11.2 Integrated reporting framework

Integrated reporting is a holistic approach to corporate reporting that combines financial and non-financial information. It aims to provide a comprehensive view of an organization's value creation process over time, focusing on the connectivity between various factors affecting its ability to create value.

The integrated reporting framework is built on the value creation process, six capitals, and guiding principles. It includes content elements like organizational overview, governance, business model, risks and opportunities, strategy, performance, and outlook. This approach enhances decision-making, risk management, and stakeholder engagement.

Integrated reporting definition

• Integrated reporting is a holistic approach to corporate reporting that combines financial and non-financial information in a single report
• Aims to provide a comprehensive view of an organization's value creation process over the short, medium, and long term
• Focuses on the connectivity and interdependencies between various factors that affect an organization's ability to create value (financial, manufactured, intellectual, human, social and relationship, and natural capitals)

Benefits of integrated reporting

Improved decision making

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• Integrated reporting provides a more comprehensive and connected view of an organization's performance and prospects
• Enables better-informed decision making by management, investors, and other stakeholders
• Facilitates a more long-term and strategic approach to decision making by considering the interrelationships between different capitals and stakeholders

Enhanced risk management

• Integrated reporting helps organizations identify and manage a broader range of risks and opportunities
• Encourages a more proactive and integrated approach to risk management by considering the interconnectedness of different types of risks (financial, operational, reputational, environmental, social, etc.)
• Promotes greater transparency and accountability in risk management processes

Greater stakeholder engagement

• Integrated reporting fosters greater engagement and dialogue with a wide range of stakeholders (investors, employees, customers, suppliers, regulators, local communities, etc.)
• Provides a platform for organizations to communicate their value creation story and respond to stakeholder concerns and expectations
• Enhances trust and credibility with stakeholders by demonstrating a commitment to transparency and accountability

Integrated reporting framework

Value creation process

• The value creation process is at the core of the integrated reporting framework
• Describes how an organization creates value over time through its business model, strategy, and resource allocation decisions
• Considers the inputs (six capitals), business activities, outputs, and outcomes that contribute to value creation

Six capitals

• The six capitals represent the resources and relationships used and affected by an organization in its value creation process
• Includes financial capital (funds available), manufactured capital (physical infrastructure), intellectual capital (knowledge-based intangibles), human capital (people's competencies and capabilities), social and relationship capital (stakeholder relationships), and natural capital (environmental resources)
• Integrated reporting recognizes the importance of all six capitals in driving long-term value creation

Guiding principles

• The integrated reporting framework is based on a set of guiding principles that underpin the preparation and presentation of an integrated report
• Includes strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness, and consistency and comparability
• These principles ensure that integrated reports provide a balanced and meaningful representation of an organization's value creation story

Content elements

Organizational overview and external environment

• Provides an overview of the organization's mission, vision, values, and operating context
• Describes the external environment in which the organization operates, including macro-economic conditions, market trends, regulatory landscape, and stakeholder expectations
• Sets the context for understanding the organization's strategy, business model, and performance

Governance

• Explains the organization's governance structure, including the role and composition of the board and its committees
• Describes how governance supports the organization's ability to create value in the short, medium, and long term
• Discusses key governance matters, such as leadership, remuneration, and ethical behavior

Business model

• Describes the organization's business model, including its key inputs, business activities, outputs, and outcomes
• Explains how the business model creates value for the organization and its stakeholders
• Identifies the key resources and relationships (six capitals) that underpin the business model

Risks and opportunities

• Identifies the key risks and opportunities that affect the organization's ability to create value over time
• Explains how the organization is managing and mitigating these risks and capitalizing on opportunities
• Discusses the potential impact of risks and opportunities on the organization's strategy, business model, and future performance

Strategy and resource allocation

• Outlines the organization's short, medium, and long-term strategic objectives and how these support value creation
• Explains how the organization is allocating its resources (six capitals) to implement its strategy and achieve its objectives
• Discusses the key performance indicators used to measure progress against strategic objectives

Performance

• Provides a balanced and integrated view of the organization's performance, covering both financial and non-financial aspects
• Discusses the organization's performance against its strategic objectives and key performance indicators
• Explains how the organization's performance has been impacted by its external environment, risks and opportunities, and strategic choices

Outlook

• Provides a forward-looking view of the organization's future prospects and challenges
• Discusses the potential implications of the organization's strategy, business model, and performance on its future value creation capacity
• Identifies the key uncertainties, assumptions, and sensitivities that could affect the organization's future performance

Basis of preparation and presentation

• Explains the process and methodology used to prepare and present the integrated report
• Discusses the materiality determination process and how it has been applied in the report
• Identifies any significant frameworks, standards, or guidelines used in the preparation of the report

Integrated thinking

Integrated thinking definition

• Integrated thinking is the active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects
• It is the foundation of integrated reporting and underlies the value creation process
• Integrated thinking involves a holistic and multi-dimensional approach to decision making and management

Relationship to integrated reporting

• Integrated thinking is a prerequisite for effective integrated reporting
• It enables organizations to understand and manage the complex interrelationships between their various capitals, stakeholders, and value creation processes
• Integrated reporting is the external manifestation of integrated thinking within an organization

Challenges of integrated reporting

Lack of standardization

• There is currently no globally accepted standard for integrated reporting, which can lead to inconsistencies and comparability issues between organizations
• Different jurisdictions and industries may have varying requirements and expectations for integrated reporting
• The lack of standardization can make it difficult for stakeholders to assess and compare the performance of different organizations

Difficulty measuring certain capitals

• Some of the six capitals, particularly intellectual, human, social and relationship, and natural capitals, can be difficult to quantify and measure
• There is a lack of well-established metrics and valuation methodologies for these capitals
• This can make it challenging for organizations to report on these capitals in a meaningful and comparable way

Resistance to change

• Implementing integrated reporting requires a significant shift in mindset and approach from traditional financial reporting
• Some organizations may be resistant to change due to concerns about additional costs, resources, and disclosures required
• There may also be cultural and organizational barriers to adopting integrated thinking and reporting practices

Integrated reporting vs sustainability reporting

• Integrated reporting is a broader and more holistic approach than sustainability reporting
• Sustainability reporting focuses primarily on an organization's environmental, social, and governance (ESG) performance and impacts
• Integrated reporting encompasses sustainability issues but also considers the connectivity between ESG matters and an organization's strategy, business model, and financial performance
• Integrated reporting aims to provide a more complete and balanced view of an organization's overall value creation story

Integrated reporting vs financial reporting

• Financial reporting focuses primarily on an organization's financial performance, position, and cash flows
• It is based on generally accepted accounting principles (GAAP) and is primarily intended for investors and other capital providers
• Integrated reporting goes beyond financial reporting by considering a broader range of capitals and stakeholders
• It aims to provide a more forward-looking and strategic view of an organization's value creation process, rather than just historical financial performance
• Integrated reporting complements and enhances traditional financial reporting, rather than replacing it

Examples of integrated reports

• Novo Nordisk (pharmaceutical company) - recognized for its comprehensive and balanced approach to integrated reporting, covering all six capitals and demonstrating strong linkages between strategy, performance, and value creation
• Sasol (integrated chemicals and energy company) - provides a clear and concise integrated report that effectively communicates its value creation story, supported by relevant performance metrics and targets
• Unilever (consumer goods company) - offers a best-practice example of integrated reporting, with a strong focus on sustainability and long-term value creation for multiple stakeholders

Future of integrated reporting

• Integrated reporting is expected to become increasingly prevalent as more organizations recognize its benefits and stakeholders demand greater transparency and accountability
• There is a growing momentum towards the development of a global standard for integrated reporting, led by the International Integrated Reporting Council (IIRC)
• The adoption of integrated reporting is likely to be driven by regulatory requirements, investor demands, and a broader societal shift towards sustainable and responsible business practices
• Integrated reporting has the potential to become the corporate reporting norm, providing a more meaningful and holistic view of an organization's value creation story