The IIRC’s Global Conference 2020
The IIRC’s Global Conference 2020 was held from 30th November to 2nd December.This is the IIRC’s flagship annual event, attracting hundreds of senior corporate stakeholders and subject-matter experts from 35+ countries and a wide variety of industries. This year, the IIRC is revising its international reporting framework, and is calling for market feedback on specific themes that will inform the nature and direction of the revision.
Towards a global corporate reporting system.
Results of the anniversary conference of the International Integrated Reporting Council, Kuzubov S.A., Associate Professor
From 30.11 to 02.12.20 representatives of the HSE School of Finance participated in the IIRC global conference "Sustainable value creation in an interconnected world". International business leaders, investors, financial experts and academics from all over the world summarized the results of the first 10 years of integrated reporting and discussed the ways of its further development.
While sustainable development is gradually becoming a major concern for many managers, investors and consumers, a major obstacle remains the lack of generally accepted standards for how companies can measure and report on their sustainability performance. Instead, we have a large number of NGOs working independently to develop sustainability reporting standards, which creates complexity and confusion for companies and investors. Of course, most companies already issue sustainability reports, but these are separate from their financial reports, making it difficult to understand the relationship between financial performance and sustainability indicators.
The year 2020 and the growing global pandemic were a watershed moment for establishing uniform, consistent sustainability disclosure standards and mandatory reporting requirements. Back in early summer, the European Commission asked the European Financial Reporting Advisory Group (EFRAG) to develop a separate European system of non-financial reporting standards. At the same time, in capital markets such as China, India, Turkey, Brazil and South Africa, regulators are increasingly requiring sustainability reports for listed companies.
Another step towards harmonization was announced on November 25, 2020: The IIRC and the Sustainability Accounting Standards Board (SASB) plan to team up to create the Value Reporting Foundation. The press release notes that such a fund "could eventually bring together other value creation organizations, and the Fund and the Climate Disclosure Standards Board (CDSB) have jointly expressed interest in holding preliminary discussions in the coming months ».
In response, the world's largest financial standards organization, the IFRS Foundation, issued a consultation paper on sustainability reporting outlining how it can enter this area. The paper proposes the creation of a "Sustainable Development Standards Board (SSB)" that would operate in parallel to the International Accounting Standards Board (IASB). SSB will initially focus on climate-related issues to establish these critical standards as quickly as possible.
Charles Tilley, CEO of the International Integrated Reporting Council, in his closing remarks at the conference, outlined the main goals that a global corporate reporting system should aim for
Trust. Transparency of KPIs can help build trust in the business, particularly where this is balanced with honesty about performance and assessing its impact on the company's environment.
A business case in which "More sustainable companies should have a lower cost of capital." Integration is an important part of this journey.
The inseparability of business from society. Business is a social organism that depends on a moral license to operate from the society that buys its products and services, supplies them and is the source of its employees.
Where the integrated reporting begins? Vysotskaya A.B., Associate Professor
IIRC’s Global Conference 2020 provided a platform for a broad discussion on the pathways to sustainability.
The main issues raised by speakers go in line with the global needs for sustainable development as a one of the key challenges. Broader value creation, how companies can contribute to our future, evolution of the concept of materiality - these are the key issues to address nowadays by business society.
The world is rapidly switching from Traditional to Integrated Reporting and therefore we will no longer be able to focus only on financial information, nor we will be able to afford a retrospective view with limited disclosures.
In contrast, companies are changing their practice to a future-oriented view with more strategic focus and those that haven’t start the process yet, will face this need in near future.
During the conference sessions, several views were presented in terms of where to move to while developing sustainability. Mr Klaus Rainer Kirchhoff represented a model based on Capitals Value creation Inputs, Performance, Risk management, Strategic focus and resource allocation and External environment. Several samples of integrated business models and reports were brought out, including Borsa Istanbul (Turkey), Goldfields (Australia), Sanford (Australia), United Utilities Group PLC (UK), Munich Airport (Germany), etc. All those were examples of quite advanced reports while standing for authentic.
In this sense, companies are required to tell their own value creation story and this story must be convincing, making investors to understand the whole model so that they come to the decision to have particular shares.
There are still many unresolved questions that need further attention by both, practitioners and academia (not exhaustive):
- How to move to a system that will go through the all capitals?
- Should the disclosures be integrated in the life of the company?
- Is there sense in globally harmonized standards for Integrated reporting?
- How to reflect investor’s relations through the reporting language?
Another branch of discussions in terms of Integrated reporting refers to the Materiality, as a core principle of corporate reporting. IIRC’s Global Conference included a special session held by Dr. Laura Girella on the materiality as an absolutely necessary factor for the report preparers as well as for the report users. The session highlighted the importance of the understanding that there is no information overload and/or information noise. After the decades of changes in reporting standards and practice, we can now conclude that today there are at least four different concepts of materiality (financial, ESG, value, double materiality). All those are happened to be differently followed by various reporting organizations.
Therefore, most of the academics and practitioners will agree that the voice of progressive business is crucial and we, at School of Finance, are staying very close to the practical approaches in these new trends. We will keep you updated on recent news in the field of Integrated reporting and Sustainability.
Kokurina A.D., senior lecturer
During the day, conference participants had the opportunity to choose among various sessions to discuss specific topics and develop common recommendations. At the round table on Integrated Reporting Assurance, experts and practitioners shared opinions, thoughts, and suggestions for improvement in general assurance practices related to integrated reporting.
The major issue for auditors around the globe is the lack of one set of auditing standards for nonfinancial reporting, as there are the International Standards on Auditing (ISAs) for financial reporting. This brings to the more specific issue of defining the scope for nonfinancial reporting. Hence auditing firms today commonly provide only “limited assurance” on integrated reports, while stakeholders and investors would prefer to see “reasonable assurance” on such reports. Participants in the session reached consensus on several recommendations. The foremost recommendation was for companies’ management for work on reliability of nonfinancial data. Here the best global practices should be integrated not only during the year-end audit, but also throughout the year. The other observation addressed the concern for the regulation and standardization leading integrated reporting practice and its assurance, the round table participants suggested that instead companies should recognize the value that they create when such reports are issued.
Makeeva E.Y., Associate Professor
From November 30 to December 2, 2020, an international online conference IIRC's Global Conference was held, dedicated to the role of Integrated Reporting (IR) in companies' compliance with ESG criteria, which has become a global trend in the last ten years. During the conference, over ten panel discussions were held, as well as a series of seminars and workshops, where experts from a number of companies, educational and government institutions shared their views on several important issues listed below.
6 types of capital in corporate reporting and strategy (6 caps approach). In the IIRC's recommendations, as well as in the practice of a number of companies (for example, Munich Airport, Tata Steel Group and others) on the development of strategy and integrated reporting, the concept of 6 types of capital is used as a base: Natural, Social, Human, Intellectual, Financial and Material (industrial ). The speakers emphasized the key role of integrating all types of capital in the ESG factor management system.
The relationship between integrated thinking and integrated reporting. Representatives of companies and NGOs who took the floor noted that the components of the ESG, which are disclosed by modern investors with heightened expectations, include the E (Environmental - environment and climate risks) and S (Social - CSR) components. At the same time, investors are much more focused on E in comparison with S: for example, according to O.I.R.B. (Italy), climatic risks are taken into account when making decisions by 86% of investors, while risks of social reputation and the use of human capital are estimated at 45% and 36%, respectively.
Integrated thinking based on ESG factor management is the key to creating company value. Participants in a number of panel discussions and workshops have repeatedly emphasized that in the modern world, companies need to focus on building effective interaction not only with shareholders, but also with other groups of stakeholders - consumers, suppliers, employees, local communities and NGOs. To do this, companies need to use the so-called. “Integrated Thinking” (IT), which implies building a business model based on taking into account and monitoring key ESG criteria (primarily, ecological footprint, employee development, and social investments in the regions of presence). Already, a number of companies are developing a strategy and changing their corporate governance system using the IT approach. Munich Airport (Germany), Novo Nordisk (Denmark), Clariant AG (Switzerland), Dutch Development Bank (FMO), Hitachi Ltd. presented their visions and practices in this area. (Japan). All of them note that the adoption of this approach is facilitated by the transition of companies to integrated reporting according to ESG criteria.
Standardization of integrated reporting is the most important task in the coming years. What is more, the lack of clear standards for ESG reporting was noted by many conference participants as one of the problem. In particular, the standardization of corporate ESG reporting was the topic of the panel discussion “From Alphabet Soup to United System” with the participation of representatives of the Sustainability Accounting Standards Board (SASB), IIRC, Global Reporting Initiative (GRI) and Boston Consulting Group. Participants noted the success of the IIRC in raising awareness of need for integrated ESG reporting, and that the development of uniform disclosure standards should be based on the Sustainable Development Goals, as well as the 6 caps approach already being implemented, discussed above.
Integrated reporting implementation practices in Italy, India, Turkey. During several workshops, reports were presented on the implementation of ESG and IR practices in these countries. It should be noted the success of India in the implementation of ESG reporting, which has become mandatory for large public companies in accordance with the amended India's Companies Act of 2013 (section S-135). Currently, over 80 Indian public companies (including 75 from the S&P BSE 500 index) publish integrated reporting based on ESG criteria. In Turkey, as in a number of other countries, a specialized agency ERTA has been created, whose main task is to develop standards and promote the implementation of ESG reporting in the largest Turkish companies to increase their investment attractiveness. ESTA's main partner in this mission is the Istanbul Stock Exchange. Organismo Italiano Business Reporting (O.I.B.R.), representing the World Intellectual Capital Initiative (WICI) in that country, plays a similar role in Italy.
A detailed conference program is available on the conference website, and a program reflecting the main points from the speeches is available in the Appendix to this news. The conference materials will be of interest to researchers in the field of corporate social responsibility, non-financial reporting, as well as in the field of implementing ESG criteria in the practice of decision-making in companies.