The Integrated Reporting Movement: Meaning, Momentum, Motives and Materiality

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1 The Integrated Reporting Movement: Meaning, Momentum, Motives and Materiality Robert G. Eccles and Michael P. Krzus. With Sydney Ribot Chapter 3 Momentum Copyright 2015 by John Wiley & Sons, Inc. All rights reserved.

2 The Chapter In Brief Chapter 3 examines the integrated reporting movement s momentum in terms of Adoption The number of companies outside South Africa publishing an integrated report Accelerators Regulation, initiatives, organizations, and endorsements that support integrated reporting Awareness Integrated reporting s visibility in both the business community and the public eye

3 Adoption Self-Declared Integrated Reports From 287 (2010) to 596 (2012) 51% from Europe and 3% from North America Trends in Sustainability Reporting From 11 (1999) to 3,704 (2012) 89% of S&P 500 (2013) The Spirit of Integrated Reporting An indication of whether companies are making disclosures similar to integrated reporting, e.g., quantifying relationships between financial and nonfinancial performance

4 Accelerators (1/7) Regulation Increasing number of regulatory regimes supporting sustainability reporting April 2014 European Union legislation mandating disclosures about a range of environmental and social issues Sustainable Stock Exchange Initiative Members pledge to promote long term investment strategies and improve ESG disclosure and performance among their listed companies

5 Accelerators (2/7) Corporate Sustainability Reporting Coalition Seeks to influence legislation that becomes the backbone for regulation Critical role on drafting Rio+20 Outcome Document paragraph 47, calling on companies to consider integrating sustainability information into their reporting cycle.

6 Accelerators (3/7) International Integrated Reporting Council (IIRC) The call to form the IIRC was made in September 2009, announced in December 2009, and the IIRC was formally launched in August 2010 Encouraged experimentation through the IIRC Pilot Programme Business Network and the Pilot Programme Investor Network Released version 1.0 of the International Integrated Reporting Framework in December 2013

7 Accelerators (4/7) Global Reporting Initiative (GRI) Founded in 1997, the de facto standards setter for sustainability reporting and co-founder of the IIRC Offers guidance on how to identify material issues and support the integrated reporting process Sustainability Accounting Standards Board (SASB) Founded in July 2011 to create industry-specific standards for recognition and disclosure of material (as defined by the U.S. SEC) ESG issues by companies listed on U.S. stock exchanges

8 Accelerators (5/7) CDP Originally founded to provide a worldwide system to collect and share information about carbon emissions and climate change Expanded its mission to include water stress and deforestation Climate Disclosure Standards Board The standards-setting arm of the CDP Published the Climate Change Reporting Framework, which will be updated to include fossil fuels, stranded assets, forestry risks, and water

9 Accelerators (6/7) Global Initiative for Sustainability Ratings Researching and developing accreditation of processes for sustainability credit ratings Accounting Firms and Associations Big Four accounting firms have published integrated reporting white papers and support the IIRC in various ways Association of Chartered and Certified Accountants was the first professional association to include integrated reporting in their continuing education materials

10 Accelerators (7/7) Endorsements Integrated reporting has been publically endorsed by APG (a large Dutch pension fund), CalPERS (the California state pension fund) and Norges Bank (the Norwegian sovereign wealth fund) CalPERS identified integrated reporting as a key initiative in 2013 Generation Investment Management called for mandated integrated reporting in its February 2012 paper, Sustainable Capitalism

11 Awareness Academic and practitioner citation on integrated reporting has grown dramatically since the publication of One Report in 2010 from about 70 in 2010 to 210 in 2013 Word counts of the terms integrated report and integrated reporting spiked up from 1,500 in 2010 to 3,500 in 2011; however, the count flattened at about 3,700 in both 2012 and 2013

12 Discussion Questions What can be done to accelerate the adoption of <IR>? Which of the accelerants discussed in the chapter have been the most influential in increasing the momentum of <IR> and why? What forces exist that would slow the momentum of <IR>?

13 Optional Readings Eccles, Robert G. and Cecile Churet. Integrated Reporting, Quality of Management, and Financial Performance Journal of Applied Corporate Finance, Winter 2014, Volume 26 Number 1. 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 edition. Ioannou, Ioannis, and George Serafeim. "The Consequences of Mandatory Corporate Sustainability Reporting." Harvard Business School Working Paper, No , March (Revised May 2012, October 2012.) Waygood, Steve, for Aviva Investors. A Roadmap for Integrated Capital Markets: Aviva s proposals for how the UN Sustainable Development Goals and the UN Framework Convention on Climate Change can harness the capital markets. Generation Investment Management. Sustainable Capitalism.

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