Changes to Corporate Reporting are essential. The quick question is how quickly can we move to international standards to solve the problem.

When it comes to corporate reporting, business as usual is not an option. Investors say it, companies are saying it, business leaders and their representatives (most notably the World Business Council for Sustainable Development) are saying it. Companies are disclosing many different things, and the absence of standards has led to mixed quality and comparability.

Pressing non-financial risks and changing risk profiles drive today’s headlines and the enormous scrutiny of corporate behavior in which we all engage, from cybersecurity and data privacy risks to talent and human capital and, significantly, climate risk and resiliency. Organizations need to provide relevant, reliable, and comparable narrative information and metrics.

The conversation has shifted from why companies communicate their progress and prospects in terms of value creation and impact on various stakeholders. At this critical moment in the discussion, IFAC hosted the International Integrated Reporting Council (IIRC) November meeting in  New York. The IIRC’s umbrella International Integrated Reporting Framework provides the foundation for understanding and communicating value creation. But the conversations that carried from the meeting into the evening also illustrated that, as this space continues to evolve, there is an essential need for consolidation and alignment that can be the platform for globally accepted standards.

Businesses, investors, regulators, and others demand consensus on the information for which companies will be held accountable. Without this, there will not be a benchmark or equalizer for companies and their stakeholders to evaluate various opportunities and risks and understand short-term versus long-term value tradeoffs, and whether the company has a long-term strategy for value creation and positive impact through a resilient business model.

This is not an easy challenge because the corporate reporting system is viewed from different perspectives depending on one’s profession, background, and experiences. Significant variances in terminology and differing expectations from investors, management, and regulators complicate matters.

With many possible ways forward, enhancing corporate reporting in a globally uniform and coordinated way will be vital to a transition. Working closely with investors, directors, sustainability professionals, and the accountancy profession, the IIRC can be a catalyst for systems change. But we will need to move quickly to shape the design and standards toward achieving the aims of integrated reporting.

Eumedion, the Dutch investor group, has proposed a global standard setter for non-financial reporting. The IFRS Foundation is posited as the natural home, given its legitimacy derived from a strong and proven governance structure.

The IFRS might be the correct answer, but following the IIRC Council, we need to recognize and agree on some critical matters, including

1. Global and unified action is critical:  It is essential to prevent regional and jurisdictional measures for capital markets from becoming entrenched. Financial reporting needed reliability, consistency, and comparability, and international standards drove this. Something must give to achieve a global position that different stakeholders can rally around.
2. The overall big picture: Agreeing what the corporate reporting system is in its entirety and whom it needs to serve, and with what “products” and “tools” will help highlight the need for global standards and approaches. Currently, we have many jigsaw pieces with no overall picture and roadmap. ESG does not represent most of the image; intangible assets largely remain hidden or unexplained. Do the International Integrated Reporting Framework and its 6-capitals value creation model provide the basis for the big picture? We believe that it broadly does provide an "umbrella" Framework.
3. Data is not knowledge: The principles and fundamental concepts of integrated reporting need to form the basis of standards and drive forward the quality of information. Standardized metrics in themselves are not the answer. Companies will always need to think about what is relevant and what information is required to achieve their purpose and objectives.
4. Integrated thinking in the boardrooms of all companies: Reporting as a compliance exercise detached from how the organization will not be a desirable outcome for investors, companies, and society. The main point of integrated reporting is to help companies drive change from within. Needs the accountancy profession as a critical partner. IFAC CEO Kevin Dancey, and IIRC Interim CEO, Charlies Tilley, highlight the importance of CFOs and accounting and finance professionals accounting for the business and not just the balance sheet (see the article on shifting the Chief Financial Officer into a “Chief Value Officer.”).

   This shift is critical for integrated reporting to become mainstream and standards to meet the needs of capital markets and stakeholders. Written by Stathis Gould. Director of IFAC