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Integrated Reporting (2016 London Roundtable)

Investment insight | Marisa Hall | November 24, 2016

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(This is post 5 of 7 on the 2016 Thinking Ahead Institute global roundtable, held in London on 2 and 3 November. The theme of the event was “Fuller measurement, broader integration, better decisions”)


According to the International Integrated Reporting Council (IIRC), an integrated report is a “concise communication about how an organisation’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.”

The session began with Jyoti Banerjee from the IIRC providing a broad outline of the framework. Jyoti posited that the following developments in business environments have changed the way that value is perceived: increased calls for long-termism; visibility of non-financial information; exponential growth in big data, which provides additional information on companies; and disruptive business models that have changed the way of doing business. He sees these developments as integral to the growth of , which aims to encourage companies and investors to have a better understanding of how value is created.

Using SAP, a German technology company as a case study, Jyoti outlined how by studying multiple capital inputs into a business (financial, manufactured, intellectual, human, social and relational, and natural), companies can form a compelling story as to how organisations create value over the short, medium and long-term. In producing an integrated report, businesses would also be expected to consider other factors such as materiality (which elements of value creation are important and to whom?) and connectivity (how does value created in one part of the company impact value creation elsewhere?)

Jyoti noted that consideration of non-financial factors through the use of an integrated report was starting to gain traction across a number of markets (for example South Africa, Singapore, Japan and Brazil). He also pointed to the European Commission’s directive which calls for increased disclosure of non-financial factors in company reports. In conclusion, Jyoti reiterated his call for businesses to think beyond financial inputs and to consider more holistically how organisations created value.

Attendees then considered a practitioner’s views on using the framework for reporting in South Africa, where it is mandatory for listed companies. The introduction of was seen as broadly positive as it encouraged companies to consider the environment in which they operate and forced investors to look at longer-term metrics when considering value creation. However, in practice, the introduction of mandatory integrated reporting has made reporting more onerous for professional investors. Specifically, there was wide variability in the quality of reports produced. As the document needed to be understood by non-professional investors, it was often used by organisations as a public relations/marketing document, which contained non-verifiable information. In their efforts to be comprehensive, integrated reports often buried key financial and other metrics used to determine a business’ worth in the detail. This often led to an increase in the number of discussions investors needed to have with management in order to cut through to the critical issues.

The session concluded with approximately 77% of participants agreeing that there was a need for non-financial information to be included in their reporting with 76% agreeing/strongly agreeing that there was merit in using an integrated reporting framework. Attendees supported the initiative to further develop the research stream in 2017.

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