In the wake of evolutions in sustainability reporting, South African preparers of integrated reports might be pondering the somewhat philosophical question: what is an Integrated Report?
The International Integrated Reporting (IR) Framework, published around 2013, was developed in response to the King III Report on Corporate Governance requirement for annual integrated reports. The International Integrated Reporting Council (IIRC) oversees this framework, which guides organisations in creating integrated reports. The IR Framework states that its primary purpose is to explain to providers of financial capital how an organisation creates value over time. A well prepared integrated report provides readers with a clear and concise overview of how the organisation demonstrates stewardship and its value creation journey over the short, medium and long-term.
The primary audience for an integrated report is the providers of capital. The report aims to give these stakeholders a comprehensive understanding of resources and relationships utilised by the organisation, collectively referred to as “the capitals” within the <IR> Framework.
Specifically, the capitals can be categorised as:
- financial
- manufactured
- intellectual
- human
- social and relationship
- natural capital.
Corporate governance in South Africa is synonymous with the King Code™, which was the world’s first outcomes-based governance code that encouraged the use of the Integrated Reporting Framework. The <IR> Framework has been widely adopted by South African listed companies, as the Johannesburg Stock Exchange requires listed entities to adopt the King Code™ on an “apply or explain” basis. This provides South African listed companies with a strong foundation for the future of sustainable reporting.
In this forthcoming blog post series we will leverage insights from <IR> as a basis in order to springboard our sustainability reporting understanding as we delve into the key players and requirements within the sustainability reporting landscape.
In August 2022 the Value Reporting Foundation (which was a combination of the IIRC and the Sustainability Accounting Standards Board (SASB) merged with the IFRS Foundation. The International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB)1 have made a long-term commitment to develop a corporate reporting framework that encompasses the principles and concepts from the current integrated reporting framework. The ISSB has indicated that it will investigate the potential to draw on the Integrated Reporting Framework to improve its articulation of sustainability reporting information requirements.
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).
On the 1st of November 2022, the IFRS Foundation Trustees announced the membership of a new advisory group, the Integrated Reporting and Connectivity Council (IRCC). This advisory body will provide guidance on how reporting required by the IASB and the ISSB could be integrated. The IRCC will also help the IASB and the ISSB understand how they can apply the principles and concepts from the Integrated Reporting Framework to their projects. The chair of the IRCC is Charles Tilley OBE, former CEO of the International Integrated Reporting Council and former CEO of the Chartered Institute of Management Accountants. The IRCC’s vice-chair is Suresh Kana, a trustee of the IFRS Foundation and former CEO of PwC.
Integrated reporting thus has the potential to underpin the subsequent efforts of the ISSB. This perspective is supported by Emmanuel Faber, chair of the ISSB, who said:
"The principles and concepts of integrated reporting can help businesses to translate how climate and other sustainability-related financial risks and opportunities are connected to the strategy and business model – meeting investors’ needs and creating the conditions for a comprehensive corporate reporting system."
1. The ISSB is a new standard-setting board. Its ambitious goal is to “deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.” (Source: ISSB Website, Accessed 16/08/2024: https://www.ifrs.org/groups/international-sustainability-standards-board/) The ISSB was born out of the International Financial Reporting Foundation.
