INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Lecture
Introduction to integrated reporting: definitions and concepts regarding the integrated
reporting; international bodies involved in the standardization process of the integrated
reporting
Conceptual framework regarding the integrated reporting: benefits of the integrated
reporting; principles of the integrated reporting; qualitative characteristics of the integrated
reporting; items specific to the integrated reporting
Theoretical approaches regarding the integrated reporting: the complexity of the
nonfinancial reporting; the typology of integrated reporting; the sustainable reporting:
environmental and social reporting; strategy, governance and risk in the global performance
management
Specific practices regarding the integrated reporting: world level integrated reporting;
leaders in integrated reporting
Mandatory environmental, social and governance reporting in the European Union
Seminar Case Studies
Novo Nordisk
Natura Cosmetics
Marks and Spencer
Ricoh

Activity
Lecture
Seminar

Assessment criteria
Exam
Activity during the seminars
Project

Percentage in the
final mark
70%
9%
21%

Lecture 1
INTRODUCTION
In September 2009, the financial market crisis of late 2008 appeared to be receding. At this
same time, in the 2009 United Nations Climate Conference the general consensus was that the
climate crisis is much bigger than the financial crisis and failure to address it soon will have
more than cyclical consequences. Some believe it is already too late and that future
generations will bear the cost of our inaction. On September 16, 2009, a global group of 181
investment institutions representing assets of $13 trillion issued a statement stating that
private capital is essential to achieving the transformation to a low-carbon economy and
observed that climate risks and opportunities may have significant financial implications for
individual companies and may therefore affect the performance of investment portfolios.
Evidence of the growing public concern about climate change and global warming is given by
the exponential increase in the number of appearances of these words in a database of news
publications. Although, according to the Global Reporting Initiative, the percentage of the
self-declared integrated reports registered in its database was 14 in 2010, while it was 20% in

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

2011. James J. McCarthy, professor at Harvard University and former Intergovernmental

Panel on Climate Change working group co-chair, noted, in 2000, the science matured, and it
became clear that in a warmer world there will be climate impact on all continents. There are
vulnerabilities everywhere, and there will be losers in every country and every region.
It seems clear that the world is at a crossroads in dealing with these crises and that some
fundamental changes will be required to shift course in a meaningful way. Integrated
reporting is a key part of the solution. Today, more and more companies are publishing
voluntary Corporate Social Responsibility or Sustainability reports to supplement their
annual reports (over 5,500 reports in 2012, up from 800 a decade ago, according to
CorporateRegister.com), which contain the financial statements that every listed company
must file. In most cases, there is very little linkage between the information published in these
separate reports. To have a real impact, these separate reports need to be integrated with
each other, thereby demonstrating that the company has a sustainable strategy based on a
commitment to corporate social responsibility that is contributing to a sustainable society that
takes into account the needs of all stakeholders, of which shareholders are one type.
Climate change, limitations on the availability of water in various forms, diminishing natural
resources of many kinds, the need to provide economically viable and meaningful jobs for
billions of people, the importance of making the best use of human capital in a knowledge
economy, the operational and reputational risk faced by the worlds largest companies in a
multi-stakeholder society, and the elusive goal of providing proper corporate governance to
companies on which shareholders and all other stakeholders depend all mean that an excessive
focus on short-term financial performance must be replaced by a longer-term view which
recognizes that a sustainable company depends upon its contribution to a sustainable society.
More integrated reporting of financial, environmental, social, and governance performance is
essential.
The problems will be covered by integrated reporting. A single document, the integrated
report, is the result of more integrated reporting, which can only happen if sustainability is
embedded in a companys strategy. It is the most effective way of demonstrating internal
integration, and it is also a discipline for ensuring that integration exists. Integrated external
reporting is impossible without integrated internal management. Integrated reporting is both a
tool and a symbolic representation of a companys commitment to sustainability.
It is also much more than that. It is about moving from a periodic static document to ongoing
reporting about the companys financial and nonfinancial successes and failures. This shift
enables dialogue and engagement that involves listening as well as talking. Dialogue and
engagement are vastly enabled by the Internet. Integrated reporting is about collective
conversation between companies acting as corporate citizens; analysts and investors;
standards setters and regulators; and civil society, as represented by NGOs (nongovernmental
organizations), associations of many kinds, and individual citizens. Through integrated
reporting, we hope that the bright line sometimes drawn between shareholders and other
stakeholders will blur, and that all stakeholders will adopt a more holistic perspective. One
Report alone cannot make this happen, but we believe it can play a catalytic role.
Investors, standards setters (IIRC, GRI etc.), companies, accounting bodies (IASB, FASB
etc.), UN representatives, and members of civil society are involved in developing the
integrated reporting.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Current financial and sustainability reporting system does not provide the necessary
information to address these environmental or societal challenges. Bringing together those
organizations that have responsibility for financial accounting and reporting with those that
are widely recognized as leaders in nonfinancial accounting and reporting would make
possible the establishment of the process, the governance structure and the guidelines under
which an appropriate framework could be developed.
In its simplest terms, integrated reporting means producing a single report that combines the
financial and narrative information found in a companys annual report with the nonfinancial
(such as on environmental, social, and governance issues) and narrative information found in
a companys Corporate Social Responsibility or Sustainability report. But the integration
of financial and nonfinancial reporting is about much more than simply issuing a
comprehensive paper document. It involves using the Internet to provide integrated reporting
in ways that cannot be done on paper, such as through analytical tools that enable the user to
do his or her own analysis of financial and nonfinancial information. It also involves
providing information that is of particular interest to different stakeholders.
Integrated reporting means that there should be one report that integrates the companys key
financial and nonfinancial information. It by no means precludes the company from providing
other information in many different ways that are targeted to specific users. Rather, integrated
reporting provides a conceptual platform that is supplemented by the technology platform of
the companys Web site, from which much more detailed data can and should be provided to
meet the information needs of a companys many stakeholders. Thus, integrated reporting has
two meanings. The first and most narrow meaning is a single document, either in paper or
perhaps electronically provided as a PDF file. The narrow meaning of integrated reporting
should not be lightly dismissed. It is a way of communicating to all stakeholders that the
company is taking a holistic view of their interests, both as they complement each other and as
they compete against each other. This broader stakeholder view is variously called corporate
social responsibility, sustainability, and corporate citizenship.
The second and broader meaning is reporting financial and nonfinancial information in such
a way that shows their impact on each other. Here companies can leverage the capabilities of
the Internet and its Web 2.0 tools and technologies. Clearly, the degree of integration can vary
enormously, so integrated reporting is not simply the decision to provide such a report but
also a journey in which a company commits to a path of continuous improvement in the
degree of integration in its external reporting. The Danish biotechnology company Novozymes
is the first company to produce an integrated report, starting in 2002, and the company also
makes effective use of the Internet to provide more detailed information than what is in its
integrated annual report.

Integrated Reporting Defined

Integrated Reporting brings together the material information about an organizations
strategy, governance, performance and prospects in a way that reflects the commercial, social
and environmental context within which it operates. It provides a clear and concise

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

representation of how an organization demonstrates stewardship and how it creates value,

now and in the future. Integrated Reporting combines the most material elements of
information currently reported in separate reporting strands (financial, management
commentary, governance and remuneration, and sustainability) in a coherent whole, and
importantly:
-

Shows the connectivity between them; and

Explains how they affect the ability of an organization to create and sustain value in
the short, medium and long term (IIRC).

The evolution of the corporate reporting

1960 1980:
-

financial statements

1980 2000:
-

financial statements
management commentary
governance and remuneration
environmental reporting

2000 2020:
-

financial statements
management commentary
governance and remuneration
sustainability reporting (environmental and social reporting)

2020:
-

integrated reporting
management commentary
governance and remuneration
sustainability reporting
financial statements

A CHRONOLOGY OF INTEGRATED REPORTING

We focus on the key issues included in an integrated report:
-

sustainability reporting (environmental and social)

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

forward looking information

intangibles
governance
key performance indicators
key risk indicators.

We focus on the most important bodies involved in integrated reporting:

-

International Integrated Reporting Council

Global Reporting Initiative
Princes Accounting for Sustainability Project
IASB
FASB
Institute of Chartered Accountants in Australia
The Institute of Chartered Accountants in England and Wales
Integrated Reporting Committee (South Africa)
Big Four reports
World Intellectual Capital Initiative
Securities and Exchange Commission
OECD

Before 1990
1977 Abt, Clark C. The social audit for management. New York: Amacom. Described by
some as the first practical book in the field of social accounting.
The original Sullivan Principles, promoting corporate social responsibility, were developed in
1977 to apply economic pressure on South Africa in protest of its system of apartheid. The
principles eventually gained wide adoption among United States-based corporations.
The principles read:
The Sullivan principles
1. Non-segregation of the races in all eating, comfort, and work facilities.
2. Equal and fair employment practices for all employees.
3. Equal pay for all employees doing equal or comparable work for the same period of
time.
4. Initiation of and development of training programs that will prepare, in substantial
numbers, blacks and other nonwhites for supervisory, administrative, clerical, and
technical jobs.
5. Increasing the number of blacks and other nonwhites in management and supervisory
positions.
6. Improving the quality of life for blacks and other nonwhites outside the work
environment in such areas as housing, transportation, school, recreation, and health
facilities.
7. Working to eliminate laws and customs that impede social, economic, and political
justice. (added in 1984)

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

1987 World Commission on Environment and Development. Our common future (The
Brundtland Report), Oxford: Oxford University Press. This report coined the term
sustainable development as development that meets the needs of the present without
compromising the ability of future generations to meet their own needs.
1989 In the fall of 1989, CERES (formerly the Coalition for Environmentally Responsible
Economies) announced the creation of the CERES Principles (originally known as the Valdez
principles), a ten-point code of corporate environmental conduct to be publicly endorsed by
companies as an environmental mission statement or ethic. The code included a mandate to
report periodically on environmental management structures and results.
The 10 CERES Principles are:

Protection of the biosphere

Sustainable use of natural resources
Reduction and disposal of wastes
Energy conservation
Risk reduction
Safe products and services
Environmental restoration
Informing the public
Management commitment
Audits and reports

1990s
1992 Kaplan, Robert S. and David P. Norton. The Balanced Scorecard: Measures that drive
performance, Harvard Business Review 70, no. 1 (January-February). It is the first article on
the balanced scorecard.
It provides answers to four basic questions:

How do customers see us? (customer perspective)

What must we excel at? (internal perspective)
Can we continue to improve and create value? (innovation and learning perspective)
How do we look to shareholders? (financial perspective)

1994 Elkington, J. Towards the sustainable corporation: Win-win-win business strategies for
sustainable development, California Management Review 36, no. 2. He introduces the
concept of triple bottom line.
Triple bottom line accounting means expanding the traditional reporting framework to take
into account environmental and social performance in addition to financial performance.
In the fall, The American Institute of Certified Public Accountants Special Committee on
Financial Reporting published a comprehensive report on improving the quality of business
reporting, frequently referred to as the Jenkins Report. Improving Business Reporting A
customer focus. American Institute of Certified Public Accountants: New York.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

1996 Kaplan, Robert S. and David P. Norton. The Balanced Scorecard. Translating Strategy
into Action. Boston: Harvard Business Press. The book marks the appearance of the second
generation of the balanced scorecard, with two significant changes: the introduction of the
concept of strategic objectives and cause concept.
Epstein, Marc J. Measuring corporate environmental performance: best practices for costing
and managing an effective environmental strategy. Chicago: Irwin Professional Pub. The
book is the foundation for the current corporate environmental cost accounting practices as
they are applied for the environment.
1997 Ditz, Darryl and Janet Ranganathan, Measuring Up: Toward a common framework for
tracking corporate environmental performance, World Resources Institute. This report called
for an overhaul of how environmental performance was measured and proposed the adoption
of four categories of environmental performance:
-

materials use;
energy consumption;
nonproduct output, and
pollutant releases that emphasized resource efficiency, pollution prevention, and
product stewardship.

Robert K. Massie and Allen White, through CERES and Tellus Institute, began working to
create what would eventually become the Global Reporting Initiative (GRI). The GRI became
a powerful and globally recognized brand that set the de facto standards for ESG
(environmental, social and governance) reporting. Its mission is to make sustainability
reporting standard practice for all organizations (www.globalreporting.org).
Coleman, Ian, and Robert Eccles, Pursuing Value: Reporting gaps in the United Kingdom,
PW Papers Insights for Decision Makers series, PricewaterhouseCoopers. The survey
identified two information gaps:
-

The first, is a users information gap. Contrary to the assumption held by many
senior executives, analysts and investors have very different information requirements.
Analysts are much more interested in a broad range o financial and non-financial
measures than investors who have a greater interest in a narrower range of
screening measures such as earnings and cash-flow information with obvious
practical implications for the way in which companies tailor their communications
with the City community.
Second is a market information gap. Both analysts and investors believe that
companies could do a better job of providing data on most financial and other
measures. Particular weaknesses are identified in the areas of market share and
market growth information and product development pipelines and expenditures.

Elkington, John, Cannibals with Forks: The Triple Bottom Line of 21st Century Business,
(Capstone Publishing, Oxford, hardback 1997, paperback 1999). This book arguably led the
way for the corporate sustainability revolution that followed. Until then, those companies that
felt they had a societal responsibility saw this predominantly in terms of community
philanthropy and the avoidance of negative environmental impacts. It lacked a clear
framework that could encompass the whole business.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

1998 The 21st Century Annual Report. The Institute of Chartered Accountants in England and
Wales. A committee led by Sir Brian Jenkins argued for the need to focus on what financial
and nonfinancial information should be provided, and how that information should be
furnished, to meet the needs of 21st century capital markets.
Drawing an extensive research into the needs of analysts and investors in 14 countries,
PricewaterhouseCoopers wrote 14 individual white papers (regarding the reporting in
banking, insurance, pharmaceutical companies, retail and consumer goods companies,
chemicals industry, manufacturing, metals, petroleum, real estate, telecommunications,
utilities) and developed a CD-ROM to increase awareness of the need for improved corporate
disclosure.
PricewaterhouseCoopers published The ValueReportingTM Forecast: 2000 a thought
leadership piece examining the scope of corporate communications from content to delivery
mechanisms.
Bob Massie and Allen White partnered with the United Nations Environment Programme
(UNEP) to give their fledgling environmental organization a global reach. A multistakeholder Steering Committee was formed and a series of stakeholder dialogues and
working groups initiated a process that would lead to the formation of GRI. Through this
process of multi-stakeholder engagement, they were advised to do more than the
environment. On this advice they broadened their pioneering framework for environmental
reporting to include social, economic and governance issues such as labor standards,
governance, and anti-corruption policies. From then on, GRI became a sustainability
reporting framework.
1999 Williams, Cindy. The Securities and Exchange Commission and corporate social
transparency, Harvard Law Review 112, no. 6, (April). Professor Cindy Williams defended
the view that the SEC can and should require expanded social disclosures by public
companies to promote corporate social transparency comparable to the financial transparency
that exists.
No Surprises: The case for better risk reporting. The Institute of Chartered Accountants in
England and Wales. A Steering Group advocated for improved reporting of business risk as a
way to ultimately reduce the cost of capital for corporations.
Epstein, Marc J., and Bill Birchard. Counting what counts: Turning corporate accountability
to competitive advantage. Reading, MA: Perseus Books. The authors present a new approach
to managing corporate accountability, as a function of four essential and interlocking drivers:
governance, performance measurement, control systems, and reporting. They identify where
and how companies fail in meeting requirements of these four cornerstones, and then build a
powerful framework for managers at all levels to improve decision making, clarify and
communicate strategy, accelerate feedback and learning, and secure stakeholder loyalty.

Lecture 2
2000s

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

2000 Inside Out: Reporting on shareholder value. The Institute of Chartered Accountants in
England and Wales. This Group emphasized shareholder primacy the belief that investors
needs should be the focus of the annual report. The report asserted that, in its present form,
the annual report included too little strategic and other future oriented information for it to
fulfill its purpose as a source of information for investors.
New Measures for the New Economy. The Institute of Chartered Accountants in England and
Wales. This report made the case for better accounting measures of intangible assets.
After a 1999 exposure draft, the Global Reporting Initiative released its first Sustainability
Reporting guidelines.
2001 Strengthening Financial Markets: Do investors have the information they need? Report
of an SEC-inspired task force (The Garten Report). The report looked into two questions: Do
current company disclosure requirements provide investors with the information they need to
assess company value? What, if anything, should the government, business organizations, and
corporate management do to improve company disclosures? The task force made two
recommendations: (1) to create a new framework for supplemental reporting of intangible
assets and operating performance measures and (2) create an environment that encourages
innovation in disclosures.
Sustainability and Corporate Reputation: Key points from a Centre for Business Performance
roundtable. The Institute of Chartered Accountants in England and Wales. This report argued
that business reporting must demonstrate that there is a link between sustainability and the
creation of shareholder value.
Steering Committee Report (The Kolton Report), Business Reporting Research Project,
Financial Accounting Standards Board. This work included three separate studies: a study of
voluntary disclosures of business information, the electronic distribution of business
information, and redundancies between U.S. GAAP and SEC disclosure requirements.
2002 King Report on Corporate Governance for South Africa 2002 (King II). This report
called for integrated sustainability reporting and recommended, Every company should
report at least annually on the nature and extent of its social, transformation, ethical, safety,
health and environmental management policies and practices. The board must determine
what is relevant for disclosure, having regard to the companys particular circumstances.
No surprises: Working for better risk reporting: A position paper from The Institute of
Chartered Accountants in England & Wales. This report calls on public companies to include
a statement of business risk in their annual reports.
The Global Reporting Initiative released the second version of its sustainability reporting
guidelines.
Communicating the Value of Your Investment Management Business: The investment
management ValueReporting survey results. PricewaterhouseCoopers. Participants in this
PwC survey were asked to determine the relative importance of a set of 30 business drivers in
managing and analyzing an investment management company. The survey results revealed
weaknesses in the markets ability to accurately assess an investment management businesss

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

ability to create value because of a lack of information and/or lack of sharing that
information.
Novozymes published what is generally acknowledged as the first integrated report.
2003 Information for Better Markets: New reporting models for business. The Institute of
Chartered Accountants in England and Wales. The Institute summarized 11 proposals for new
business reporting models and examined the reasons why none had succeeded in gathering
general support.
New reporting models for business
1. The Balanced Scorecard (The Balanced Scorecard: Translating Strategy into Action
(1996; based on a 1992 article) Professor Robert S. Kaplan and David P. Norton)
2. The Jenkins Report (Improving Business Reporting A Customer Focus (1994)
American Institute of Certified Public Accountants)
3. Tomorrows Company (Tomorrows Company: The Role of Business in a Changing
World (1995) Royal Society of Arts and Sooner, Sharper, Simpler: A Lean Vision of
an Inclusive Annual Report (1998) Centre for Tomorrows Company)
4. The 21st Century Annual Report (The 21st Century Annual Report/Prototype plc
(1998) and Performance Reporting in the Digital age (1998) both ICAEW)
5. The Inevitable change (Business Reporting: The Inevitable Change? (1999) ICAS)
6. Inside Out (Inside Out: Reporting on Shareholder Value (1999) ICAEW)
7. Value Dynamic (Cracking the Value Code: How Successful Businesses are Creating
Wealth in the New Economy (2000) Arthur Andersen)
8. GRI (Sustainability Reporting Guidelines (2000; revised 2002) Global Reporting
InitiativeTM)
9. The Brookings Institution (Unseen Wealth: Report of the Brookings Task Force on
Understanding Intangible Sources of Value (2001) and Professor Baruch Levs
Intangibles: Management, Measurement, and Reporting (2001) both Brookings
Institution)
10. ValueReportingTM (The ValueReportingTM Revolution: Moving Beyond the Earnings
Game (2001) and Building Public Trust: The Future of Corporate Reporting (2002)
both PricewaterhouseCoopers)
11. The Hermes Principles (The Hermes Principles: What Shareholders Expect of Public
Companies and What Companies Should Expect of Their Investors (2002) Hermes
Pensions Management Limited)
Quality and Transparency in Business Reporting: A call for action in the public interest. The
AICPA Special Committee on Enhanced Business Reporting published a paper calling for
disclosure of a wide range of nonfinancial information and made the case that this
information should be audited.
2005 Corporate Reporting Frameworks. PricewaterhouseCoopers. The Enhanced Business
Reporting Consortium (US) released the first public version of a reporting framework for
nonfinancial information. The framework was a derivative of the PwC ValueReportingTM
Framework.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Discussion Paper Management Commentary: A paper prepared for the IASB by staff of its
partner standard-setters. The International Accounting Standards Board issued a discussion
paper seeking comments on nine specific questions that would inform the IASB on whether to
develop standards or guidance for management commentary.
Examples of questions:
Question 1: Do you agree that MC should be considered an integral part of financial reports?
If not, why not?
Question 2: Should the development of requirements for MC be a priority for the Board? If
not, why not? If yes, should the IASB develop a standard or non-mandatory guidance or both?
Question 3: Should entities be required to include MC in their financial reports in order to
assert compliance with IFRSs? Please explain why or why not.
2006 Extended Performance Reporting: An overview of techniques. Institute of Chartered
Accountants in Australia. This report aimed to review the major forms of extended
performance reporting. This term covers attempts made to report on the intangible assets of
an organization as well as those that seek to map its effects on the physical and social
environment of an organization. This umbrella term includes corporate social responsibility
accounting, sustainability reporting, environmental reporting, intellectual capital reporting,
etc.
Reporting Statement: Operating and financial review. Accounting Standards Board (UK).
This voluntary standard recommended that a Board prepare an Operating and Financial
Review, which analyzed the business and identified those trends and factors that affected
current performance and were likely to affect future business performance.
Guide to Key Performance Indicators: Communicating the measures that matter.
PricewaterhouseCoopers. This publication illustrated what good KPIs looked like and
presented a collection of good practice examples.
Examples:
Banking
Customer retention
Customer penetration
Asset quality
Capital adequacy
Assets under management
Loan loss

Petroleum
Capital expenditure
Exploration success rate
Refinery utilization

Retail
Capital expenditure
Store portfolio changes
Expected return on new
stores
Customer satisfaction
and Same store/like-for-like sales

Refinery capacity
Volume of proven
probable reserves
Reserve replacement costs

Sales per square foot/metre

Global Capital Markets and the Global Economy: A vision from the CEOs of the
international audit networks. Global Public Policy Committee. This paper was published by
the chairmen of the six largest global audit networks to begin a public discussion about how
global business and financial reporting and public company auditing procedures must adapt
to better serve investors and capital markets around the world.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Intellectual Assets and Value Creation: Implications for corporate reporting. Organization for
Economic Co-operation and Development. The report outlined the rising importance of
intellectual assets and the associated need to properly inform markets.
The GRI published Sustainability Reporting Guidelines Version 3.0, more commonly known
as GRI G3 Guidelines.
2007 Corporate Reporting A Time for Reflection: A survey of the Fortune Global 500
companies narrative reporting. PricewaterhouseCoopers. The objective was to discover what
information those companies released to the public in their primary communications in
narrative form. The surveys findings were simple. Companies provided what some called
contextual and non-financial information about their performance and prospects, however,
top reporters provided a great deal more than average ones. From the investor communitys
perspective, there was plenty of room for improvement. From the companys perspective,
enriching their narrative presentations and accompanying metrics offers the opportunity to
provide a view through the eyes of management that investors would highly value.
CERES Investor Network for Climate, Petition for Interpretive Guidance on Climate Risk
Disclosure and letter to John W. White, Director Division of Corporation Finance, Securities
and Exchange Commission. CERES filed a petition with the SEC asking that it issue
interpretive guidance clarifying a public companys obligation under existing regulations to
disclose material information concerning the effect of climate change and regulation of
greenhouse gas emissions on their financial condition and business operations. In addition,
the separate letter asked the Division of Corporation Finance to devote particular attention to
the adequacy, under existing regulations, of disclosures concerning climate risk.
The Enhanced Business Reporting Consortium, European Federation of Financial Analysts
Societies, Ministry of Economy, Trade, and Industry (Japan), Organization for Economic
Development, University of Ferrara (Italy), and Waseda University (Japan) agreed to form the
World Intellectual Capital Initiative (WICI) in a meeting at the Japan Patent Office in Tokyo.
The Princes Accounting for Sustainability Project published The Connected Reporting
Framework, which identified ten elements required to embed sustainability successfully in an
organization:
1.
2.
3.
4.

Board and senior management commitment

Understanding and analyzing the key sustainability drivers for the organization
Integrating the key sustainability drivers into the organizations strategy
Ensuring that sustainability is the responsibility of everyone in the organization (and
not just of a specific department)
5. Breaking down sustainability targets and objectives for the organization as a whole
into targets and objectives that are meaningful for individual subsidiaries, divisions
and departments
6. Processes that enable sustainability issues to be taken into account clearly and
consistently in day-to-day decision-making
7. Extensive and effective sustainability training
8. Including sustainability targets and objectives in performance appraisal
9. Champions within the organization to promote sustainability and celebrate success
10. Monitoring and reporting sustainability performance.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

2008 Recasting the Reporting Model: How to simplify and enhance communications.
PricewaterhouseCoopers. This discussion paper highlighted opportunities and issues that all
interested parties needed to debate in establishing the parameters of a new corporate reporting
model. For example, reporting of risks has come under the microscope as a result of the
financial crisis. It varies widely between companies some of the top 500 companies in the
world do not report on risk at all, while others report in excess of 40 risks. Feedback from
investors has shown that in either case, without clear reporting of those risks that are keys to
the business and the steps being taken to mitigate and manage them, it is harder to identify
any potential impact on companies performance and sustainability.
The financial crisis has highlighted, for example, the importance of explaining the dynamics
of the business model and the market context in which it operates. While 70% of companies
in the Global 500 devote more than 60% of their reports to narrative information, we should
be questioning how much value this provides and whether the effort could be redirected to
deliver better insight into a company and its performance.
The paper also identified a number of market-driven initiatives that already existed and were
working towards solutions in particular areas of measurement and reporting. These include
the Connected Reporting Framework developed by the Prince of Wales as part of his
Accounting for Sustainability project. The World Intellectual Capital Initiative has also
developed a high-level corporate reporting framework and is using a Wikipedia-style internet
platform to facilitate collaboration across interested market organizations.
Final report of the Advisory Committee on Improvements to Financial Reporting to the
United States Securities and Exchange Commission. The chartered Advisory Committee on
Improvements to Financial Reporting examined the U.S. financial reporting system in order to
make recommendations intended to increase the usefulness of financial information to
investors while reducing the complexity of the financial reporting system to investors,
preparers, and auditors. Recommendations focused on:
(1) increasing the usefulness of information in SEC reports
(2) enhancing the accounting standards-setting process
(3) improving the substantive design of new accounting standards
(4) delineating authoritative interpretive guidance, and
(5) clarifying guidance on financial restatements and accounting judgments.
WICI released a framework and taxonomy for nonfinancial information.
XBRL (eXtensible Business Reporting Language) = a freely available, open, and global
standard for exchanging business information.
Broad Based Business Reporting. The Institute of Chartered Accountants in Australia. This
Institute of Chartered Accountants in Australia report introduced the term broad based
business reporting, which had similarity to the usage of integrated reporting.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Broad Based Business Reporting (BBBR) is an enhanced reporting mechanism increasingly

used by business to better meet the information needs of their key stakeholders. BBBR is
focused on providing stakeholders with a much greater understanding of business
performance.
The paper contains a pro-forma reporting of KPIs as it follows: AS PRESENTED IN BBBR
PAGE 13

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

KPMG International Survey of Corporate Responsibility Reporting 2008. KPMG

International. The purpose of this survey was to track reporting trends in the worlds largest

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

companies. The sample of over 2,200 companies included the Global Fortune 250 and the 100
largest companies by revenue in 22 countries, Romania as well.
See survey, page 94 for Romania.
Count Me In: The readers take on sustainability reporting. KPMG International and
SustainAbility Ltd. This report presented the findings and analysis from the first GRI
Readers Choice survey of readers of sustainability reports. The Readers Choice survey
looked for the first time at the readers, their preferences and behavior. Nearly 2,300 readers
and non-readers from around the world answered the survey questions, with analysis and
results also presented.
The key messages of the respondents of this survey were:
Readers have similar expectations
Across user groups and geography, and
between current readers and non-readers,
there is virtual unanimity about what makes a
good sustainability report.
Failures felt to be missing
Readers of all sorts believe reporters are most
likely to omit failures from their
sustainability reports.
A stronger role for stakeholders
The respondents want reporters to address
stakeholders needs in the reporting process
and management; and to see stakeholders
views included in the sustainability report.
Integrating sustainability in core business Readers are calling for reporters to explain
processes
the connection between the sustainability
strategy and the core business strategy.
Reputation and trust
A sustainability report has a positive impact
on a reporters reputation; however readers
want to be confident of a reporters
commitment to sustainability.
Ensuring credibility
A
balanced
tone,
involvement
of
stakeholders, reporting standards and
assurance contribute to ensuring credibility.
Improving communication about the value of Reporters are asked to demonstrate the
sustainability for business performance
benefits of addressing sustain-ability issues
for business performance and to explain how
innovative thinking is used to solve
tomorrows challenges.
Addressing the needs of non-readers
Non-readers complain of not having the time
to navigate lengthy reports or websites; and
of lacking understanding of the value of
sustainability reporting for their needs.
2009 Toward Greater Transparency: Modernizing the Securities and Exchange
Commissions Disclosure System. 21st Century Disclosure Initiative: Staff Report. This report
considered how the SEC could transition its disclosure system from the paper-based approach
born of 1930s technology to an interactive data based approach using 21st century technology.
To achieve this goal, the Commission has to focus on four guiding principles:

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Disclosure information and other data should be submitted and stored in an interactive
format;
The Commission should consider establishing a data warehouse, with a principlesbased framework for managing data;
The Commission should consider providing for multiple submission methods for
disclosures;
The Commission should consider providing for multiple dissemination methods for
disclosures.

INCR Supplemental petition to SEC. Forty-one treasurers, controllers, institutional investors,

and asset managers representing approximately $1.4 trillion in assets sent a letter to the SEC
asking that steps be taken to improve disclosure of climate change-related risks, and material
environmental, social and governance risks, in securities filings.
Exposure Draft Management Commentary. International Accounting Standards Board. The
Board revised its management commentary project with a proposal for voluntary
presentation. The stated goal was to provide a basis for the development of good
management commentary. The proposal offered a MC framework that could be adapted for
different national jurisdictions and economic circumstances.
South Africas King III Code on Governance was released and recommended that companies
prepare and publish integrated reports.

2010s
2010 Integrated Reporting: Closing the loop of strategy. KPMG Sustainability, Netherlands.
This publication was primarily aimed at key decision makers board members, CSR
managers, and communication managers. KPMGs objective was to provide these
constituencies with key considerations on how to decide about further integrating corporate
reporting.
Integrated Reporting: What does your reporting say about you? PricewaterhouseCoopers.
PwC argued that managements ability to align and integrate the information used in the
business from the top to the bottom, from external reporting to board and management
reporting, helped create the environment where stakeholders can say with confidence, I
understand this business.
The Johannesburg Stock Exchange amended its listing requirements to make the filing of
integrated reports mandatory. The Integrated Reporting Committee (IRC) was formed.
The Princes Accounting for Sustainability Project and the Global Reporting Initiative jointly
announced the formation of the International Integrated Reporting Committee (Council).
In December 2010 IASB published Management Commentary: A framework for presentation.
2011 The Integrated Reporting Council released its first Discussion Paper Framework for
Integrated Reporting and the Integrated Report.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

IFAC published IFAC Sustainability Framework 2.0.

International Survey of Corporate Responsibility Reporting 2011, KPMG. This report is
presented as the largest and most comprehensive survey of CR reporting trends ever
published. Thirty-four hundred companies representing the national leaders from 34 countries
around the world, including the largest 250 global companies based on the Fortune Global
500 ranking were included in the research. The highlights regarding the integrated reporting
are the following:
-

Twenty-seven percent of G250 and 20 percent of N100 companies include some form
of CR reporting in their annual report; 18 percent of G250 and 11 percent of N100
companies include a chapter addressing CR issues, but without the quality and
measurable data of a report.
Currently, 62 percent of the G250 that combine CR and financial reporting segregate
condensed CR information into a special-purpose section of the annual report.

The value of extra-financial disclosure. What investors and analysts said. The Princes
Accounting for Sustainability Project. This research is based on a survey which explores how
34 investors and 35 analysts source, use and are influenced by extra-financial information
often also referred to as non-financial information. Over 80% of the research sample believe
that extra-financial information is very relevant or relevant to their investment decisionmaking or analysis. Investors and analysts appear to have clear preferences for where they
source financial and extra-financial information typically showing a preference for sources
which are more comprehensive. There is a preference for linear digital formats with 59% of
investors and analysts stating that the on-screen PDF is their preferred format. Nearly half
(46%) of investors and analysts state that direct engagement with the CEO or CFO is very
likely to influence their investment decisions or company analysis. Over 80% of investors and
analysts believe that integrated reporting will deliver benefits to their analysis and company
assessments. Voluntary frameworks for reporting extra-financial information play an
important role in informing investor decisions and company analysis. 61% of the investors
and analysts find social information difficult to compare. Assurance is important but
investors and analysts do not rely much on the content of the limited assurance statement with
less than 20% of investors and analysts stating they are significantly affected by these.
2012 In July 2012 IIRC released the Draft Outline of the Integrated Reporting Framework.
Corporate reporting. From compliance to competitive edge, PricewaterhouseCoopers. The
analysts reviewed for the survey 298 reports for periods ended between 1 April 2010 and 31
March 2011 100 in the FTSE 100 and 198 in the FTSE 250. Each report was examined
against more than 80 data points related to the PricewaterhouseCoopers integrated reporting
model. The review shows a general trend of improvement in quality and effectiveness, but
this improvement is not universal. The overall reporting effectiveness measure shows that
some companies in both the FTSE 100 and 250 achieve very high standards for reporting. The
best reporters in the FTSE 250 are as good as those in the FTSE 100. But no single company
in either group achieved the highest quality across all areas of its narrative report.
2013

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

IIRC released its Consultation Draft of the International <IR> Framework. Although, it
prepared a report analyzing the progress of the companies included in the IIRC pilot
programme and background papers analyzing a part of the concepts and the guiding principles
included in the report.
IIRC signed a memorandum of understanding with IASB to support each others work.
GRI released the fourth generation of guidelines.

Conclusions:
When did the integrated reporting concept start to occur?
Which are the most important bodies involved in the integrated reporting?
When was the IIRC formed?
What does an integrated report include?
When was the first GRI guideline released?

Example: presentation in the financial statements

Carpart
Carpart, a public limited company, is a vehicle part manufacturer, and sells vehicles
purchased from the manufacturer. Carpart has entered into a supply arrangement for the
supply of car seats to two local companies, Vehiclex and Autoseat.
(i)

Vehiclex

This contract will last for five years and Carpart will manufacture seats to a certain
specification which will require the construction of machinery for the purpose. The price of
each car seat has been agreed so that it includes an amount to cover the cost of constructing
the machinery but there is no commitment to a minimum order of seats to guarantee the
recovery of the costs of constructing the machinery. Carpart retains the ownership of the
machinery and wishes to recognize part of the revenue from the contract in its current
financial statements to cover the cost of the machinery which will be constructed over the
next year.
(ii)

Autoseat

Autoseat is purchasing car seats from Carpart. The contract is to last for three years and
Carpart is to design, develop and manufacture the car seats. Carpart will construct machinery
for this purpose but the machinery is so specific that it cannot be used on other contracts.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Carpart maintains the machinery but the know-how has been granted royalty free to Autoseat.
The price of each car seat includes a fixed price to cover the cost of the machinery. If
Autoseat decides not to purchase a minimum number of seats to cover the cost of the
machinery, then Autoseat has to repay Carpart for the cost of the machinery including any
interest incurred.
Autoseat can purchase the machinery at any time in order to safeguard against the cessation of
production by Carpart. The purchase price would be the cost of the machinery not yet
recovered by Carpart. The machinery has a life of three years and the seats are only sold to
Autoseat who sets the levels of production for a period. Autoseat can perform a pre-delivery
inspection on each seat and can reject defective seats.
(iii)

Vehicle sales

Carpart sells vehicles on a contract for their market price (approximately 20,000 mu each) at a
mark-up of 25% on cost. The expected life of each vehicle is five years. After four years, the
car is repurchased by Carpart at 20% of its original selling price. This price is expected to be
significantly less than its fair value. The car must be maintained and serviced by the customer
in accordance with certain guidelines and must be in good condition if Carpart is to
repurchase the vehicle.
The same vehicles are also sold with an option that can be exercised by the buyer two years
after sale. Under this option, the customer has the right to ask Carpart to repurchase the
vehicle for 70% of its original purchase price. It is thought that the buyers will exercise the
option. At the end of two years, the fair value of the vehicle is expected to be 55% of the
original purchase price. If the option is not exercised, then the buyer keeps the vehicle.
Carpart also uses some of its vehicles for demonstration purposes. These vehicles are
normally used for this purpose for an eighteen-month period. After this period, the vehicles
are sold at a reduced price based upon their condition and mileage.
Required:
Discuss how the above transactions would be accounted for under International Financial
Reporting Standards in the financial statements of Carpart.
Solution:

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Lecture 3
Chapter 2
THE INTERNATIONAL <IR> FRAMEWORK
Introduction
Fundamental concepts
-

The capitals
Value creation

Guiding principles
-

Strategic focus and future orientation

Connectivity of information
Stakeholder relationships
Materiality
Conciseness
Reliability and completeness
Consistency and comparability

Content elements
-

Organizational overview and external environment

Governance
Business model
Risks and opportunities
Strategy and resource allocation
Performance
Outlook
Basis of preparation and presentation
General reporting guidance

INTRODUCTION
Definition: <IR> is a process that results in communication by an organization, most visibly a
periodic integrated report, about value creation over time.
An integrated report is a concise communication about how an organizations strategy,
governance, performance and prospects, in the context of its external environment, lead to the
creation of value over the short, medium and long term.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

The primary purpose of an integrated report is to explain to providers of financial capital how
an organization creates value over time. Other stakeholders might be: employees, customers,
suppliers, business partners, local communities, legislators, regulators, and policy-makers.
The requirements of the Framework are principles-based.
<IR> is guided by the Framework and by integrated thinking. Integrated thinking is the active
consideration by an organization of the relationships between its various operating and
functional units and the capitals that the organization uses and affects. Integrated thinking
leads to integrated decision-making and actions that consider the creation of value over the
short, medium and long term. It takes into account the connectivity and interdependencies
between the range of factors that affect on an organizations ability to create value over time.

How is Integrated Reporting Different?

Thinking

Isolated >> Integrated

Because traditional reporting occurs in silos, it encourages thinking in silos. Integrated

Reporting, on the other hand, reflects, and supports, integrated thinking-monitoring, managing
and communicating the full complexity of the value creation process and how this contributes
to success over time. Integrated Reporting demonstrates the extent to which integrated
thinking is occurring within organization.

Stewardship

Financial capital >> All forms of capital

An Integrated Report displays an organizations stewardship not only of financial capital, but
also of the other capitals (manufactured, human, intellectual, natural and social), their
interdependence and how they contribute to success. This broader perspective requires
consideration of resource usage and risks and opportunities along the organizations full value
chain.

Focus
strategic

Past, financial >> Past and future, connected,

Annual reporting at present is largely focused on past financial performance and financial
risks. Other reports and communications may cover other resources and relationships, but
they are seldom presented in a connected way, or linked to the organizations strategic
objectives and its ability to create and sustain value in the future.

Timeframe

Short term >> Short, medium and long term

Much of the media and regulatory attention in response to the global financial crisis has
focused on short-termism as one contributory factor. Although short-term considerations
are important in many ways, placing them in context is also essential. Integrated Reporting
specifically factors in short-medium-and long-term considerations.

Trust

Narrow disclosures >> Greater transparency

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Financial reporting focuses primarily on a narrow series of mandated disclosures. Although an

increasing number of organizations are improving their transparency, for example, through
voluntary sustainability reporting, in absolute terms that number is still low. By emphasizing
transparency, for example, covering a broader range of issues and disclosing the positive with
the negative, Integrated Reporting helps to build trust.

Adoptive

Rule bound >> Responsive to individual circumstances

Todays reporting is often said to be too compliance orientated, reducing the scope for
organizations to exercise an appropriate amount of judgment. While a certain level of
compliance orientation is necessary to ensure consistency and enable comparison, Integrated
Reporting offers a principles-based approach that drives greater focus on factors that are
material to particular sectors and organizations. It permits an organization to disclosure its
unique situation in clear and understandable language.

Concise

Long and complex >> Concise and material

Long and complex reports are often impenetrable for many readers. A key objective for
Integrated Reporting is to de-clutter the primary so that it covers, concisely, only the most
material information.

Technology enabled

Paper based >> Technology enabled

While the internet and XBRL are introducing elements of technological innovation, many
corporate reports are still presented as if they were entirely paper based. Integrated Reporting
takes advantage of new and emerging technologies to link information within the primary
report and to facilitate access to further detail online where that is appropriate.

FUNDAMENTAL CONCEPTS
Value creation for the organization and for others
Value created by an organization over time manifests itself in increases, decreases or
transformations of the capitals caused by the organizations business activities and outputs.
The ability of an organization to create value for itself is linked to the value it creates for
others.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

When these interactions, activities, and relationships are material to the organizations ability
to create value for itself, they are included in the integrated report. This includes taking
account of the extent to which effects on the capitals have been externalized (i.e., the costs or
other effects on capitals that are not owned by the organization).
Because value is created over different time horizons and for different stakeholders through
different capitals, it is unlikely to be created through the maximization of one capital while
disregarding the others. For example, the maximization of financial capital (e.g., profit) at the
expense of human capital (e.g., through inappropriate human resource policies and practices)
is unlikely to maximize value for the organization in the longer term.
The capitals
The capitals are stocks of value that are increased, decreased or transformed through the
activities and outputs of the organization.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Financial capitals: The pool of funds that is:

Available to the organization for use in the production of goods or the provision of
services; and

Obtained through financing, such as debt, equity or grants, or generated through

operations or investments.

Manufactured capital: Manufactured physical objects (as distinct from natural physical
objects) that are available to the organization for use in the production of goods or the
provision of services, including:

Buildings,

Equipment; and

Infrastructure (such as roads, ports, bridges and waste and water treatment plants).

Intellectual capital: organizational, knowledge-based intangibles, including:

Intellectual property, such as patents, copyrights, software, rights and licences

Organizational capital such as tacit knowledge, systems, procedures and protocols.

Human capital: Peoples competencies, capabilities and experience, and their motivations to
innovate, including their:

Alignment with and support for an organizations governance framework, risk

management approach, and ethical values

Ability to understand, develop and implement an organizations strategy

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Loyalties and motivations for improving processes, goods and services, including their
ability to lead, manage and collaborate.

Social and relationship capital: The institutions and the relationships established within and
between communities, groups of stakeholders and other networks, and the ability to share
information to enhance individual and collective well-being. Social and relationship capital
includes:

Shared norms and common values and behaviours;

Key stakeholder relationships, and the trust and willingness to engage that an
organization has developed and strives to build and protect with external stakeholders

Intangibles associated with the brand and reputation that an organization has
developed

An organizations social licence to operate.

Natural capital: All renewable and non-renewable environmental resources and processes that
provide goods or services that support the past, current or future prosperity of an organization.
It includes:

Air, water, land, minerals and forests

Biodiversity and eco-system health.

Current reporting practice

While reporting practice with respect to some capitals is quite mature, it is less developed
with respect to others, as is, significantly, practice when it comes to reporting on the
interrelationships between various capitals (or components of various capitals). Reporting on
these relationships is of particular importance to <IR> and is in line with the Guiding
Principle Connectivity of information.
Organizations are starting to integrate consideration of the capitals, for example:

The 2011 Indra Annual Report focuses on the added value of both financial and nonfinancial capitals. The company provides a diagrammatic overview of the
interrelationships between the different capitals, which is unique amongst the reports
analysed.

The 2012 Strate Annual Report discloses a value added statement that contains the
wealth created and the wealth distribution categorized by personnel expenditure
(human), finance costs (financial) and government (social and relationship). Based
upon this statement, the value-added ratios, revenue per employee, and wealth created
per employee are disclosed.

The 2012 Transnet Integrated Report uses an interesting model of economic, social,
and environmental dividends the company delivered. Symbols are used throughout the
report to focus on strategic areas and dividends, which are often paired, implying that

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

the dividends result from the strategic focus areas. As such, Transnet implicitly shows
the capital model, explaining how the company adds value through the capitals.
Examples of some of the KPIs observed in the review of Pilot Programme participants are
included in the following table:
Capital
Natural

Metric
CO2 emissions
Energy consumption per energy source
Amount of waste
Environmental accidents
Recycled waste
Environmental protection investments

Human

Animals purchased for trials

Number of employees
Diversity
Total investment in training
Employees in corporate e-learning
Average age
Average training days per employee
Employee survey results
Injuries per million working hours
Rate of absenteeism
Severance rate

Social
relationship

Minimum wage ratio

and Great place to work ranking
Number of volunteers
Claims/lawsuits
Involvement in social actions

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Involvement in cultural projects

Customer satisfaction index
Provision for social projects

Intellectual

Social investment (money spent on philanthropy)

Number of patent application filed
Money spend on R&D
Number of tests with new technology
Brand awareness
Others might include:
-

Number of new products developed

Expenditure on organizational change/process development
Expenditure on software development for internal systems
Sales generated by R&D-derived products

Example: M&S reports on capitals

M&S has appraised how capitals are communicated to investors in its 2012 Annual Report.
Financial capital: A fi nancial review and the fi nancial statements detail the cash fl ow, net
debt and borrowings position of the Group and how it manages fi nancial risk.
Manufactured capital: The report documents the Groups capital investment in stores, multichannel, supply chain and technology to support future business growth, and Return on
Capital Employed is now an externally reported KPI.
Human capital: The strategic review includes details of the management committee, as well
as a section about the Groups employees, its people plan, learning and development and
employee engagement.
Intellectual capital: The core M&S brand is a key non-fi nancial capital of the organisation,
as are the subbrands. The Group recognises two brands in its fi nancials Per Una and M&S
Mode. The section of the Annual Report that focuses on brand ensures that investors know
how the company invests in campaigns to reassure customers that the company is meeting
their needs and encouraging potential new shoppers to take a fresh look at M&S.
Natural capital: Progress against Plan A is reported in every narrative section of the Report.
A section specifically on Plan A provides more detail about how M&S has worked with its
customers and suppliers in relation to climate change, waste reduction, and natural resources,
and being a fair partner.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Social capital: The founding values and how M&S creates value for its shareholders through
its relationship with customers, its employees and suppliers are communicated in the How
M&S creates value for its shareholders section of the Report. The M&S reputation is based
on these brand values.
The value creation process

Some parts of the value creation process are detailed below:

The external environment, including economic conditions, technological change, societal
issues and environmental challenges, sets the context within which the organization operates.
The mission and vision encompass the whole organization, identifying its purpose and
intention in clear, concise terms.
Those charged with governance are responsible for creating an appropriate oversight structure
to support the ability of the organization to create value.
At the core of the organization is its business model, which draws on various capitals as
inputs and, through its business activities, converts them to outputs (products, services, byproducts and waste). The organizations activities and its outputs lead to outcomes in terms of
effects on the capitals. The capacity of the business model to adapt to changes (e.g., in the
availability, quality and affordability of inputs) can affect the organizations longer term
viability.
Continuous monitoring and analysis of the external environment in the context of the
organizations mission and vision identifies risks and opportunities relevant to the
organization, its strategy and its business model.

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

The organizations strategy identifies how it intends to mitigate or manage risks and
maximize opportunities. It sets out strategic objectives and strategies to achieve them, which
are implemented through resource allocation plans.
The organization needs information about its performance, which involves setting up
measurement and monitoring systems to provide information for decision-making. The value
creation process is not static; regular review of each component and its interactions with other
components, and a focus on the organizations outlook, lead to revision and refinement to
improve all the components.
Example: TATA Steel

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

INTEGRATED REPORTING

ASSISTANT PROFESSOR MADALINA DUMITRU

Example lecture 3
(a) Explain why companies may wish to make social and environmental disclosures in their
annual report. Discuss how this content should be determined.
(b) Company B owns a chemical plant, producing paint. The plant uses a great deal of energy
and releases emissions into the environment. Its by-product is harmful and is treated before
being safely disposed of. The company has been fined for damaging the environment
following a spillage of the toxic waste product. Due to stricter monitoring routines set up by
the company, the fines have reduced and in the current year they have not been in breach of
any local environment laws.
The company is aware that emissions are high and has been steadily reducing them. They
purchase electricity from renewable sources and in the current year have employed a
temporary consultant to calculate their carbon footprint so they can take steps to reduce it.
Discuss the information that could be included in Company Bs environmental report.
Answer