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Integrated Reporting FAQs
Integrated Reporting FAQs
Integrated Reporting FAQs
Value creation
What does ‘value’ mean in the context of integrated reporting?
How does an organization determine whether it’s creating, maintaining or eroding value?
Does the International <IR> Framework require that value creation be quantified?
Materiality
How and why do materiality definitions differ across report forms?
Is there common ground between materiality definitions across report forms?
Can materiality approaches used in other report forms support the preparation of an integrated report?
To what extent should the materiality determination process in integrated reporting align with normal operations?
Is it necessary to consult stakeholders specifically for the preparation of the integrated report?
How is the time frame for materiality decisions determined?
How are the time horizons for short, medium and long term disclosures established?
Does an integrated report need to list which matters are material?
Is it necessary to include a materiality matrix in the integrated report?
Is an organization required to disclose its materiality determination process in the integrated report?
The capitals
What are ‘the capitals’?
Why does the International <IR> Framework refer to resources and relationships as ‘capitals’?
Must an integrated report adopt the capitals categories and terminology used in the International <IR> Framework?
Is it necessary to structure an integrated report along the lines of the capitals?
Are the six categories of capitals material to all organizations?
How does integrated reporting’s capitals-based approach align with a traditional stakeholder analysis?
Intellectual capital, human capital, and social and relationship capital all relate to people. How do they differ?
Is social and relationship capital the same as the social aspect of sustainability or CSR reporting?
To what extent should an integrated report discuss capitals that are not owned by the organization?
Is it necessary to quantify or monetize each form of capital for disclosure purposes?
To what extent should capitals be discussed separately in the integrated report?
Do the trade-offs between capitals represent a zero-sum game?
If a report does not fully adhere to the International <IR> Framework, can it still be called an integrated report? ▼
We discourage use of the label ‘integrated report’ on reports that have not been prepared in accordance with the International
<IR> Framework, as such reports can send a confusing and misleading signal to the market about what integrated reporting
really is. Paragraph 1.17 of the <IR> Framework sets the conditions for any communication claiming to be an integrated report
and referencing the <IR> Framework. More specifically, such reports should apply all requirements shown in bold italic type
(summarized on pages 34–35 of the <IR> Framework), unless specific conditions preclude their application.
That said, many organizations are legitimately on the path to integrated reporting and have published reports that largely adhere
to the <IR> Framework, recognizing there may be areas for improvement (e.g., the report may not yet be as concise as intended).
We see no harm in such reports being labelled ‘integrated reports’, so long as the reports communicate an intent to continuously
evolve future reports to achieve full adherence to the <IR> Framework.
Why does the International <IR> Framework not require standardized indicators? ▼
The <IR> Framework acknowledges the uniqueness of individual entities and so strikes an important balance between flexibility
and prescription. Its principles-based approach encourages organizations to communicate their unique value creation story,
while at the same time enabling a sufficient degree of comparability across organizations. The <IR> Framework promotes a
convergence in approach in the sense that all report preparers should provide core business information, as formalized in
required Content Elements. Core disclosures include information about the business model, strategy and resource allocation,
performance and governance. In providing such information, the <IR> Framework encourages both qualitative and quantitative
disclosures, as each provides context for the other. Where measurement is appropriate, the IIRC endorses the use of generally
accepted measurements methods to the extent they are appropriate to the organization’s circumstances and consistent with the
indicators used internally by those charged with governance.
Is the goal of integrated reporting to replace International Financial Reporting Standards (IFRS)? ▼
No. In early 2013, the International Integrated Reporting Council and the International Accounting Standards Board formed an
agreement that would see the two organizations deepen their cooperation on the IIRC’s work. The Memorandum of
Understanding demonstrates a common interest in improving the quality and consistency of global corporate reporting to deliver
value to investors and the wider economy. A renewed Memorandum of Understanding with the IFRS Foundation in 2014
underscored the complementarity of their organizations’ respective roles, on the basis that financial reporting is a key pillar on
which integrated reporting is based.
Audience Providers of financial capital and others interested Current and prospective investors, lenders and other
in the organization’s ability to create value creditors
Depending on the jurisdiction, there is potential to apply integrated reporting to existing regulatory arrangements for narrative
reporting. This can be achieved by ensuring that the key concepts and principles of integrated reporting are incorporated into the
reporting requirements for the narrative report.
How does integrated reporting’s concept of financial capital relate to that found in traditional financial reporting? ▼
The <IR> Framework describes financial capital as the pool of funds available to an organization for use in the production of
goods or the provision of services. It includes funds obtained through financing, such as debt, equity or grants, or generated
through operations or investments. In a sense, this could be equated to the credit side of the balance sheet in terms of
traditional financial reporting (i.e., it is the source of money, rather than its application when it is used to purchase other forms of
capital). This is not to imply that all other forms of capital are or can be purchased with money, or even measured in monetary
terms. Rather, it recognizes that the value of financial capital lies in its use as a medium of exchange, and that value is realized
when it is converted to other forms of capital.
As with other forms of capital, the Framework does not prescribe specific measurement methods or the disclosure of individual
matters with respect to financial capital; however, it does expect that when information in an integrated report is similar to, or
based on other information published by the organization (such as IFRS financial reports), it is prepared on the same basis as, or
is easily reconcilable with, that other information.
The main differences between the two report forms, in terms of purpose, audience and scope are as summarized below.
Scope • Organizational overview and external environment Significant impacts in the following performance
• Governance areas:
• Business model • Economic
• Risks and opportunities • Environmental
• Strategy and resource allocation • Social, including labour practices, human rights
• Performance and broader societal influences
• Outlook • Governance
• Basis of preparation and presentation
Other reporting frameworks use different materiality approaches. Can these approaches be reconciled? ▼
The concept of materiality is context specific. So, as well as varying from one organization to the next, information that is material
for inclusion in a report will vary according to the purpose of that report. In the case of an integrated report, the primary purpose
is to explain to providers of financial capital how an organization creates value over time. This is different from other types of
reports, e.g., the primary purpose of a sustainability report is to explain to a range of stakeholders an organization’s economic,
environmental and social impact, and the primary purpose of a financial report is to explain to investors an organization’s
financial position and financial performance. Clearly, the information that is material to each of these purposes will differ, so
too, therefore, does the definition of materiality. For more information, see the FAQs on materiality.
The Corporate Reporting Dialogue’s participants are CDP, the Climate Disclosure Standards Board, the Financial Accounting
Standards Board (observer status), GRI, the International Accounting Standards Board, the International Integrated Reporting
Council, the International Organization for Standardization and the Sustainability Accounting Standards Board.
Value creation
How does an organization determine whether it’s creating, maintaining or eroding value? ▼
To evaluate how successfully the organization delivers value, it should consider the effects of its outputs and activities on each
class of capital. We call these effects ‘business model outcomes’ and, when taken in aggregate, they point to a net positive
(value is created), net negative (value is eroded) or neutral position (value is preserved).
Of course, this analysis isn’t an exact science. Some outcomes are immeasurable, so there is necessarily subjectivity and
uncertainty involved. Organizations might also have an imperfect knowledge of the interdependencies and trade-offs between
the capitals, or an incomplete understanding of the perspectives of outside parties. Finally, in prioritizing one set of interests
over another set of interests, organizations necessarily apply judgement. Despite these limitations, the <IR> Framework
provides a robust approach for identifying and communicating how value is created, beyond the financial bottom line.
Materiality
Can materiality approaches used in other report forms support the preparation of an integrated report? ▼
Some, but certainly not all, information identified as material for other report forms will also be material for the integrated report.
Therefore, as noted on page 10 of the publication Materiality in integrated reporting, issued jointly by the IIRC and the
International Federation of Accountants, organizations can improve the efficiency of their reporting process by identifying where
existing report strands are mutually supportive. For instance, integrated reports typically include a summary of financial
performance, as reflected in the financial report. They also include any ‘sustainability’ matters (such as raw material shortages or
climate-related risks) that significantly affect the organization’s ability to create value, particularly if those matters affect the
continued availability, quality or affordability of key capitals. Ideally, any such matters will connect to explanations and metrics
that are consistent with financial, sustainability or other reports.
To what extent should the materiality determination process in integrated reporting align with normal operations? ▼
The process for determining the content of the integrated report should be consistent with, and ideally embedded in, existing
value creation processes (e.g., strategic development, business planning, risk management, governance, stakeholder
engagement, business model refinement). The reasoning is simple: an integrated report explains how the organization creates
value; so, if the integrated report reflects what the organization does – and what it does to create value – then there should be
no difference between ‘how to determine which matters to report’ on the one hand, and ‘how to create value’ on the other.
The guidance publication Materiality in integrated reporting, issued jointly by the International Integrated Reporting Council and
the International Federation of Accountants, notes that matters relevant to value creation are typically discussed at board
meetings. Such matters are often addressed in relation to elements of the organization’s value creation process and are likely
connected to strategic themes, performance objectives and risk management. The publication warns that the process of
understanding relevant matters is dynamic, so the current board agenda may not offer a full picture of all relevant matters (p. 16).
Is it necessary to consult stakeholders specifically for the preparation of the integrated report? ▼
The short answer is ‘no’. The longer answer includes a subtle, but important, distinction: The purpose of the Guiding Principle on
stakeholder relationships is not to cater the report’s content to the information needs of all stakeholders. Rather, it’s to
understand the needs and interests of key stakeholders – as critical drivers of value – and to communicate this understanding.
Some might choose to carry out a dedicated consultation to inform this aspect of the materiality determination process;
however, this approach is unnecessary for those who already engage with stakeholders during the normal course of business.
Some, for instance, regularly interact with customers and suppliers as part of quality control measures or to inform stakeholder
satisfaction scores. Others engage with a broad stakeholder base to perform risk assessments or develop strategic plans.
External consultation might also be done for a specific purpose, such as community engagement to inform plans for a factory
extension. The more integrated thinking is embedded in the organization, the more likely key stakeholders’ legitimate needs and
interests are reflected in normal business activities.
Where a stand-alone stakeholder consultation exercise does occur as part of the materiality determination process, its findings
should be considered with those surfaced through other engagement mechanisms. The stand-alone exercise should not
disproportionately affect the content of the integrated report.
How are the time horizons for short, medium and long term disclosures established? ▼
By addressing the International <IR> Framework’s eight Content Elements, the integrated report naturally covers past, present
and future time dimensions. With respect to future-oriented disclosures, the <IR> Framework encourages report preparers to
consider short, medium and long term time horizons. Given the nature of the issues addressed in integrated reporting,
organizations are likely to consider more extended time scales than they would in traditional annual reports.
There is no set answer for establishing the length of each term. And, in fact, the length of the future dimension may vary by
sector. Whereas one sector might define the short, medium and long term as one year, two to five years and beyond five years,
respectively, another might allocate these time frames over several decades. On this basis, it is important that an organization
define its own time horizons based on the pace and scale of key activities and program cycles. It is also useful to explicitly
communicate the time horizons used for short, medium and long term in the integrated report. Notably, disclosures about the
long term are likely to be more qualitative in nature, as their underlying information tends to be less certain.
* As noted on page 3 of the Statement of Common Principles of Materiality of the Corporate Reporting Dialogue, an organization may
include some immaterial information in a report.
Is an organization required to disclose its materiality determination process in the integrated report? ▼
Yes, the International <IR> Framework requires an integrated report to answer the question, “How does the organization
determine what matters to include in the integrated report?” The guidance accompanying this requirement confirms an
expectation that the materiality determination process is to be summarized in the integrated report. This summary enhances the
report’s credibility by indicating, in particular, how embedded the process is in the organization’s normal course of business,
including the role of those charged with governance. The summary is intended to be brief and, if necessary, linked to more
detailed information elsewhere (e.g., on a website or in an appendix).
Why does the International <IR> Framework refer to resources and relationships as ‘capitals’? ▼
The Oxford English Dictionary defines capital as ‘wealth in the form of money or other assets owned by a person or organization
or available for a purpose such as starting a company or investing’. When used with a modifier (e.g., financial capital or human
capital), it refers to ‘a valuable resource of a particular kind’. The term financial capital is already very much embedded in the
language of business and investment. The <IR> Framework applies this same convention to the full range of resources and
relationships on which organizations rely or have an effect.
Must an integrated report adopt the capitals categories and terminology used in the International <IR> Framework? ▼
No. Paragraphs 2.17 – 2.18 of the <IR> Framework recognize that the categories of capitals may not suit all organizations.
Rather, they are to be used as a guideline for completeness when preparing the integrated report to ensure a capital that is
materially used or affected does not go overlooked. Where different categories are used, an explanation may aid comparability.
Integrated reports need not use the term ‘capitals’. Organizations can use terminology that is consistent with other existing
communications, and which may be more understandable to internal and external stakeholders or report users. For example, if
an organization uses the term ‘people’ in other communications, it may make sense to use this in the integrated report rather
than ‘human capital’. The word ‘partnerships’ may be more appropriate than ‘social and relationship capital’.
Intellectual capital, human capital, and social and relationship capital all relate to people. How do they differ? ▼
The simplest way to differentiate between these three capitals is to consider the ‘carrier’ of each:
• For intellectual capital, the carrier is the organization itself
• For human capital, the carrier is the individual (typically workers or employees)
• For social and relationship capital, the organization and its internal/external networks and partners are joint carriers.
Is social and relationship capital the same as the social aspect of sustainability or CSR reporting? ▼
No. Social- or societal-based disclosures in sustainability and corporate social responsibility (CSR) reports generally focus on
organizational impacts on stakeholders or society at large. Such disclosure often describe the organization’s investment,
financial or otherwise, in social and community programs.
By contrast, disclosures on social and relationship capital in an integrated report cover the organization’s significant networks,
partnerships and interactions and explain how these various relationships influence the organization’s ability to create value (for
better or for worse). Such disclosures might describe, for example, the effects of the organization’s activities and outputs on
customer satisfaction or suppliers’ willingness to trade with the organization and the terms and conditions upon which they do
so. Such relationships are generally premised on the principles of mutual benefit, trust and shared values, recognizing that the
value created for the organization is inextricably linked to the value created for others.
To what extent should an integrated report discuss capitals that are not owned by the organization? ▼
Not all capitals an organization uses or affects are owned or controlled by it. Some may be owned by others. For example, a
logistics company may rely on the availability, quality and affordability of a government-owned transportation infrastructure.
Some capitals may not be owned at all in a legal sense. For instance, social and relationship capital, by its nature, is not ‘owned’
in a traditional sense; nonetheless, an organization’s networks, partnerships and interactions can be essential to its ability to
create value.
With these considerations in mind, an integrated report should encompass all capitals that are material to the organization’s
ability to create value, whether they are owned by the organization or not.
For more information, see the FAQs under competitive landscape and market positioning.
Why is it important to discuss the organization’s competitive landscape and market positioning? ▼
To create value over the short, medium and long term, organizations need to establish and maintain advantage over their
competitors. This advantage is challenged by the threat of new competition and substitute products or services, the bargaining
power of customers and suppliers, and the intensity of competitive rivalry. In a fast changing and competitive environment, if not
effectively managed, any one, or a combination, of these factors has the potential to put an organization out of business very
quickly. Therefore an organization’s assessment of, and responsiveness to, its competitive landscape and market positioning, is
of critical importance to providers of financial capital and others interested in how it creates value over time.
What information about the competitive landscape and market positioning should be disclosed? ▼
An organization should show, through its integrated report, its understanding of the external environment and the impact of this
environment on its strategy and business model. With respect to competitive landscape and market positioning, this includes
(but is not limited to) its awareness of:
• Others in the market, both currently and those with potential to enter
• Key market trends, such as changing customer demands and expectations, supply chain issues, or new or changing
legislative and regulatory requirements
• Potential disruptors, for example from new technologies, or alternative products and services
• Its position in the market, and how it differentiates itself in the market place (e.g., through product differentiation, market
segmentation, delivery channels and marketing)
• Specific risks and opportunities related to its competitive landscape and market positioning.