they need to be as reliable as financial reports. Reliability in financial
reporting comes from the associated audit and the objectivity brought by a third party that has reviewed the report to ensure
that it has been prepared according to the relevant accounting standards. The TNT Express 2014 annual report has been
prepared in accordance with the reporting criteria and guidelines of GRI G4. TNT has engaged PricewaterhouseCoopers (PwC)
to provide reasonable assurance on the entire report (in contrast to several organizations that invite assurance to only specified
sections of their reports). The assurance work was performed in accordance with the Assurance Standard 3810N “Assurance
Engagements Relating to Sustainability Reports.” In their independent assurance report opinion, PwC expressed that the data
and tables presented in the annual report were in all material respects presented reliably and adequately.

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Case Study: Eskom

Organization type: Publicly listed company
Region: Africa
Industry: Utilities

Eskom Integrated Report 2011 presents

a good case to examine compliance with
conciseness as a guiding principle. First, in
relation to the organizational overview and
external environment, Eskom’s report showcases
the presentation of material information in
a well-structured and succinct manner. The
report benefits from the use of visual icons
corresponding to certain issues to guide the
reader throughout the report; consequently, the
principle of conciseness is observed. Second, with
regards to risk and opportunities, the integrated
report provides a comprehensive picture of both
KPIs and risks, however the report has easily
distinguishable navigation that is also highlighted
where the reader could receive additional
information. Consequently, the integrated report
does not suffer from an overload of information
while, at the same time, the user can easily get
additional information if interested. Finally,
when it comes to the outlook of the organization,
Eskom’s report presents its future priorities in
the most concise and well-structured manner
possible – with a very visual diagram – and thus
helps the user to clearly identify the organization’s
priorities. Still, the user is able to get more
detailed information elsewhere in the report, but
the conciseness principle is fulfilled, which makes
the integrated report very easy to navigate.

Source: Eskom Holdings SOC Limited Integrated Report 2011, p. 21.

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The Content Elements of an Integrated Report

The content elements govern the overall content of an integrated report. Although the IIRC
framework does not prescribe exactly what should be reported, it provides guidance through
the content elements, in the form of questions to the company.

Organizational Overview and External Environment

What does the organization do and what are the circumstances under which it operates? The
integrated report provides a platform for the organization to communicate its mission and vision.
It provides context about the organization’s culture, ethics, values, ownership and operating
structure, principal activities and markets, competitive landscape and market positioning, and
other relevant information. The external environment, including economic and regulatory
conditions, technological changes, societal issues and environmental challenges, sets the context
within which the organization operates. All these factors can affect directly or indirectly the
organization’s ability to create value.

Case Study: Absa

Organization type: Publicly listed company
Region: Africa
Industry: Financial services

Absa, in its integrated report 2011, presents in just a few pages a very clear overview of the organization and the external
environment. The purpose, vision, and values of the firm are presented along with basic information about the operating structure
supplemented with key quantitative information (market capitalization, customers, number of employees, and so on). The strategy
of the company is framed around four pillars. The material issues raised by different stakeholders are also reported together with
indicators of performance against these issues.

Regarding the external environment, Absa provides a forward-looking statement from its Chairman that covers the operating
environment, competitive environment, regulatory and risk environment and stakeholder engagement. The statement also touches
upon some of the key stakeholders and some of the challenges they are facing that could be related to the business. Finally, Absa’s
position on values and ethics, governance, and remuneration is discussed since these are all important aspects that would ensure
that societal concerns will be addressed by the quality of the stewardship in the decisions made by the company.

“We have paid careful attention to underlying principles of how we operate, from strengthening our governance and ethics
management, reviewing our remuneration practices, to how we engage and respond to our stakeholders. These are critical
foundations for our sustainability and future growth.”
Garth Griffin, Group Chairman – Absa

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Governance
How does the organization’s governance structure support its ability to create value in the short,
medium, and long term? The integrated report can provide information on an organization’s
governance structure: the range of skills and diversity, the alignment of remuneration and
incentives, the governing and monitoring of the culture of the organization and the attitude to risk.

Case Study: BHP Billiton

Organization type: Publicly listed company
Region: Europe
Industry: Basic materials

BHP Billiton, in its integrated report, presents a table of important skills and experience to the business that shows how many
directors meet these skills across the board and each separate board committee. The company also presents in a diagram how the
remuneration policy and structures serve to support and reinforce the six key drivers of their strategy. These drivers fall under three
categories: non-financial (drivers: people, sustainability), financial (drivers: world-class assets and financial strength and discipline),
growth (drivers: project pipeline and growth options). The elements of the remuneration policy that support these drivers together
with specific remuneration structures are presented.

Source: BHP Billiton Annual Report 2011, pp. 112 and 130.

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Business Model
What is the organization’s business model? The business model is how an organization uses
its business activities to transform inputs into outputs and outcomes that aim to fulfill the
organization’s strategic purposes and create value over the short, medium, and long term.

Case Study: Eni

Organization type: Publicly listed company
Region: Europe
Industry: Oil and gas

Eni graphically presents their business model, as a map of the main capitals exploited by Eni and actions positively affecting on their
quantity and availability. This representation aims to show how the efficient use of capitals and related connections create value for
the company and its stakeholders. Eni makes a clear distinction between ‘value created for the organization’ and ‘value created for
the organization’s stakeholders’.

Source: Eni Annual Report 2013, p. 4.

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Risks and Opportunities

What are the specific risks and opportunities that affect the organization’s ability to create value
over the short, medium, and long term and how is the organization dealing with them? Identifying
risks and opportunities is not limited to simply recognizing them when they occur, but also to
assessing the likelihood that they will materialize and the impact of such an event would be.
Actions that aim to mitigate or manage these risks and take advantage of the opportunities
respectively should also be present in an integrated report.

Case Study: Marks & Spencer

Organization type: Publicly listed company
Region: Europe
Industry: Consumer goods

M&S (Marks and Spencer) identifies and

assesses risks by all business areas half-yearly
and measures them against a defined set of
criteria, which consider the likelihood of
occurrence and the potential impact to the
business. The principal risks and the mitigating
activities in place to address them are presented
in a very visual heat-map. Together with the
heat-map, a “risk radar” is presented that maps
the principal risks against the categories that
are: (1) external to our business, (2) core to the
day-to-day operation, (3) related to business
change activity, and (4) risks that could emerge
in the future. The risk radar helps the reader
understand which risks have been the subjects
of debate at recent board or audit committee
meetings. Because the above-mentioned risk
radar has been employed for several years, the
reader will be able to learn about the changes
the company went through and make useful
comparisons across time.

Source: Marks & Spencer Annual Report 2014, p. 15.

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Strategy and Resource Allocation

Where does the organization want to go and how does it intend to get there? This strategy is one
of the most important content elements that aims to not only show where the organization wants
to go in the future, but most importantly how it will get there. The strategy and resource allocation
includes all the strategic objectives (short, medium, and long term) accompanied with resource
allocation plans against these objectives.

Case Study: Novo Nordisk

Organization type: Publicly listed company
Region: Europe
Industry: Healthcare

Novo Nordisk in its report discusses the three core elements that form the basis of its strategy and also the five strategic focus areas that
are linked with the company’s core capabilities. Novo Nordisk’s strategy is underpinned by the Triple Bottom Line business principle,
which ensures that financial, social, and environmental impacts are considered when decisions are made. Novo Nordisk identifies that
the Triple Bottom Line business principle creates value for the firm in three ways: 1) makes the company more adaptive to changes in
its business environment, 2) strengthens competitiveness, and 3) is an engine for innovation in collaboration with partners.

Novo Nordisk’s approach to strategy development and its integration into day-to-day operations is clearly outlined in the report,
and examples of how the company is implementing this strategy are given in the text, providing more real substance and facts
to the conversation.

Source: Novo Nordisk Annual Report 2013, pp. 16-17.

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Performance
To what extent has the organization achieved its strategic objectives for the period and what are
its outcomes in terms of effects on the capitals? Quantitative and qualitative information about
performance is necessary to effectively monitor the progress of the organization against the desired
strategic objectives and to compare the organization with others. KPIs that include both financial and
nonfinancial information should be included since they assist in drawing the relationships between
financial performance and the different forms of capital.

Case Study: PotashCorp

Organization type: Publicly listed company
Region: North America
Industry: Basic materials

PotashCorp in its integrated report provides a review of performance of their main goals against a list of set targets. PotashCorp
discusses some macroeconomic factors that have impacted the performance against their goals in the previous year, but they
also provide some context on factors that might impact their performance in the following year. PotashCorp reports on the
performance of their goals by providing a brief overview about the context of each goal, giving the target that was set for the
reporting cycle and, finally, showing the progress against that target.
PotashCorp also provides an overview on how compensation is linked with the company goals and performance against the
targets, showing a high degree of alignment of their strategic plans with their operations. PotashCorp reaches out to stakeholders
through its website to comment through a survey on executive compensation.

Outlook
What challenges and uncertainties is the organization likely to encounter in pursuing its strategy,
and what are the potential implications for its business model and future performance? An
integrated report provides the opportunity for a company to discuss its external environment,
and the challenges and opportunities that might be presented. Such a conversation about the
external environment provides investors with the necessary information to evaluate how well the
organization is positioned to address risks, what the mitigating strategies are, and also helps to
manage future expectations.

Case Study: Astrazeneca

Organization type: Publicly listed company
Region: Europe
Industry: Healthcare

Astrazeneca in its integrated report discusses the growth drivers and challenges the company is likely to encounter in pursuing its strategy.
The growth drivers were expanding patient populations, unmet medical needs, and advances in science and technology. The challenges
discussed were R&D productivity, regulatory requirements, pricing pressure, patent expiries and genericization, and building trust.
Astrazeneca also provides a very thorough discussion about key risks and uncertainties which they consider to be material to the
business as they might have a significant effect on our financial condition, results of operations and/or reputation. For all the risks
identified, a detailed description is given together with a discussion on the impact on the business. (For some risks, specific examples
are given to illustrate real cases.)
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Basis of Preparation and Presentation

How does the organization determine what matters to include in the integrated report, and how are such
matters quantified or evaluated?
The key elements of the basis of preparation and presentation are:
• A
 summary of the organization’s materiality determination process that describes how the material
issues were identified, evaluated and prioritized,
• T
 he reporting boundary of the integrated report and any limitations to the information presented,
and
• A
 summary of significant frameworks and methods that were used to quantify or evaluate material
matters.

Case Study: OJSC Atomenergomash

Organization type: Publicly listed company
Region:Asia
Industry: Industrials

OJSC in their 2013 integrated report include a very detailed description of the basis of preparation and presentation of their integrated
report. They start by outlining the objectives and basic parameters of the report, moving on to the regulatory framework for report
preparation and to a detailed description of the process that defined the content of the report.

Source: Atomenergomash 2013 Integrated Annual Report, pp. 14-15.

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Developing Metrics for the Different Forms of Capital

The capitals are stocks of value that are increased, decreased or transformed through the
activities and outputs of the organization. In the context of the <IR> framework, the capitals are
classified as: financial, manufactured, intellectual, human, social and relationship, and natural
capital. Since the capitals are essential to the operations of every organization, appropriate
metrics need to be established that describe the overall stock of capitals and flow between
them. These metrics need to be company-specific and quantifiable.

Natural Capital
Natural capital is composed of both renewable and nonrenewable resources and operations used
to produce goods or services to the benefit of the organization. When discussing natural capital, it
usually entails air, water, land, minerals, and forests together with biodiversity and ecosystem health.

COMPANY COMPANY DESCRIPTION EXAMPLE METRICS

Coca-Cola Hellenic Bottling Company Publicly listed company
Europe Water footprint
Consumer goods
New Zealand Post Public sector
Astralasia Emissions per dollar revenue
Consumer services
Banca Fideuram Publicly listed company
Europe Total electricity consumption
Financial services Heating oil consumption

Financial Capital
Financial capital can be described as a pool of funds. This pool of funds is used by an organization
to produce goods and provide services. The way the organization attains these funds is either via
financing (e.g., debt, equity), operations, or investments.

COMPANY COMPANY DESCRIPTION EXAMPLE METRICS

Coca-Cola Hellenic Bottling Company Publicly listed company
Europe Water footprint
Utilities
New Zealand Post Publicly listed company
Europe Net cash provided by
Oil and gas operating activities
Banca Fideuram Publicly listed company
Europe Banks and customers deposits
Financial services Return on equity

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Human Capital
Human capital is centered on the premise that people’s expertise and abilities are of a profound
significance for the organization and its operations. Some of the key aspects of human capital
are namely the potential of people and their drive for innovation. In addition, these aspects
consist of people’s positive attitudes towards the governance model, ethical matters, and
the way the organization deals with risk. Commitment to the organization’s strategy and
demonstrated dedication to the benefit of the organization, together with avid leadership skills,
make some of the other aspects of human capital.

COMPANY COMPANY DESCRIPTION EXAMPLE METRICS

Atlantia
Publicly listed company Training hours provided and
Europe percentage of employees involved
Industrials Scholarship distribution by
degree and by gender
CIMA Other
Europe Number of new students
Professional services
Itau Unibanco Holding S.A. Publicly listed company
South America Salaries, charges and benefits
Financial services Hours invested in training

Social Capital
Social capital is about cooperative relationships within and across communities and different
stakeholders’ groups for the goal of exchange of information to improve societal welfare.
It consists of shared norms and values, and relationships based on trust and demonstrated
commitment to the benefit of external stakeholders. Social capital also includes intangibles related
to the brand and reputation of the organization together with its social license for its operations.

COMPANY COMPANY DESCRIPTION EXAMPLE METRICS

JSC Atomredmetzoloto Public sector
Asia Taxes paid to regional budgets
Basic materials
Atlantia
Publicly listed company Costs and investments for road
Europe safety percentage of the Group’s
Industrials Italian network covered by the
Safety Tutor system
Sasol
Publicly listed company Investment in skills development
Africa and socio-economic development
Oil and gas initiatives
Employee turnover rate
Salaries, charges and benefits
Hours invested in training

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Intellectual Capital
Intellectual capital involves intangibles associated with organizational capabilities and knowledge.
More specifically, intellectual capital consists of intellectual property (e.g., patents, copyrights,
software, rights, and licenses) and organizational capital (e.g., tacit knowledge, systems,
procedures and protocols)

COMPANY COMPANY DESCRIPTION EXAMPLE METRICS

Eni Publicly listed company R&D expenditure
Europe Existing patents
Oil and gas
Coca-Cola Hellenic Bottling Company
Publicly listed company The quality index measures a wide
Europe range of factors, from taste and
Consumer goods carbonation to closure function and
condition with a maximum score
of 100.
Itau Unibanco Holding S.A. Publicly listed company Internal development of software
South America Equipment and data processing systems

Manufactured Capital
Manufactured capital is essentially manufactured physical objects, which are different from natural
physical objects. The organization in the possession of manufactured capital utilizes this capital for
the production of goods and/or provision of services (e.g., buildings, equipment, and infrastructure
such as roads, ports, bridges, together with waste and water management). It includes
manufactured items that are leased from another organization but controlled by the reporting
organization for in-house use.

COMPANY COMPANY DESCRIPTION EXAMPLE METRICS

Iberdrola Publicly listed company Internal quality inspections
Europe Number of quality and environmental
Utilities certifications
Rosneft Publicly listed company Oil products
Asia Petrochemical products
Oil and gas
Sasol Publicly listed company Property, plant and equipment
Africa Assets under construction
Oil and gas

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Communicating with Investors

A company’s competitiveness depends to a great extent on the ability to effectively manage the
different types of capital, and that is what an integrated report is trying to capture. Providing
information about how the types of capital are managed is important for investors. A company
cannot assume that its investors and other stakeholders will understand how different types of
capital are related to financial performance if the company fails to communicate that information
effectively.
Investors are increasingly considering nonfinancial information as an important part of their
decision making and they integrate this information into their valuation models. Integrated
reporting provides a unique opportunity for companies to describe their value creation story and
change the way the company communicates to its investors and other stakeholders. Integrated
reporting is not intended to be merely a report, but a platform for dialogue.
A combination of communication and technology channels such as online tools and social
media can be used to promote this dialogue and actively seek feedback. Although an integrated
report is published annually, the online information presented can be updated on a more regular
basis, enabling a company to communicate on significant developments discussed on the report.
Companies can unlock the potential of online reporting to engage with their stakeholders as often
as they wish to provide updates regarding the company’s strategy and performance. At the same
time, technology can also enable feedback to be submitted allowing for better decision making on
the information presented.
Two organizations that utilize online platforms well to represent their value creation methods
and success are Philips and SAP.31 Both companies’ websites are easy to navigate and benefit from
a visual representation of the company’s operations and the substantial use of infographics. Under
the ‘Sustainability’ section of Philip’s website, the user can find information on Philips’ approach to
sustainability and relevant initiatives. Infographics are used to show a summary of Philips’ approach
to sustainability that can also be downloaded. The integrated report of the company is visual,
informative, and very well organized, allowing the user to gather the required information just with
a glance. Perhaps the most innovative and attractive part of the online integrated report is the
feature to create a customized version of the report allowing the user to compile several sections
of the report that are of interest, and click on an icon to generate and download the customized
report within seconds. This is an extremely useful tool for users interested in specific information
in the report. SAP was the first company to publish an integrated report online. Its website is also
widely acknowledged as excellent.
Integrated reporting can also provide the guidance needed to change the information
presented in established communication practices like quarterly conference calls. Traditionally, the

31
For Philips see [Link] and for SAP go to
[Link]
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conversation during these calls is based on presenting the previous quarters’ financial results and
providing financial guidance for the next quarter. Recent research has shown that companies fail to
describe the way their different forms of capital create value during these quarterly earnings calls.32
More specifically, a comparison of leading companies across four sectors (financials, healthcare,
technology & communications, and transportation) revealed that, despite significant progress
having been made by all companies in understanding and describing their value creation process
in their sustainability/integrated reports, these efforts are not reflected in quarterly earnings calls.
The material issues identified in the sustainability reports are discussed in significantly less detail,
or completely omitted, during conversations with the analyst community. A good example of a firm
communicating through its various communication channels in the pharmaceutical sector is Merck.
The same research found that investors are increasingly asking about information regarding
the value creation process and nonfinancial indicators. In each sector examined, several analysts
who were consistently requesting this type of information during the quarterly conference calls. A
significant percentage of these analysts were found to be included in lists of the best analysts on
Wall Street. These results highlight the importance of nonfinancial information for ensuring that the
long-term prospects and the strategic positioning of a company are captured in its valuation.
The CEO and CFO can utilize the structure and information presented on their integrated reports
to provide their investors with value-relevant and forward-looking information about the different
types of capital. This approach will enable companies to shift their attention from chasing quarterly
objectives to spending more of their time focusing on running the business for the long-term.

The Future of Integrated Reporting

Integrated reporting is still a management practice exercised by few companies around the
world. The universal adoption of integrated reporting in the future will require a combination of
market and regulatory forces. One important market force is the voluntary adoption by companies
because they see the benefits of integrated reporting, which include a better understanding of
the relationship between financial and nonfinancial performance, improved internal measurement
and control systems for producing reliable and timely nonfinancial information, lower reputational
risk, greater employee engagement, more committed customers who care about sustainability,
more long-term investors who value sustainable strategies, and improved relationships with other
stakeholders.33
Unlike financial reporting, where information technology systems and organizational
processes have been developed and fine-tuned over many years, the systems and processes for
producing an integrated report and disseminating its content are still being developed. The IIRC’s
pilot program recognizes the important role companies have in creating a useful and practical
framework for integrated reporting and applying it to real practice.

32
Forthcoming: KKS Advisors and Generation Foundation, 2015: “Integrated Guidance”
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33
Eccles, Krzus, and Tapscott, Chapter 6, “It’s Time for One Report;” 2010, and Eccles and Armbrester, 2011.
EXTERNAL REPORTING & Integrated Reporting
DISCLOSURE MANAGEMENT

Another market force that will encourage the voluntary adoption of integrated reporting is
pressure from large institutional investors active in both the public and private equity markets.
In the public markets, investors who own a significant proportion of a company’s stock can put
pressure on the company to implement integrated reporting in various ways, such as raising the
issue at the Annual General Meeting or even getting the topic on the proxy statement. In their role
as limited partners (LPs) in private equity funds, large institutional investors can encourage these
funds to provide them short integrated reports at the portfolio-company level.
Customers can also play an important role. Individual consumers who buy from companies that
have adopted policies leading to a sustainable strategy and more sustainable products will both
contribute to their success and put pressure on companies that have not followed similar business
practices. Corporate customers can encourage integrated reporting in their supply chain and even
make it a requirement in requests for proposals.
Voluntary adoption by companies out of self-interest enhanced by market forces is not enough
for widespread adoption. The full value of integrated reporting will only be realized when it is done
in a way that enables comparison of results across companies, at least within a sector. Therefore,
regulation will be necessary to specify the framework for integrated reporting and what standards
should be used for reporting nonfinancial information.
Legislation, such as the recent legislation from the European Union regarding mandatory
nonfinancial reporting, can speed the adoption of integrated reporting.34 Multilateral
organizations, such as the G20, can help coordinate this at a global level so that country-based
legislation is largely similar. Regulatory actions through the national securities regulators (e.g.,
the U.S. SEC and the Chinese Securities Regulatory Commission), can also facilitate the practice
of creating integrated reports. The International Organization of Securities Commission (IOSCO)
can play a similar coordination and homogenization function. Through stock exchange listing
requirements, integrated reporting can foster promoting the practice of integrated reporting.
Moreover, nongovernmental organizations (NGOs) can exert influence on both investors and
companies.35 NGOs can put pressure on governments, securities and other regulators, and stock
exchanges to support the integrated reporting movement.
Finally, market intermediaries, such as accounting firms, data aggregators, proxy firms, rating
agencies, and boards of directors, also have an important role to play in enabling companies to
implement integrated reporting, and in enabling investors to use the information made available
to them. Accounting firms can contribute to the development of measurement and reporting
standards as well as the development of methodologies for providing independent third-party
assurance on them. Integrated reports will be most credible when they are accompanied by
an integrated assurance statement. Rating agencies should also include nonfinancial factors in

34
European Commission, “Disclosure of non-financial information: Europe’s largest companies to be more transparent
on social and environmental issues,” European Commission Statement, September 2014, [Link]
release_STATEMENT-14-291_en.htm.
35
Steve Waygood, “Civil Society and Capital Markets,” Sustainable Investing: The Art of Long-Term Performance, edited
by Cary Krosinsky and Nick Robins, Earthscan, New York, N.Y., p. 178
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EXTERNAL REPORTING & Integrated Reporting
DISCLOSURE MANAGEMENT

their ratings since they are an increasingly important component of risk. Boards of directors,
which have a fiduciary duty to shareholders and other stakeholders, need integrated reports to
properly fulfill their duties. They can also encourage or even require management to make them
available externally.
Integrated reporting presents an inviting opportunity for organizations to adapt to more
sustainable business models and strategies and create value over the long term. Despite the
fact that this form of reporting currently faces numerous issues, it has the potential to bring
innovation through “integrated thinking” and value creation, which would certainly enhance
productivity, profitability, and sustainability.

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