The integrated report should be written in clear and understandable language in order for it to be a useful resource for stakeholders. It provides a clear and concise representation of how an organization demonstrates stewardship and how it creates value, now and in the future.
Integrated Reporting combines the most material elements of information currently reported in separate reporting strands financial, management commentary, governance and remuneration, and sustainability in a coherent whole, and importantly:.
So the idea is deceptively simple. Organizations could use this data to create a report or reports that are transparent, focused on value creation in the long term as well as short-term profitability, and explain how all these elements form a coherent whole. Before integrated reporting becomes a reality, however, much work needs to be done to develop frameworks, standards and measurements, among other issues.
The thinking behind the integrated reporting approach is somewhat different than the thinking behind the development of existing reporting frameworks and standards. Again, according to the IIRC:. Integrated reporting is likely to draw on existing financial reporting measurement standards, which will continue to be the basis for the measurement of the existing use of and returns on financial capital—possibly in a globally converged model.
Environmental and societal impact reporting standards, however, are less well developed. An early incarnation, environmental reporting, took hold in the s for a variety of reasons: Some companies were driven by progressive environmental practices; others may simply have wished to portray themselves in that manner; and many others were likely spurred by litigation—or the threat of litigation—that surrounded industrial waste sites, environmental disasters and the like.
Early efforts were mostly sporadic and fragmented, such as inserting brief sections on environmental issues into annual reports, with no linkage to strategy or performance and no attempt to obtain independent assurance. A decade later, as reports were broadened to include other social issues, they became known as corporate social responsibility, citizenship or sustainability reports.
In both their earlier and later forms, these reports were often published separately from financial reports. Standardization, however, remains elusive. The closest thing to a uniform sustainability reporting framework is the Sustainability Reporting Guidelines GRI Guidelines by the Global Reporting Initiative GRI , which is a sustainability reporting framework widely used around the world.
In more recent years this has extended to industry-specific requirements. The GRI Guidelines are a voluntary standard and lack any regulatory mandate. According to the GRI, more than 4, professionals around the world have been trained in the use of the GRI Guidelines, which are available in 25 languages. Yet despite this progress, out of more than the estimated 63, multinational corporations around the world, only a fraction produces sustainability reports.
Viewed in context, this pace of adoption may not be as slow as it seems. Consider that financial reporting has struggled to adopt a global uniform framework for nearly years.
Despite the small overall numbers, the uptake of sustainability reporting has been exponential, with a dampened but still aggressive growth rate during the global financial crisis. Beyond the GRI Guidelines a proliferation of competing sustainability-related frameworks, principles, codes and management systems has arisen. But if integrated reporting is a framework for putting together a balanced view of the organization, integrating inputs regulated or created by other frameworks and standards, where are the gaps?
The most obvious appears to be in environmental reporting. As we have noted, the GRI Guidelines may be the premiere framework for corporate responsibility reporting, but they are completely voluntary. Standards on reporting greenhouse gas emissions are also voluntary, while standards for measuring and disclosing water use and water impacts are both voluntary and emerging. The thinking about standards and measurement techniques for areas such as ecosystem services consumed by business has only just started.
Moreover, some information about strategy and environmental and societal impacts cannot be reduced to financial metrics. Much of this will be disclosed as narrative or nonfinancial performance indicators; developing standards for measuring and reporting these impacts will be yet another challenge.
To help generate discussion to guide the development of the International Integrated Reporting Framework, the IIRC has published in its discussion paper a series of principles and content elements for preparing an integrated report. Organizational overview and business model: What does the organization do, and how does it create and sustain value in the short, medium and long term?
Operating context, including risks and opportunities: What are the circumstances under which the organization operates, including the key resources and relationships on which it depends and the key risks and opportunities that it faces? Strategic objectives and strategies to achieve those objectives: Where does the organization want to go, and how is it going to get there?
Performance: How has the organization performed against its strategic objectives and related strategies? Future outlook: What opportunities, challenges and uncertainties is the organization likely to encounter in achieving its strategic objectives, and what are the resulting implications for its strategies and future performance? In doing so this element considers six capitals that the business may use: financial, manufactured, human, intellectual, natural and social.
Manufactured capital: manufactured physical objects, as distinct from natural physical objects. Natural capital: includes water, land, minerals and forests; and biodiversity and ecosystem health.
Integrated reporting, then, will include a lot more information about how the entity fits within the environment and society and how it creates long-term value. The focus will move from being merely concerned with reporting the past in financial terms to considering the past and short-, medium- and long-term futures in a connected strategic manner.
The IIRC has issued a set of guiding principles underpinning the preparation of an integrated report:. Many issues may arise as the integrated reporting framework is developed.
The IIRC is starting a number of pilots with businesses to support them as they go about producing integrated reports. These pilots are expected to identify areas where more work is needed. Ecosystem and natural capital: As pointed out earlier there are no standards for evaluating the value of natural capital or ecosystem services consumed by a business.
While valuing an ecosystem may be possible at a macro level, allocating between consuming entities is much harder. For many of these natural capital assets and services there is no market price. The value of many is context-specific. For example, the value of water use in a water-stressed area is higher than in an area of water abundance. And that true value may not be reflected in any market price—if such a price exists.
Future orientation: One of the key changes that will be effected by integrated reporting is a move from merely reporting historic financial results to a focus on the longer-term viability of the entity. However any material purporting to provide information about the future prospects and profitability of the entity is normally regulated and risky for directors and others involved. No one can predict the future—forecasts are inevitably wrong at some level of detail and are dependent on assumptions about the future.
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Julia Austin offers tips for choosing the right "job to be done. Interest vs. If you plan to do interest tests, here are several approaches among many to consider: Social media. Great for finding your audience, social outreach should be done on multiple platforms and carefully crafted to answer only one or two hypotheses.
These are the best locations to capture interest, email addresses, and demographic data. Surveys are difficult to design and often capture random and subjective information instead of getting real data to inform your product. Problem validation Early in the process, more important than interest tests are tests that validate there is a problem worth solving and where exactly a product can be most successful in solving that problem.
Consider trying these different types of problem-validation tests in your discovery process: Interviews. Similar to surveys, interviews are as much art as science. It is incredibly easy to lead a witness, bias answers, and hear what we want to hear in an interview. Observing prospects performing the job you hope to improve or replace can be extremely insightful.
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