Integrated Reporting – What It Is – And Is Not: An Interview With Paul Druckman
Paul Druckman, CEO of the International Integrated Reporting Council (IIRC) addresses some of the misconceptions about what integrated reporting is – and is not – providing insights into how it will develop in this interview with Carol Adams. He also spoke about the link between sustainability reporting and integrated reporting.
Prior to taking up his role with the IIRC, Paul chaired the Executive Board of the Prince’s Accounting for Sustainability (A4S) project and the FEE Sustainability Group. Amongst many other senior executive and non-executive roles, he was also Director of the UK Financial Reporting Council and President of the Institute of Chartered Accountants in England and Wales (ICAEW).
There have been a number of comments in the press and professional journals on the merits or otherwise of integrated reporting from people who appear not to have read the IIRC’s Consultation Draft of the International Integrated Reporting Framework. Can you briefly explain in lay terms what integrated reporting is?
Integrated reporting is where an organisation explains how it is going to create value. It is a concise communication of value. It explains how a company will be a viable thriving entity in the short, medium and long term. It is not just about financial profit. Companies cannot think of themselves as apart from society – they are part of it. And that needs to come through in their communication on value.
Would you like to add anything about what it is NOT?
There are three common misunderstandings about integrated reporting which I’d like to address.
- It is not another report, rather an evolution in corporate reporting.
- It is not sustainability reporting. We are not creating sustainability indicators.
- Whilst the consultation process for the IIRC framework has been multi-stakeholder, the emphasis in the reporting process is not multi-stakeholder. Rather, it is on integrated thinking.
On the second point, I should add that integrated reporting will help to bring sustainability reporting into the mainstream corporate reporting cycle. Sustainability reporting has been one of the great reporting innovations over the last twenty years – at its best it shows the essential relationship between a business, society, the economy and environment. It contains value-relevant information, yet is often disconnected from the financials.
Integrated Reporting – embedding that concept of integration into business thinking and reporting processes – is essential for ensuring corporate reporting remains relevant to investors and plays a central role in their financial capital allocation decisions.
Based on the “integrated reports” you have seen to date what are the top three things you would like to see improved in integrated reporting practice?
It is important to recognise that we are in the innovation phase of this market-led development in reporting. We are enabling a process of peer-to-peer learning and best practice, most notably through our Pilot Programme of over 130 businesses and investors in 25 countries. We are now seeing real movement and we estimate that around 1,000 businesses globally adopt at least some <IR> principles in their reporting practice. In terms of improvements, I would highlight the following areas where I think we need to see more progress:
- A better articulation of strategy and ensuring that this is reflected throughout the reporting process, not just in one place in the report.
- A bringing to life of the concept of “connectivity” – the recognition of all the interconnected pieces across the business – which is such an essential part of Integrated Reporting.
- A real focus on conciseness – currently, many businesses are working on bringing together information. A reduction in volume should flow from the application of Integrated Reporting principles.
The process of developing the Framework has involved extensive consultation and feedback and will continue to evolve. What are the key areas of differences in views? Which aspects do you think will continue to evolve in particular as practice develops?
There was overwhelming support for the approach to the capitals and the definition of the business model, particularly the idea of outcomes rather than outputs. Thinking about outcomes rather than outputs helps to connect the business to the real world and the value it might bring to the broader economy, to people or how its activities impact on the environment.
There was some diversity of views around:
- Inclusion of forward looking information. Some think it means giving away secrets. I think this is nonsense. As Professor Mervyn King, chair of the IIRC Board put it there’s a difference between transparency and nakedness.
- The audience for the reports. There was a lot of emphasis in the consultation draft on providers of financial capital. The next version will better communicate that, whilst the primary purpose of integrated reporting is providing information for providers of capital, the readership will be much broader. An integrated report will be of interest to a broad range of corporate stakeholders.
- Materiality. The word means different things in different contexts and we need to do more to provide certainty around its meaning in the context of Integrated Reporting..
- Value. There are different views about what ‘value’ means. We need to do more with businesses and investors to develop this concept.
- Assurance. This was an area of huge diversity where thinking and practice will evolve over time.
Some other areas we will be clarifying are:
- The difference between integrated reporting and an integrated report. This is the piece around integrated thinking which really adds value through improved decision making.
- The link between an integrated report and other reports.
How would you like to see corporate reporting of global MNCs in particular being different from today in ten years’ time?
I would like to see corporate reports being more about a true communication about the story of a business – rather than just compliance disclosures. This story should be more accessible to different stakeholders – that is, they can find what they want more easily. PDF reports can be difficult to navigate.
Which of the IIRC’s achievements or milestones are you most proud of?
I am most proud of the global reach our work has had. That has come as a surprise.
On a personal level, what has been the most rewarding aspect of your role as CEO of the IIRC?
I think my key contribution has been through keeping an eye on the big picture – not coming at it from the point of view of pushing a particular approach or getting bogged down in technical detail.
Being more flippant – having an electronic tablet has made travelling and keeping up with written material possible.