Integrated reporting the UK experience 22 February 2018

Integrated reporting – the UK experience

22 February 2018DOWNLOAD THE SLIDES TO ACCOMPANY THE WEBINAR

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© ICAEW 2017

Integrated reporting – the UK experience

22 February 2018

© ICAEW 2017

Introduction

Alison Dundjerovic

Technical Manager

ICAEW

Keith Stevenson

Managing director

IIRC

Amanda Swaffield

Director

Deloitte

Today’s presenters

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Poll - What type of organisation do you work for?

Poll - Describe how familiar you are with the Integrated Reporting framework.

An overview of the Integrated Reporting framework

Integrated Reporting within a UK context

The do’s and don’ts of preparing integrated information

The future direction of travel

Questions

Contents

Integrated Reporting –creating valueNeil StevensonThe International Integrated Reporting Council

© International Integrated Reporting Council

The IIRC

Investors

Companies

NGOs

Regulators

Standard setters

Accountingt

Investors

Companies

NGOs

Regulators

Standard

setters

Accounting


Organizations in the <IR> Business Network

Aegon NV, AES Brasil, Anglo African, ArcelorMittal, Assicurazioni Generali S.p.A. , Association of Chartered Certified Accountants, Atos, AXA, Banco Nacional deDesenvolvimento Economico e Social, Bangor University,

BASF, BNP Paribas, CCR Group, Center for Corporate Reporting, Chartered Institute of Management Accountants, Çimsa, CLP Holdings Limited, Confederation of Indian Industry, Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili, Corporate Governance Association of Turkey, CPA Australia, CPFL Energia, Crédit AgricoleSA, Danone, DBS Bank Ltd., Deutsche Bank AG, Deutsche Boerse AG, Diesel and Motor Engineering Plc, Duchy of

Cornwall, Enagas, EnBW Energie Baden-Württemberg AG, Enel S.p.A., Ernst & Young – Netherlands, Eskom Holdings SOC Limited, Flughafen Muenchen Group, FMO, Fujitsu Limited, Garanti Bank, Grant Thornton UK LLP,HSBC Holdings, Industria de Diseño Textil S.A., Institute of Chartered Accountants of Sri Lanka, Interserve Plc,

Itaú Unibanco, ITC, Jones Lang LaSalle, Malaysian Institute of Accountants, Marks and Spencer plc, Mazars, Microsoft Corporation, National Australia Bank Limited, Natura Cosmeticos, Nederlandse Beroepsorganisatie van Accountants, Nestle, Newcastle University, Nkonki, Novartis International AG, Novo Nordisk A/S, NZ Post Group,

PepsiCo, PricewaterhouseCoopers – Netherlands, PricewaterhouseCoopers Advisory S.p.A. – Italy, Prudential Financial, PTT Global Chemical Public Company Limited, Sanofi S.A, Singapore Accountancy Commission, SK

Telecom, Snam S.p.A., South Asian Federation of Accountants, Standard Chartered Bank, Tata Steel Ltd., TERNA S.p.A., The Clorox Company, The Crown Estate, The University of Edinburgh, The World Bank, Transnet SOC,

Umicore Group, UniCredit S.p.A., Unilever Plc., United Utilities Plc., University of Winchester, Vivendi


International <IR> Framework


Integrated Reporting is enhancing the way organizations

Think

Plan

Report

the story of their business


It is helping businesses to think holistically about

to build investor and stakeholder confidence and improve future performance

make informed decisions

manage key risks

strategy and plans


A concise communication about value creation over time

Strategy, governance,performance, prospects

Otherreporting

Financialreporting


<IR> Framework: Core features

Fundamental Concepts

Guiding PrinciplesContent Elements



Factors of change in corporate reporting

© International Integrated Reporting Council© International Integrated Reporting Council

Multi-capitalism and value creation

Investor horizons

Wider financial system change

Sustainable development

New business models


Investor support for <IR> and communication on long-term value creation

© International Integrated Reporting Council© International Integrated Reporting Council

Through integrated reporting, organisations can ‘address more clearly resources that are not included in financial statements. The increasing awareness that environmental and societal restrictions have an impact on long-term value creation is also clear’. Hans Hoogervorst, Chairman IASB


Organisations can enhance their contribution to the SDGs through integrated thinking and by using their integrated reports to communicate this - demonstrating how they have responded to the risks and opportunities of sustainable development.The SDGs, integrated thinking and the integrated report, by Prof Carol Adams


Integration in thinking and reporting

Value creation is linked to value created for others


Source: Aegon NV 2016 Annual Review

Value creation


Resources Integrated Reporting Examples DatabaseSharing real examples of leading

practice in Integrated Reporting to helporganisations on the <IR> journey

The International <IR> FrameworkProviding the principles and concepts

for organisations adopting <IR>

<IR> NetworkBringing together organisations worldwide

to enhance the way they think, plan and report.

examples.integratedreporting.orgwww.integratedreporting.org

http://examples.integratedreporting.org/home

http://integratedreporting.org/

PROGRESS THROUGH

29

Integrated reporting within a UK context

Poll - To what extent is your organisation applying the framework?

31

Integrated reporting

Take up

South Africa endorsed <IR> Framework in March 2014

<IR> promoted by the Stock Exchange Singapore

<IR> promoted by G100 and

major Superannuation

Funds in Australia

Brazilian Stock Exchange calls for “Report or Explain” on <IR>

EuropeanCommission

hailed <IR> as “step ahead” and

“the ultimate ambition”

<IR> crucial part of Japan’sRevitalization strategy

United States: Harvard Business School study hails <IR> as enabler of financial stability.

Securities and Exchange Board of India: not ‘if’ but ‘when’ for <IR>

UK Guidance on Strategic Report consistent with <IR>; UK Treasury calls for all public sector entities to adopt <IR>

Malaysian Corporate Governance Code

encourages adoptionof <IR>

Companies producing integrated reports include:Royal Schiphol GroupThe Crown EstateUnited UtilitiesThe World BankItau UnibancoNovo NordiskBarclays Africa Group LimitedDBSSanford

UnileverUnicreditBT GroupEvraz

New Zealand’s Financial Reporting Act

refers to <IR> as an enabler

Turkish stock exchange & IIRC memorandum to promote <IR>

32


The missing link is integrated thinking

How does it fit into the UK reporting landscape?

“We use different words in the UK. Strategic Report, not Integrated Report, but we are on the same journey with the same purpose. The principles in a UK strategic report are consistent with an integrated report.”

Stephen Hadrill, CEO, Financial Reporting Council, May 2015

Strategic Report content

(including business model, NFR Regulations

& strategy)+

Integrated thinking FRC Guidance on

the Strategic Report

(focus on value generation &

linkage)

Annual Report in line with

content elements of an

integrated report

Financial Statements

Corporate governance

Code’s FBU and risk

management

Directors’ Report

+

integrated thinking

integrated report

Directors’ Remuneration

Report

33

Non-Financial Reporting Regulations

Non-financial reporting matter

Environmental matters (including the impact of the entity’s business on the environment)

The entity’s employees

Social and community matters

Respect for human rights

Anti-corruption and anti-bribery matters

For each:

• Description of policies

• Due diligence processes

• Outcomes

• Principal risks and how

managed

Our survey said:

Effective for December 2017 reporters

To the extent necessary for an understanding of the development, performance or position and impact of its activity, the strategic report should include information relating to, as a minimum:

Natural capital

Social and relationship

capital

Human capital

34

In relation to drivers and elements

How these drivers &

elements will be maintained

and/or developed

FRC’s Financial Reporting LabBusiness model and risk reporting

Most investors want to see:

1) What the company does and where it sits in the value chain;

2) Key divisions, their contribution and legal structure;

3) Key markets and market segments;

4) The competitive advantage;

5) Key inputs (assets & liabilities, relationships & resources) and how they are maintained/enhanced;

6) Key revenue and profit drivers;

7) Value created for other stakeholders that supports economic value generation; and

8) Statistics to indicate relative importance of the elements of the business model.

Measure success of key drivers and outcomes

How do these link?

Business model Strategy Principal risks & viability

KPIsRemuneration & dividend policies

What are the key elements &

drivers?

Both reports available at www.frc.org.uk

How the business model should drive the disclosures in the front half of the annual report:

1) Differentiate time horizons for prospects and viability

2) Viability assessment - Stress testing? Linkage? Qualifications and assumptions?

3) Principal risks – Specific? Linkage? Movements?

4A Organizational overview and external environment

4C Business model

4D Risks and opportunities

35

UK annual survey of reporting

Where is the market today?

3 24

13

64

0

5

10

15

1 2 3 4 5 6

Num

ber

of

com

panie

s

Number of <IR> capitals

identified

69% 59% 63%

94%81%

25%

Of those identifying <IR> capitals,

which categories were identified?

www.Deloitte.co.uk/annualreportinsights

39% of the market capitalisation of FTSE 350, and 20.6% of the S&P 500

is represented by intangible contributors to

value

Reputation Dividend Report 2017

The value of the responsible investment market has increased to $10.4tn in 2016, a 38%

increase over 2014

Financial Times, 3 Sept 2017

32 companies

clearly

considering

the <IR>

notion of

‘capitals’ in

their business

models

6 companies

in our survey specifically referred to the <IR>

Framework in their annual

reports

63% discussing

value creation for

stakeholders other than

shareholders

http://www.deloitte.co.uk/annualreportinsights

36

Financials do not tell the whole story

Investors are using a broader set of data when evaluating investment choices

Conversation needs to shift to sustainable long term value creation, a focus on short term profits is not enough.

A focus on company purpose

The enlightened shareholder and corporate purpose

41 giving purpose beyond making profits for shareholders

17% referring to s172 and directors duty to consider broader stakeholders

63% discussing value creation for stakeholders other than shareholders

The narrative makes up 61% of the annual report

69% described, to varying extents, how they engaged with wider stakeholders

77% identifying off-balance sheet inputs into their business model – 32 considering <IR> notion of capitals

Where is the market today?

89 mentioned Brexit in their annual report with 44% disclosing board-level attention to it and 55 including it within a principal risk

2 companies identified climate risk as a principal risk

37

The do’s and don’ts

38

Where to start?

How do we create value now and in the future?

Business model

Stakeholder identification and

engagement What resources and relationships do we rely

on?

Avoid silos and the ‘bolt-on’ approach to

reporting – develop an integrated team Investor lens and

materiality

Measuring what matters across the capitals

Get ‘buy in’ at the top

3C Stakeholder relationships

3D Materiality4H Basis of preparation and presentation

3B Connectivity of information

4C Business model

4F Performance

39

A roadmap


Stakeholder engagementCritical relationshipsHow the business manages & responds to these

From A Directors’ Guide to Integrated Reporting (Deloitte publication)www.ukaccountingplus.co.uk

40

The future direction of travel in the UK and globally

41

BEIS corporate governance reforms

Reforms announced to increase boardroom accountability and enhance trust in business

Executive pay

Strengthening the employee, customer and supplier voice

Corporate governance in large privately-held businesses

A combination of secondary legislation, changes to the UK Corporate Governance

Code and other industry-led solutions will be used.

Following the Green Paper and the BEIS Select Committee Inquiry report, the Government has

issued a package of reforms across three areas:

42

A focus on wider stakeholders

Duties of directors under the Companies Act 2006 – s172

Duty to promote the success of the company for the

benefit of its members as a whole, having

regard to…

The likely consequences of any decision

in the long term

The interests of the company’s

employees

The need to foster the company’s

relationships with suppliers, customers and

othersThe impact of the company’s operations on

the community and the

environment

The desirability of the company

maintaining high a

reputation for high standards

of business conduct

The need to act fairly as between

members of the company

414C Contents of strategic report

(1)The purpose of the strategic report is to inform members of the company and help them assess how the directors have performed their duty under section 172 (duty to promote the success of the company).

(2) The strategic report must contain- …..

Secondary legislation coming…

All companies of significant size to explain how their directors comply with the

requirements of section 172

“Significant size” suggested to be entities with greater than

1,000 employees

43

On the global horizon

• Role of governance: stakeholders and long-termism

• IIRC guidance: FAQs, Getting started guide, materiality

• Management commentary - IFRS

• IAASB assurance project

• Sustainable finance and SDGs

Keith Stevenson

Managing director

IIRC

Amanda Swaffield

Director

Deloitte

Questions

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Integrated reporting the UK experience 22 February 2018