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Integrated reporting key to linking different disclosures

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Most organisations today prepare numerous reports for their stakeholders.

These include financial statements, sustainability, social impact and corporate governance reports to name a few. Individually these reports provide investors with information on selected aspects of an organisation.

However, none gives a comprehensive picture of how the different components of the organisation’s reporting connect to the bottom line.

The inability of stakeholders to obtain a connected and concise view of the organisation could be expensive and result in a loss of trust and confidence in its reporting.

Providing this connection with concise disclosure is a space where integrated reporting can play a role for many organisations without questioning the utility of any individual report or framework.

Integrated reporting communicates a concise and connected understanding of how an organisation creates value over time.

The recent consolidation of the integrated reporting and other non-financial frameworks into the new International Sustainability Standards Board is a welcomed development that will further the development of a global baseline of sustainability-related disclosure standards.

They also provide the conceptual basis for connectivity between the IFRS accounting standards and new IFRS sustainability disclosure standards.

The principles and concepts of the Integrated Reporting Framework are being used by businesses globally to drive connectivity between different strands of disclosures.

Integrated reporting provides information on an organisation’s strategic focus and future orientation. It ensures the connectivity of information like the six capitals and their interdependencies.

The six capitals of the framework cover the range of sustainability and environmental, social and governance (ESG) matters organisations focus on for value creation in the short, medium, and long term.

They are financial, manufactured, intellectual, human, social, relationship, and natural capital. By operating sustainably, organisations can preserve their stock of each capital which impacts their long-term survival and competitiveness.

Also, the integrated reporting framework emphasises integrated thinking within an organisation.

Functional units

Integrated thinking ensures organisations consider the relationships between their operating and functional units and the various capitals that the organisation uses or affects.

Integrated thinking also ensures decisions and actions taken across an organisation have considered the creation, preservation and erosion of value over the short, medium and long term.

It also requires an organisation to assess the value creation process regarding its external operating environment, purpose, mission and vision.

The integrated report provides information on the business model of an organisation. It includes information on how the business model utilises various capitals as inputs, the business activities, outputs and outcomes.

In addition, organisations can provide information on their strategy for maximising opportunities and mitigating or managing risks together with key performance indicators flowing from their strategic priorities and the organisation’s outlook for value creation over time.

Organisations can prepare the integrated report to show the relationships between their sustainability strategies across the ESG standards and their future viability from a financial perspective, rather than let stakeholders review sustainability reports and financial reports independently.

Organisations can show the trade-offs between the various capitals. For example, a decision to modernise a manufacturing facility, making it less reliant on hydrocarbon at the expense of reduced financial capital.

Organisations can also provide information on their governance teams and how reward is tied to achieving long-term goals and discourages short-termism with clear linkages to strategy.

An organisation can use links and references in the integrated report to other reports and information within or outside the integrated report. It ensures that only material information is in the integrated report.

Organisations should also employ technology by making the reports interactive for users. It will make navigating across the integrated report easier.

Awodumila is an Associate Director at PwC Kenya. An author who writes and speaks widely on corporate reporting