The context of the Integrated Report

Globally, there has been large shifts in the sustainability reporting landscape. This comes in response to investor calls for transparent, consistent and comparable disclosures on environmental, social and governance (ESG) matters in sustainability reporting.

As a result, there has been standards or proposals issued from three major standard setters/regulators:

• European Sustainability Reporting Standards (ESRS) adopted by the European Commission (EC) for purposes of compliance with the Corporate Sustainability Reporting Directive (CSRD) in the European Union (EU)
• IFRS® Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB)
• Climate disclosure rules issued by the United States (US) Securities and Exchange Commission (SEC)

All three frameworks primarily focus on disclosure requirements (rather than measurement). In June 2023, the ISSB released its first two standards, referred to as IFRS® Sustainability Disclosure Standards: IFRS S1, ‘General Requirements for Disclosure of Sustainability-related Financial Information’, and IFRS S2, ‘Climate-related Disclosures’. IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024, with early adoption permitted (subject to the endorsement of the standards by local jurisdiction).

In December 2022, against the background of the European Green Deal, the EC published the final CSRD. The objective of the CSRD is to fundamentally revise and strengthen the non-financial reporting rules introduced by the 2014 Non-Financial Reporting Directive (NFRD). The CSRD came into force in early January 2023, and member states had 18 months to transpose its provisions into their national law. To enact the directive, 12 European Sustainability Reporting Standards (ESRS) were developed by the European Financial Reporting Advisory Group (EFRAG) and issued by the EC.

With the introduction of new sustainability reporting standards, such as the ISSB and ESRS, reporters might be contemplating their existing reporting suite. Ultimately, from a governance perspective, reporting is the responsibility of the board. As such, the requirements for reporting from an entity’s internal corporate governance code as well as legal, regulatory and industrial requirements should be considered when determining what to report.

In its paper, the Integrated Reporting Committee (IRC) of South Africa^[1] suggested the following factors to be considered when structuring a corporate reporting suite:

• The principles and practices of governance and the organisation’s corporate governance code
• The organisation’s values, culture, ethical business practices, sense of responsibility and leadership and its reporting objectives
• Legal and regulatory requirements of the countries in which the organisation operates or plans to operate
• Listing requirements of capital markets, including stock exchanges. From a practical perspective, jurisdictions may adopt or legislate frameworks with different timelines or ‘phased in’ approaches. An organisation might very well need to plan its adoption in order to align with the adoption timeline of its local territory
• Industry and sector requirements
• The organisation’s size, structure, resources and current reporting approach
• Stakeholders’ information needs and expectations
• The requirements of mandatory sustainability reporting standards
• The data requirements of sustainability rating agencies and index providers
• The requirements of voluntary sustainability reporting standards, guidance and directives adopted by the organisation
• The subject-specific nature of the various reports and information disclosures and the most likely audience
• The timing of the various reports and information disclosures and how this may be affected by regulatory requirements and standards, such as the ISSB sustainability disclosure standards.

This begs the question of how the ISSB standards might fit into the bigger picture. Recall that the ISSB positions its standards as a ‘global baseline’. A baseline is inherently foundational in nature: it is intended to be conducive to interoperability with a country’s own prescribed reporting requirements and codes. Thus, an organisation can use the ISSB standards and then overlay this with other disclosures, such as voluntary sustainability reporting standards that meet the needs of multi-stakeholders on impacts (such as the Global Reporting Initiative (GRI)  standards). 

At a macro level, the integrated report can remain at the heart of corporate reporting approaches. There are two approaches that might be followed as set out in the paper:

• The umbrella approach
• The single report approach

The umbrella approach

The umbrella approach positioned the integrated report as a cross referencing initial overview of an organisation. The report will contain the traditional core requirements, such as a discussion on value creation, preservation or erosion process over the short, medium and long term. However, the report will then refer a reader to separate, more subject- specific and detailed reports that have been produced. Large organisations might benefit from this approach as they might publish separate climate/TCFD reports, tax transparency reports, remuneration reports and so on. The sustainability report might then house the detailed requirements of the ISSB standards in addition to the GRI disclosure.

The single report approach

The single report positions the integrated report as comprehensive. Instead of cross-referencing readers to other reports, the single report approach will contain the entirety of the sustainability report within its ambit. In other words, under this approach, the integrated report becomes combined with the sustainability report, financial statements and other corporate reports.

The determination of the flow of content will require careful planning by the organisation—with the use of an index feature being quite practical in helping readers to navigate the report.  It is important to note that in order to meet the requirements of the IR Framework, the integrated report should be a clearly designated section.

_{1. “A Global Comprehensive Corporate Reporting System: An Information Paper”, Integrated Reporting Committee of South Africa, Accessed via: http://www.integratedreportingsa.org/}