Integrated reporting is gaining in importance worldwide. Various companies are moving away from traditional corporate reporting based on key financial figures and characterised by numerous isolated individual publications and are adopting the more holistic approach of integrated reporting.
Integrated Reporting at a glance
Behind the buzzword "Integrated Reporting" is a concept for the worldwide realignment of corporate reporting, which has been driven forward by the International Integrated Reporting Council (IIRC) since 2010. The declared aim is to anchor integrated reporting in the thinking and practice of companies and thus increase the usefulness of decision-making for investors and other stakeholders by improving the quality of information.
An integrated report is a concise communication tool on how the company's strategy, governance, performance and future prospects lead to value creation in the context of the external environment in the short, medium and long term.
Thus, looking through integrated eyewear should primarily contribute to a comprehensive understanding of value creation, its relevant factors and their interdependencies.
This means that within the framework of integrated reporting, companies are asked to analyse their value creation process in a dedicated manner and to identify the key influencing factors. As a result, non-financial factors inevitably come into focus alongside the classic "bare" figures. These include, for example, human capital (know-how, employee turnover, etc.), reputation, social commitment or natural resources.
The Integrated Reporting Framework published by the IIRC in 2013 serves as a guide for the preparation of an integrated report. The aim of this non-binding guideline is to define the reporting principles and contents required for an integrated report and to explain the underlying fundamental concepts. For example, the reporting principles require that an integrated report:
- It must provide insight into a company's strategy and clarify the relationship between the strategy and the ability to create value,
- To convey a holistic picture of the interrelationships and dependencies of the factors influencing value creation, and
- Focus on the information needed to understand the strategy, governess, performance and future prospects.
Overall, Integrated Reporting is not necessarily about more, but about better, more holistic and therefore more meaningful reporting. An integrated report should be an indicator of the extent to which a company is managed holistically or thinks integratedly ("Integrated Thinking"). In other words, it demonstrates the ability of companies to holistically reflect the relationships between the various operational units as well as the value-adding factors that are decisive for the organization, and to make meaningful decisions and derive actions on the basis of these decisions.
Why use integrated reporting?
The aim of integrated reporting is to present all the financial and non-financial information that over time affects the company's value creation in a coherent and concise way in a single report. But what are the benefits of this paradigm shift for companies and audiences?
Communication is the be-all and end-all: "The Benefit of telling the whole Story".
Through structured and contextual communication of non-financial information, companies can positively influence the valuation of financial information and promote trust and credibility. This is the result of the Coloplast experiment, which highlights the relevance of integrated reporting to companies. For the experiment, two different reporting formats of the Danish company Coloplast were presented to teams of analysts with a request for assessment. The result: 80% of the analysts gave a sell recommendation for the share based on the classic financial report, which is oriented towards regulatory requirements. On the basis of the second, an integrated report, 60% of the analysts were in favour of buying the share.
Why is a paradigm shift in reporting necessary?
In recent years, new regulatory requirements and the changing information needs of stakeholders have led to a considerable expansion of external reporting. The consequence is a large number of parallel mandatory and voluntary reporting formats which, in addition to the classic financial sphere, are increasingly trying to transparently reflect non-financial aspects of business activity. The most recent example of the inclusion of non-financial variables is the recently adopted EU Directive on the mandatory disclosure of corporate social responsibility information. However, although or precisely because companies are trying to cope with the increasing complexity of business models and external requirements through more and more information, dissatisfaction is spreading.
What needs to be considered during implementation?
At present, the implementation and design of integrated reporting does not follow a uniform scheme and is practised very differently by companies. One of the main reasons for this is the deliberately open framework, which allows users a high degree of creative freedom, but due to its guideline character does not prescribe a concrete procedure for implementation and for the concrete result type. As a result, different levels of maturity of integrated reporting exist in practice and individual interpretations of the content and format predominate.
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