TOWARDS INTEGRATED REPORTING Communicating Value in the 21st Century ABOUT THIS DISCUSSION PAPER

Contents The International Integrated Reporting Committee (IIRC) has About this Discussion Paper 1 brought together world leaders from the corporate, investment, Summary 2 accounting, securities, regulatory, academic, civil society and What is Integrated Reporting? standard-setting sectors to develop a new approach to reporting. Why do We Need Integrated Reporting? An International Framework This approach, Integrated Reporting, will meet the needs of the Future Direction 21st century. It builds on the foundations of financial, management Your Comments Requested commentary, governance and remuneration, and sustainability The World has Changed – Reporting Must Too 4 reporting in a way that reflects their interdependence. Towards Integrated Reporting 6 Integrated Reporting Defined The IIRC aims to forge a global consensus on the direction in which Building on Developments to Date reporting needs to evolve, creating a framework for reporting An International Integrated Reporting Framework 8 How is Integrated Reporting Different? that is better able to accommodate complexity, and, in so doing, Business Model and Value Creation brings together the different strands of reporting into a coherent, The Building Blocks integrated whole. Guiding Principles Content Elements This Discussion Paper considers the rationale behind the move Towards Integrated Reporting – Innovation in Action towards Integrated Reporting, offers initial proposals for the What will Integrated Reporting Mean for Me? 20 development of an International Integrated Reporting Framework Benefits, Challenges and Responses Reporting Organization Perspective and outlines the next steps towards its creation and adoption, Investor Perspective including the publication of an Exposure Draft in 2012. Its Policy-maker, Regulator and Standard-setter Perspective Other Perspectives purpose is to prompt input from all those with a stake in Future Direction 25 improved reporting, including both producers and users of reports. Summary of Consultation Questions 26 Your answers to the Consultation Questions in this Discussion Paper, and any Acknowledgements and Endnotes 28 other comments you would like to make, will be important to us in refining these proposals. They should be submitted to [email protected] or online at www.theiirc.org. Please identify in your response the organization to which you belong and where it is located. All comments received will be considered MANAGEMENT COMMENTARY a matter of public record and will be posted on www.theiirc.org. Comments should be submitted by Wednesday 14th December 2011. GOVERNANCE AND REMUNERATION REPORTING You can register at www.theiirc.org to be notified when additional information is published, when regional roundtables or webinars are held or for information about the IIRC Pilot Programme. www.theiirc.org

FINANCIAL STATEMENTS

SUSTAINABILITY REPORTING

Copyright © September 2011 by the International Integrated Reporting Committee. All rights reserved. Permission is granted to make copies of this work to achieve maximum exposure and feedback provided that each copy bears the following credit line: Copyright © September 2011 by the International Integrated Reporting Committee. All rights reserved. Used with permission of the International Integrated Reporting Committee. Permission is granted to make copies of this work to achieve maximum exposure and feedback.

Towards Integrated Reporting 1 SUMMARY

The development of Integrated Reporting is designed to enhance and consolidate existing reporting practices...to move towards a reporting framework that provides the information needed to assess organizational value in the 21st century.

What is Integrated Reporting? reflecting this growing complexity. Such a framework needs to The initial focus is on reporting by larger companies and on Future Direction bring together the diverse but currently disconnected strands of the needs of their investors. The Framework will help to elicit Integrated Reporting brings together material information The development of Integrated Reporting is designed to enhance reporting into a coherent, integrated whole, and demonstrate consistent reporting by organizations, provide broad parameters about an organization’s strategy, governance, performance and consolidate existing reporting practices and, through an organization’s ability to create value now and in the future. for policy-makers and regulators and provide a focus for and prospects in a way that reflects the commercial, social collaboration, consultation and experimentation, to move harmonizing reporting standards. and environmental context within which it operates. It provides towards a reporting framework that provides the information a clear and concise representation of how an organization International differences in reporting needed to assess organizational value in the 21st century. demonstrates stewardship and how it creates and sustains value. The next steps that the IIRC will take in this direction are Reporting requirements have evolved separately, and differently, The building blocks listed below. An Integrated Report should be an organization’s primary in various jurisdictions. This has significantly increased the Five Guiding Principles underpin the preparation of an reporting vehicle. compliance burden for the growing number of organizations Integrated Report. • Undertake a Pilot Programme to encourage experimentation that report in more than one jurisdiction and makes it difficult to and innovation among companies and investors. • Strategic focus compare the performance of organizations across jurisdictions. • Develop an International Integrated Reporting Framework Why do We Need Integrated Reporting? • Connectivity of information Exposure Draft, reflecting responses received to this Since the current business reporting model was designed, The benefits of Integrated Reporting • Future orientation Discussion Paper and the experience gained from the first there have been major changes in the way business is • Responsiveness and stakeholder inclusiveness year of the Pilot Programme. conducted, how business creates value and the context in Research has shown that reporting influences behaviour. • Conciseness, reliability and materiality which business operates. These changes are interdependent Integrated Reporting results in a broader explanation of • Work with others to support the development of emerging measurement and reporting practices relevant to and reflect trends such as: performance than traditional reporting. It makes visible an These Principles should be applied in determining the content Integrated Reporting. organization’s use of and dependence on different resources of an Integrated Report, based on the key Content Elements • globalization, and relationships or “capitals” (financial, manufactured, human, summarized below. The presentation of the Elements should • Raise awareness among investors and other stakeholders • growing policy activity around the world in response to intellectual, natural and social), and the organization’s access make the interconnections between them apparent. and encourage organizations to adopt and contribute to financial, governance and other crises, to and impact on them. Reporting this information is critical to: the evolution of Integrated Reporting. • Organizational overview and business model • heightened expectations of corporate transparency and • a meaningful assessment of the long-term viability of the • Explore opportunities for harmonizing reporting • Operating context, including risks and opportunities accountability, organization’s business model and strategy; requirements within and across jurisdictions. • Strategic objectives and strategies to achieve those • actual and prospective resource scarcity, • meeting the information needs of investors and other • Develop institutional arrangements for the ongoing objectives • population growth, and stakeholders; and governance of Integrated Reporting. • Governance and remuneration • environmental concerns. • ultimately, the effective allocation of scarce resources. • Performance Your Comments Requested Against this background, the type of information that is needed • Future outlook to assess the past and current performance of organizations An International Framework Please join us in this unique effort to develop an overarching International Integrated Reporting Framework by providing and their future resilience is much wider than is provided for The IIRC is developing an International Integrated Reporting by the existing business reporting model. While there has feedback on this Discussion Paper. Your answers to the Framework that will facilitate the development of reporting Consultation Questions in this Discussion Paper, and any other been an increase in the information provided, key disclosure over the coming decades. The core objective of the Framework gaps remain. comments you would like to make, should be submitted to is to guide organizations on communicating the broad set of Who is the IIRC? [email protected] or online at www.theiirc.org. For the information needed by investors and other stakeholders to Reports are already long and are getting longer. But, because The International Integrated Reporting Committee (IIRC) is purpose of analysis, you are asked to identify the organization assess the organization’s long-term prospects in a clear, concise, reporting has evolved in separate, disconnected strands, critical an international cross-section of leaders from the corporate, to which you belong and where it is located. All comments connected and comparable format. This will enable those interdependencies between strategy, governance, operations investment, accounting, securities, regulatory, academic, civil received will be considered a matter of public record and will organizations, their investors and others to make better short- and financial and non-financial performance are not made clear. society and standard-setting sectors. See page 28 for a list be posted on www.theiirc.org. and long-term decisions. To provide for the growing demand for a broad information of members. set from markets, regulators and civil society, a framework is Comments should be submitted by Wednesday 14th needed that can support the future development of reporting, December 2011.

2 www.theiirc.org Towards Integrated Reporting 3 THE WORLD HAS CHANGED – Key points in this section • The world has changed. Reporting needs to keep pace. • While reporting has expanded and evolved, it has also become increasingly complex. REPORTING MUST TOO Critical interdependencies are not brought to light and disclosure gaps remain. • It is not enough to keep on adding more information. The connections need to be made clear and the clutter needs to be removed. Only the most material information should be included in the Integrated Report. • Coordinated, international action is needed now. • The IIRC has brought together key organizations in response. While the architecture necessary to support changing information needs is developing, many currently perceive a reporting landscape of confusion, clutter and fragmentation.

The world has changed due to globalization and resulting Reporting needs to keep pace. The traditional reporting For many organizations, reporting is seen as a legal compliance In the context of financial reporting, international convergence interdependencies in economies and supply chains, advances model was developed for an industrial world. Although it process, rather than as a process for communicating what matters. has been recognized as important, and progress has been in technology, rapid population growth and increasing global continues to play a valuable role with respect to stewardship of Furthermore, different strands of reporting have tended to evolve made towards international standards, for example, through consumption. This has had a significant impact on the quality, financial capital, it nonetheless focuses on a relatively narrow separately, with additional requirements and information requests the current work on the convergence of International Financial availability and price of resources, including water, food and account of historical financial performance and of the value- being bolted on to the existing model, rather than being integrated Reporting Standards (IFRS) and U.S. Generally Accepted energy. It also puts increasing pressure on ecosystems that are creation process. into it. The pressure to keep adding more continues to grow. Accounting Principles (U.S. GAAP). Nevertheless, many other essential to the economy and society. aspects of reporting continue to be governed by national As business has become more complex and gaps in traditional This has created a complex and overlapping set of disconnected or regional laws, regulations and stock exchange listing This has political, social and commercial implications. Businesses reporting have become prominent, new reporting requirements disclosures. As a result, critical interdependencies that exist are requirements, and by a mixture of mandatory and voluntary are being forced to react to these changes in order to remain have been added through a patchwork of laws, regulations, not made clear, for example, between: standards, codes and guidance. successful and, in many cases, are developing new business standards, codes, guidance and stock exchange listing • strategy and risk, models that recognize the need to innovate and do more with less. requirements. This has led to an increase in the information The IIRC has brought together key organizations in provided through: • financial and non-financial performance, response. The IIRC was established in 2010 in recognition of The need for a broader information set is clearly demonstrated • governance and performance, and the need to move towards an International Integrated Reporting by the small percentage of market value now explained by • longer and more complex financial reports and Framework that is fit-for-purpose for the 21st century. physical and financial assets – down to only 19% in 2009 from management commentaries;2 • the organization’s own performance and that of others in its value chain. 83% in 1975. The remainder represents intangible factors, some • increased reporting on governance and remuneration; and The IIRC seeks to build upon, enhance and support the work that of which are explained within financial statements, but many of has been done to date, and is ongoing, to achieve a reporting • standalone sustainability reporting3 which has also evolved Coordinated, international action is needed now. which are not.1 framework that: rapidly over the past decade. The information available to management, investors and

other stakeholders, and the way in which it is presented, • communicates the organization’s strategy, business model, These developments, led by policy-makers, companies and Components of S&P 500 market value have a fundamental impact on decision-making. The time has performance and plans against the background of the other reporting organizations, investors and civil society, are 100 come to step back and rethink what information is needed to context in which it operates; 83 68 32 20 19 welcome reactions designed to elicit the information needed in provide a clear, concise picture of performance, impacts and • provides a coherent framework within which market and a changing world. However, while the architecture necessary interdependencies. Such a picture must: to support changing information needs is developing, many regulatory driven reporting requirements can be integrated; 80 80 81 currently perceive a reporting landscape of confusion, clutter • drive innovation, • is internationally agreed, so as to encourage convergence and fragmentation. Much of the information now provided is • be focused on communication and not just compliance, and of approach and hence more ready understanding of 68 disconnected and key disclosure gaps remain. • support resource allocation decisions that are consistent with information presented; 60 As a result, although there is evidence that investors recognize sustained value creation and with long-term economic stability. • reflects the use of and effect on all of the resources and the materiality of non-financial factors, they do not feel that relationships or “capitals” (human, natural and social as In an increasingly global marketplace, comparability is well as financial, manufactured and intellectual) on which the information they have available is adequate for decision- important. Reporting requirements have evolved separately, 4 the organization and society depend for prosperity; and 40 making. For example, while there is management recognition and differently, in various jurisdictions. This has increased the that sustainability issues should be fully integrated into the reporting and administrative burden for the growing number • reflects and communicates the interdependencies between 32 strategy and operations of a company (with 96% of CEOs from of organizations that report in more than one jurisdiction. It the success of the organization and the value it creates for the world’s largest companies expressing this opinion5), only investors, employees, customers and, more broadly, society. 20 has also resulted in diverging disclosure practices that inhibit 17 21% of listed companies report any sustainability information investors and others from understanding and comparing the 6 based on Bloomberg research. information they need for decision-making. It is not enough to keep on adding more information 1975 1985 1995 2005 2009 – the connections need to be made clear and the Physical and financial assets clutter needs to be removed. Corporate reports are Other factors already long and, in many cases, they are getting longer. Length and excessive detail can obscure critical information rather than The percentage of market value represented by physical and financial assets versus aid understanding.7 Only the most material information should Q1. (a) Do you believe that action is needed to help improve how organizations represent intangible factors, some of which are explained within financial statements, but many of which are not.1 be included in the Integrated Report. their value-creation process? Why/why not? (b) Do you agree that this action should be international in scope? Why/why not?

4 www.theiirc.org Towards Integrated Reporting 5 TOWARDS INTEGRATED REPORTING Key points in this section • Integrated Reporting combines the different strands of reporting (financial, management commentary, governance and remuneration, and sustainability reporting) into a coherent whole that explains an organization’s ability to create and sustain value. • The main output of Integrated Reporting is an Integrated Report: a single report that the IIRC anticipates will become an organization’s primary report. • Integrated Reporting can reduce the reporting burden on organizations while improving investors’, and Integrated Reporting brings together the material information about an organization’s other stakeholders’, insight and understanding. strategy, governance, performance and prospects in a way that reflects the commercial, • Integrated Reporting reflects and builds upon existing developments in reporting. social and environmental context within which it operates. It provides a clear and concise representation of how an organization creates value, now and in the future.

Integrated Reporting Defined contributes to success over time. It will increasingly be through Building on Developments to Date • The publication during 2010 and 2011 of: this process of “integrated thinking” that organizations are Integrated Reporting brings together the material information Integrated Reporting reflects and builds upon existing –– the IFRS Practice Statement, “Management able to create and sustain value. The effective communication about an organization’s strategy, governance, performance developments in reporting, including the following. Commentary”, an international framework for narrative of this process can help investors, and other stakeholders, and prospects in a way that reflects the commercial, social reporting to provide a context for interpreting an to understand not only an organization’s past and current • The ongoing international convergence of accounting and environmental context within which it operates. It provides organization’s financial position, financial performance performance, but also its future resilience. standards through the collaborative efforts of the a clear and concise representation of how an organization and cash flows; International Accounting Standards Board (IASB) and the demonstrates stewardship and how it creates value, now and The main output of Integrated Reporting is an Integrated –– the Integrated Reporting Committee of South Africa’s U.S.-based Financial Accounting Standards Board (FASB) in the future. Integrated Reporting combines the most material Report: a single report that the IIRC anticipates will become an Discussion Paper, “Framework for Integrated Reporting to improve both IFRS and U.S. GAAP, and to eliminate the elements of information currently reported in separate reporting organization’s primary report, replacing rather than adding and the Integrated Report”; differences between them. strands (financial, management commentary, governance and to existing requirements. Such a report enables evolving –– the Global Reporting Initiative’s “G3.1” Sustainability • The work of The Prince’s Accounting for Sustainability remuneration, and sustainability) in a coherent whole, and reporting requirements, both market-driven and regulatory, to Reporting Guidelines, and its current project to develop Project, the Global Reporting Initiative, the World Business importantly: be organized into a coherent narrative. An Integrated Report a fourth generation of Guidelines over the coming two provides a clear reference point for other communications, Council for Sustainable Development, the World Resources • shows the connectivity between them; and years; and including any specific compliance information, such as investor Institute, the World Intellectual Capital Initiative, the Carbon –– the International Auditing and Assurance Standards • explains how they affect the ability of an organization to presentations, detailed financial information, operational data Disclosure Project, the Climate Disclosure Standards Board, Board’s Discussion Paper, “The Evolving Nature create and sustain value in the short, medium and long term. and sustainability information. Much of this information might the European Federation of Financial Analysts, the United Nations (UN) Conference on Trade and Development, of Financial Reporting: Disclosure and Its Audit Integrated Reporting reflects what can be called “integrated move to an online environment, reducing clutter in the primary the UN Global Compact, the International Corporate Implications”. thinking” – application of the collective mind of those charged report, which will focus only on the matters that the organization Governance Network, the Collaborative Venture on Valuing with governance (the board of directors or equivalent), and the considers most material to long-term success. The IIRC aims to forge a global consensus on the direction in Non-Financial Performance, and many others to develop ability of management, to monitor, manage and communicate which reporting needs to evolve, creating a framework for principles, methodologies, guidelines and standards for the the full complexity of the value-creation process, and how this reporting that is better able to accommodate complexity and, accounting and reporting of non-financial information. in so doing, brings together the different strands of reporting into a coherent, integrated whole. All of the organizations referred to above are part of, or collaborating closely with, the The evolution of corporate reporting IIRC to achieve this aim.

1960 1980 2000 2020

Financial Statements Financial Statements Financial Statements Management Integrated Sustainability Commentary Reporting Reporting Management Commentary Environmental Management Reporting Commentary Governance Financial Governance Sustainability and Statements and Reporting Remuneration Remuneration

Governance and Remuneration Q2. Do you agree with the above definition of Integrated Reporting? Why/why not?

6 www.theiirc.org Towards Integrated Reporting 7 AN INTERNATIONAL INTEGRATED REPORTING FRAMEWORK The Framework will provide high-level guidance to organizations that prepare Integrated Reports, helping to provide consistency of content and approach in a way that demonstrates How is Integrated Reporting Different? the extent to which integrated thinking is occurring within the organization. Thinking Isolated Integrated Because traditional reporting occurs in silos, it encourages thinking in silos. Integrated Reporting, Key points in this section on the other hand, reflects, and supports, integrated thinking – monitoring, managing and • The IIRC is developing a Framework to support the future development of reporting. 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 • The Framework will help ensure consistent reporting by organizations, will provide broad parameters within the organization. for policy-makers and regulators, and will be a focus for harmonizing reporting standards. • The initial focus is on reporting by larger companies and on the needs of their investors. Stewardship Financial capital All forms of capital • An organization’s business model and its ability to create and sustain value in the short, medium and An Integrated Report displays an organization’s stewardship not only of financial capital, but also long term are central themes of the Framework, which includes Guiding Principles and Content Elements. of the other “capitals” (manufactured, human, intellectual, natural and social), their interdependence • Integrated Reporting results in a broader explanation of performance than traditional reporting. and how they contribute to success. This broader perspective requires consideration of resource • It makes visible how the organization uses different capitals (financial, manufactured, human, intellectual, usage and risks and opportunities along the organization’s full value chain. natural and social), its impact on them, and their interdependence. Focus Past, financial Past and future, connected, strategic 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 organization’s strategic objectives and its ability to create and sustain value in the future. The aim of the International Integrated Reporting Framework is to The initial focus is on reporting by larger companies. However, Timeframe Short term Short, medium and long term support the development of reporting over the coming decades, the IIRC expects that the concepts underlying Integrated centred on how an organization creates and sustains value. Reporting will be equally applicable to small- and medium-sized Much of the media and regulatory attention in response to the global financial crisis has focused enterprises, the public sector and not-for-profit organizations. on “short-termism” as one contributory factor. Although short-term considerations are important in This section outlines initial proposals for the development of the many ways, placing them in context is also essential. Integrated Reporting specifically factors in Framework, setting out concepts, principles and key elements Integrated Reports will meet the needs of a broad range of short-, medium- and long-term considerations. around which it can be built. These proposals offer a starting stakeholders. Initially, however, the IIRC intends to focus the point for discussion, rather than a complete Framework. An development of the Framework on the needs of investors Trust Narrow disclosures Greater transparency Exposure Draft of the Framework is planned for release in 2012. (providers of debt and equity), consistent with the current duties During the comment period for this Discussion Paper, interim of those charged with governance in many jurisdictions. Financial reporting focuses primarily on a narrow series of mandated disclosures. Although an guidance material will be made available on the IIRC website. increasing number of organizations are improving their transparency, for example, through The following pages include: This material will be built upon as further experience is obtained voluntary sustainability reporting, in absolute terms that number is still low. By emphasizing through the IIRC Pilot Programme (see page 24). • a summary of the key differences between Integrated transparency, for example, covering a broader range of issues and disclosing the positive Reporting and traditional reporting; with the negative, Integrated Reporting helps to build trust. The Framework will provide high-level guidance to organizations • a discussion of the central importance of an organization’s that prepare Integrated Reports, helping to provide consistency Adaptive Rule bound Responsive to individual circumstances of content and approach in a way that demonstrates the extent business model and of value creation; Today’s reporting is often said to be too compliance orientated, reducing the scope for to which integrated thinking is occurring within the organization. • guiding principles for developing an Integrated Report; and It will also provide policy-makers and regulators with broad organizations to exercise an appropriate amount of judgement. While a certain level of • content elements that describe the core information to be compliance orientation is necessary to ensure consistency and enable comparison, Integrated parameters within which consistent regulatory reporting regimes included in an Integrated Report. can be developed across different jurisdictions. The Framework Reporting offers a principles-based approach that drives greater focus on factors that are material will be a focal point for the harmonization of current standards. to particular sectors and organizations. It permits an organization to disclose 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 Q3. Do you support the development of an International Integrated Reporting Reporting is to de-clutter the primary report so that it covers, concisely, only the most material Framework? Why/ why not? information.

Q4. (a) Do you agree that the initial focus of Integrated Reporting should be on reporting Technology enabled Paper based Technology enabled by larger companies and on the needs of their investors? Why/why not? While the internet and XBRL are introducing elements of technological innovation, many corporate (b) Do you agree that the concepts underlying Integrated Reporting will be reports are still presented as if they were entirely paper based. Integrated Reporting takes equally applicable to small and medium enterprises, the public sector and 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. not-for-profit organizations?

8 www.theiirc.org Towards Integrated Reporting 9 An International Integrated Reporting Framework (continued)

Business Model and Value Creation Central to Integrated Reporting is the organization’s business By describing, and measuring where it is practicable, the Resources and relationships or “capitals” model. There is no single, generally accepted definition of the material components of value creation and, importantly, the All organizations depend on a variety of resources • ability to understand and implement an organization’s term “business model”. However, it is often seen as the process relationships between them, Integrated Reporting results in a and relationships for their success. The extent to which strategies, and by which an organization seeks to create and sustain value. broader explanation of performance than traditional reporting. organizations are running them down or building them up • loyalties and motivations for improving processes, In particular, it makes visible all the relevant capitals on which An organization determines its business model through choices has an important impact on the availability of the resources goods and services, including their ability to lead performance (past, present and future) depends, how the that typically recognize that value is not created by or within and the strength of the relationships that support the long- and to collaborate. organization uses those capitals, and its impact on them, as the organization alone, but is: term viability of those organizations. These resources and illustrated by the diagram below. This information is critical relationships can be conceived as different forms of “capital”. Intellectual capital: Intangibles that provide competitive • influenced by external factors (including economic to the effective allocation of scarce resources. It will provide advantage, including: conditions, societal issues and technological change) that a meaningful presentation of the organization’s prospects for The purpose of the following categorization and descriptions, 8 • intellectual property, such as patents, copyrights, present risks and opportunities, which create the context long term resilience and success, and facilitate the informational based on various sources and established models, is to help software and organizational systems, procedures within which the organization operates, needs of, and assessments by, investors and other stakeholders. readers understand the concepts underlying this Discussion Paper; it is not intended to be the only way the capitals can and protocols, and • co-created through relationships with others (including Importantly, a reporting framework centred around an be categorized or described. The extent to which different • the intangibles that are associated with the brand employees, partners, networks, suppliers and customers), and organization’s business model provides a better basis for organizations use or impact each of these capitals varies: not all and reputation that an organization has developed. • dependent on the availability, affordability, quality and management to explain what really matters, bringing reporting capitals are equally relevant or applicable to all organizations. management of various resources, or “capitals” (financial, closer to the way the business is run. Natural capital: Natural capital is an input to the manufactured, human, intellectual, natural and social). Financial capital: The pool of funds that is: production of goods or the provision of services. An organization’s activities also impact, positively or negatively, • available to the organization for use in the production Integrated Reporting therefore aims to provide insights about: on natural capital. It includes: of goods or the provision of services, and • significant external factors that affect an organization, • obtained through financing, such as debt, equity or • water, land, minerals and forests, and • the resources and relationships used and affected by grants, or generated through operations or investments. • biodiversity and eco-system health. the organization, and Manufactured capital: Manufactured physical objects Social capital: The institutions and relationships established • how the organization’s business model interacts with (as distinct from natural physical objects) that are available within and between each community, group of stakeholders external factors and resources and relationships to to the organization for use in the production of goods or the and other networks to enhance individual and collective well- create and sustain value over time. provision of services, including: being. Social capital includes: • buildings, • common values and behaviours, • equipment, and • key relationships, and the trust and loyalty that an • infrastructure (such as roads, ports, bridges and waste organization has developed and strives to build Financial Financial and water treatment plants). and protect with customers, suppliers and business External factors partners, and Human capital: People’s skills and experience, and their • an organization’s social licence to operate. Manufactured Manufactured motivations to innovate, including their: • alignment with and support of the organization’s Human Human governance framework and ethical values such as its recognition of human rights,

Business model How the organization creates and sustains value in the short, medium and long term

Intellectual Intellectual

Natural Natural External factors

Social Social Q5. Are: (a) the organization’s business model, and (b) its ability to create and sustain value in the short, medium and long term, appropriate as central themes for the future direction of reporting? Why/why not? Q6. Do you find the concept of multiple capitals helpful in explaining how an organization creates and sustains value? Why/why not?

10 www.theiirc.org Towards Integrated Reporting 11 An International Integrated Reporting Framework (continued)

The Building Blocks Guiding Principles The following guiding principles underpin the preparation of an Integrated Report, informing the content of the report and how information is presented. Guiding Principles – Five guiding principles underpin the Content Elements – The principles should be applied in Strategic focus: An Integrated Report provides insight into the This involves analyzing: preparation of an Integrated Report (see page 13). determining the content of an Integrated Report, based on the organization’s strategic objectives, and how those objectives • how sustainable the organization’s business model is; key elements summarized below. The presentation of the elements relate to its ability to create and sustain value over time and the • Strategic focus should make the interconnections between them apparent resources and relationships on which the organization depends. • the relationship between past and future performance; and • Connectivity of information • the factors that may change that relationship, for example, (see page 14 – 15). An Integrated Report communicates what is important to the whether the organization will be able to access the • Future orientation organization from a strategic perspective. It outlines: • Organizational overview and business model resources it needs at a price it can afford. • Responsiveness and stakeholder inclusiveness • Operating context, including risks and opportunities • the organization’s strategic objectives; • Conciseness, reliability and materiality An Integrated Report may include targets, forecasts, projections, • Strategic objectives and strategies to achieve • the strategies it has in place, or plans to implement, in order estimates and sensitivity analyses. those objectives to achieve them; and Responsiveness and stakeholder inclusiveness: An Integrated • Governance and remuneration • how they relate to other components of its business model. Report provides insight into the organization’s relationships with • Performance This may include, for example, highlighting significant new its key stakeholders and how and to what extent the organization • Future outlook opportunities, risks and dependencies that flow from the understands, takes into account and responds to their needs. organization’s market position, strategies and business model. Integrated Reporting emphasizes the importance of relationships It also clearly articulates how the organization uses resources and with the organization’s stakeholders. relationships. This includes reporting on financial, manufactured, Stakeholders provide useful insights about matters that are human, intellectual, natural and social capital to the extent each important to them, including economic, environmental and social contributes materially to the organization’s ability to create and issues. This assists the organization to: Connectivity of information sustain value. • identify material issues; Connectivity of information: An Integrated Report shows the connections between the different components of the • develop and evaluate strategies; and organization’s business model, external factors that affect the • manage activities, including strategic and accountable Strategic focus organization, and the various resources and relationships on responses to material issues. which the organization and its performance depend. Operating context, An Integrated Report enhances transparency and accountability, including risks and Connectivity is central to ensuring that an Integrated Report: which are essential in building trust and resilience, by disclosing: opportunities • illuminates the changing nature of business decision-making, • the nature and quality of the organization’s relationships and the critical linkages in business thinking and activity; and with key stakeholders, such as customers, suppliers, • helps to break down established silos in the way employees and local communities; and information is reported, and the traditional focus primarily • how their issues are understood, taken into account and on financial matters. responded to. Conciseness, reliability and materiality Future outlook Strategic objectives Examples of connectivity include: Conciseness, reliability and materiality: An Integrated Report provides concise, reliable information that is material to assessing Organizational • information about how changes in the market environment overview and the organization’s ability to create and sustain value in the short, impact strategy; business model medium and long term. • links between the different elements in the organization’s market analysis and its assessment and explanation of risk; and Senior management and those charged with governance must exercise judgement in: • how strategies link to key performance indicators (KPIs), key risk indicators (KRIs) and remuneration. • distinguishing between information that is material and Future orientation should therefore be included in the Integrated Report, Importantly, an Integrated Report clearly presents the linkage and other information that may be relatively static or only between financial performance and the organization’s use of, relevant to some report users; conciseness is enhanced Performance Governance and and impact on, the significant resources and relationships upon remuneration when the latter is included separately on the organization’s which it depends. website or in other forms of communication; and Future orientation: An Integrated Report includes • deciding whether information is sufficiently reliable to be management’s expectations about the future, as well as other included in an Integrated Report. Responsiveness and stakeholder inclusiveness information to help report users understand and assess the While reliable information needs to be complete, neutral and organization’s prospects and the uncertainties it faces. free from error, it is recognized that this is seldom, if ever, Future orientation includes: achievable in every respect, so the objective is to maximize • how the organization balances short- and long-term these qualities to the extent practicable, for example, by ensuring Q7. Do the Guiding Principles identified in the Discussion Paper provide a sound foundation for preparing interests; that any negative issues are as faithfully reported as positive ones. Reliability also encompasses the need for information to be an Integrated Report – are they collectively appropriate; is each individually appropriate; and are there • where the organization expects it will go over time; other Guiding Principles that should be added? Why/why not? comparable between organizations and consistent for the same • how it plans to get there; and organization over time. Reliability is enhanced by mechanisms • what the critical enablers, challenges and barriers may be such as robust stakeholder engagement and independent, along the way. external assurance. 12 www.theiirc.org Towards Integrated Reporting 13 An International Integrated Reporting Framework (continued)

Content Elements An Integrated Report includes the following Content Elements, answering the respective question posed for each. These elements are fundamentally linked to each other and are presented in the Integrated Report in a way that makes the interconnections between Governance and remuneration: What is the organization’s governance structure, and how does them apparent, rather than as isolated, standalone sections. Explanations of material changes since prior reporting periods are governance support the strategic objectives of the organization and relate to the organization’s approach particularly important. to remuneration? An Integrated Report provides insight about the organization, including its culture, ethical values organization’s oversight and tone at the top. It includes: and relationships with key stakeholders; and • an explanation of the organization’s leadership • how the remuneration of executives and Organizational overview and business model: What does the organization do and how does it create and strategic decision-making processes, those charged with governance is linked and sustain value in the short, medium and long term? including the skill set of those charged with to performance in the short, medium and governance; long term, including how it is linked to the The Integrated Report provides essential context • its business model, value drivers and critical organization’s use of and impact on the • what actions those charged with governance have by identifying: stakeholder dependencies; and resources and relationships on which taken to influence the strategic direction of the • the organization’s mission, principal activities, • its attitude to risk. it depends. markets, products and services; Performance: How has the organization performed against its strategic objectives and related strategies? Operating context, including risks and opportunities: What are the circumstances under which the An Integrated Report includes qualitative and Performance information includes a description of the organization operates, including the key resources and relationships on which it depends and the key risks quantitative information, including: organization’s view of its major external economic, environmental and social impacts and risks up and and opportunities that it faces? • KPIs and KRIs regarding the organization’s down the value chain, along with material quantitative performance against its strategic objectives To provide context, an Integrated Report identifies: to its impact on, and the continued availability, information to the extent practicable. quality and affordability of, relevant resources. and related strategies; • the commercial, social and environmental • the organization’s impacts (both positive and While other reports and communications (such as context within which the organization operates, This Content Element builds on the high-level financial statements, a sustainability report or detailed including significant laws and regulations overview of the organization and includes: negative) on the resources and relationships on which it depends; website disclosures) may be referenced or linked that affect the organization’s ability to create for those report users who want additional detail on • a more in-depth description of material issues; • the significant external factors impacting and sustain value in the short, medium and various aspects of performance, the performance • the organization’s process for determining which performance; and long term; discussion in an Integrated Report is considerably issues it considers material; and • the resources and relationships that are key • how the organization fared against its targets. more concise and connected. The linkages between • how the material issues affect the organization’s to the organization’s success, including key Information regarding financial performance is past and current performance and between current stakeholders, their legitimate needs, interests ability to create and sustain value over time performance and future outlook should be made clear. (e.g., how the organization integrates key integrated with information regarding performance and expectations, and their importance to the with respect to the other capitals. The discussion also organization; and emerging or escalating risks and opportunities into its strategies). encompasses how innovation affects the ability of the • the organization’s key risks and opportunities, organization to create and sustain value. including those that relate to its relationships and

Future outlook: What opportunities, challenges and uncertainties is the organization likely to encounter Strategic objectives and strategies to achieve those objectives: Where does the organization want to go in achieving its strategic objectives and what are the resulting implications for its strategies and future and how is it going to get there? performance? An Integrated Report describes the organization’s It identifies: Future outlook builds on other Content Elements to • potential repercussions of where the strategic objectives and its strategies to achieve highlight anticipated changes over time. It provides organization expects it will go in the short, • risk management arrangements related to key those objectives. It sets out how the organization will information, built on sound and transparent analysis, medium and long term, resources and relationships; measure achievement and target outcomes for the about: • the actions needed to get there, and short, medium and long term. • the linkage between strategies and other Content Elements; and • how the organization is currently equipped to • the associated uncertainties. This discussion builds on the description of the respond to the operating context that it is likely • what makes the organization unique and able The Integrated Report should identify any real organizational overview and operating context to to face in the future, to realize value in the future, such as the extent risks that could have extreme consequences, even provide report users with an understanding of what to which sustainability considerations have • how the organization balances short- and though the probability of their occurrence might be drives and protects the value of the organization. been embedded into its strategy to give it a long-term interests, considered quite small. competitive advantage.

Q8. Do the Content Elements identified in the Discussion Paper provide a sound foundation for preparing an Integrated Report – are they collectively appropriate; is each individually appropriate; and are there other Content Elements that should be added? Why/why not?

14 www.theiirc.org Towards Integrated Reporting 15 Towards Integrated Reporting – Innovation in Action

Many organizations are taking innovative approaches to to provide definitive guidance; rather, they are presented here aspects of reporting that are often consistent with the concept to illustrate reporting innovation in the particular circumstances of Integrated Reporting. Few organizations, if any, however, of an organization that might be regarded as “good practice” could claim to have achieved the ideal of Integrated Reporting. at present. AsThe an IIRC integr Pilotated Programme energy and will chemicals provide furthercompan y Sasol aims to meet stakeholders’ expectations and to exceed targeted rates of return in a sustainable manner. Presented on pages 16 – 19 is a small selection of examples of opportunity for experimentation to inform the development of the As an integrated energy and chemicals company Sasol aims to meet stakeholders’ expectations and to exceed targeted rates of return in a sustainable manner. current innovation. These might not be “perfect” illustrations of all Framework, and the IIRC also encourages contributions by other aspects of the Framework in this document and are not intended organizationsour of integr innovativeated examples business of good model practice.

ourSasol integrAnnual Reviewated and business Summarized model Innovation Research In downstream chemical process technology, we have developed Besides the research and development and new-product AkzoNobel Report 2010 pp 52 – 53 http://www.akzonobel.com/news/reports/2010/annual_report_2010.aspx As an integratedFinancial energy and chemicals Information compan ppy Sasol 4 – aims 5 to meet stakeholders’ expectationshttp://www.sasol.com/sasol_internet/downloads/sasol_review_2010_1288356157307.pdf and to exceed targeted rates of return in a sustainable manner. Exploration and production several proprietary processes for recovering and processing a range formulation and testing work we do at Sasolburg throughInn Sasolov ation Research Sasol obtains its raw materials through its coal-mining activities, of solvents, waxes and phenolics for the world market, as well Technology’s fuel research group, we conduct further fundamental In downstream chemical process technology, we have developed Besides the research and development and new-product These pages provide a concise overview of the business, the period and provide a range of financial andoil and gas exploration, and purchases from the open market. These pages provide an easy to follow description and as 1-pentene,future 1-hexene, value 1-heptene, such 1-octene as innovation and higher alpha and research,research as at the well Sasol as Adv ancedsteps Fuels Laboratory (SAFL), in our integrated business model Exploration and production several proprietary processes for recovering and processing a range formulation and testing work we do at Sasolburg through Sasol Some raw materials are sold directly to external markets. olefi ns, the last of which we convert into Safol™ H(C ) alcohols. collaboration with the University of Cape Town, and the Sasol Fuels including how it creates value, key market and business non-financial performance indicators, seeking to demonstrate graphical representation of the company’sSasol obtains business its raw materials model, through its coal-mining toactivities, respond to the changing12,13 business environment with some of solvents, waxes and phenolics for the world market, as well Technology’s fuel research group, we conduct further fundamental Decorative paints market overview We have developed and patented severalInn base-metalovation catalysts Application CentrReseare (SFchAC). SFAC enables us to conduct sea-level oil and gas exploration, and purchases from the open market. as 1-pentene, 1-hexene, 1-heptene, 1-octene and higher alpha research at the Sasol Advanced Fuels Laboratory (SAFL), in characteristics, external factors that affect value creation and financial value generated through responses to global linking together key inputs, activities and outcomes, drivers of for our FT synthesisquantification processes. in financialIn downstream chemical and process non-financial technology, we have deengineveloped terms. and fuel Besides resear thech resear andch and tests development in line andwith ne w-printeroductnational trends. Exploration and production Some raw materials are sold directly to external markets. several proprietary processes for recovering and processing a range formulation and testing work we do at Sasolburg through Sasololefi ns, the last of which we convert into Safol™ H(C12,13) alcohols. collaboration with the University of Cape Town, and the Sasol Fuels the role of innovation. They describe key developments during market drivers. Sasol obtains its raw materials through its coal-mining activities, of solvents, waxes and phenolics for the world market, as well Technology’s fuel research group, we conduct further fundamentalWe have developed and patented several base-metal catalysts Application Centre (SFAC). SFAC enables us to conduct sea-level oil and gas exploration, and purchases from the open market. We have also been innovative in coal exploras 1-pentene,ation and 1-hexene, mining, 1-heptene, wher 1-octenee and higher alpha research at the Sasol Advanced Fuels Laboratory (SAFL), in Our Decorative Paints business are served through a variety of outlets ranging from big box t

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produce transportation fuels from coal2009 and gas. Ho2010wever, we are committed 2009 2010 Greenhouse gas (GHG) emissions recycling, cooling, pre-treatment of water technologies that can be integrated with our core technologies Water New energy emissions intensity improved to 3,05 (measured as carbon dioxide increased from 71,3 million tons (Mt) in 2009 to 75,8 Mt in 2010, ers (either DIY or BIY – buy it yourself), professional paint- programs for paintersprimary paint supplier in the US to substantially reducing our carbon emissions by, among others, developing for steam generation and solids handling are to reduce our GHG footprint. As part of our commitment to reduce 29 equivalent per ton of production) in 2010.Coal Tishis an compares important with par t3,24 of the in world’s energy mix, and Sasol will continue to mainly due to the inclusion of Oryx GTL emissions data. However, our Various technological advancements in effl uent Sasol New Energy Holdings (SNE) was created to focus on new more effi cient production processes and investigating carbon capture and paving the way for signifi cantly improved production of carbon dioxide in our operations and integrate new ers serving homeowners and commercial contractors. They t
Dulux Trade won contract to paint the London 2012 Revenue 4,573 4,968 US and Canada 2009 and 3,025,100 (restated) in5,100 2008. The produceimproved tr ansporoveralltation GHG intensityfuels from coal and gas. However, we are committed emissions intensity improved to 3,05 (measured as carbon dioxide recycling, cooling, pre-treatment of water technologies that can be integrated with our core technologies A storage (CSS) solutions. We have set several targets to22 reduce our greenhouse zero liquid effl uent discharge designs, which technology into our FT processes, SNE will look into renewable EBITDA 487 548 Latin America is a result of the1,700 inclusion 1,800of Oryx GTL,to and substantially Sasol Polymers reducing and our Sasol carbon emissions by, among others, developing equivalent per ton of production) in 2010. This compares with 3,24 in for steam generation and solids handling are to reduce our GHG footprint. As part of our commitment to reduce Olympic Games site gas emissions intensity by 15% (on the 2005 baseline) in all our operations by are being developed irrespective of water and lower-carbon energy options such as solar, biofuels and biomass, B 15 15 Synfuels signifi cantly increasing productionmore effivolumes, cient productionwhich offset processes and investigating carbon capture and 2009 and 3,02 (restated) in 2008. The improved overall GHG intensity paving the way for signifi cantly improved production of carbon dioxide in our operations and integrate new 2020, andEBITDA we have margin spent (in R100 %) million (US$11,110.6 million)11.0 in 2009China on ener gy 1,200 1,500 availability or pricing. as well as nuclear, hydro and natural gas. 52 AkzoNobel Decorative Paints | Business performance | AkzoNobel Report 2010 t
Leading coatings supplier for the Commonwealth the emissions increase. The targets westor haveag sete (CSS) for all solutions. our oper Weations have set several targets to reduce our greenhouse is a result of the inclusion of Oryx GTL, and Sasol Polymers and Sasol zero liquid effl uent discharge designs, which technology into our FT processes, SNE will look into renewable effi ciency-relatedEBIT projects, which should achieve298 a reduction343 of aroundOther Asian countries 2,000 2,200 refl ect not only our desire to be a responsiblegas emissions compan intensityy, but also by 15% (on the 2005 baseline) in all our operations by Synfuels signifi cantly increasing production volumes, which offset are being developed irrespective of water and lower-carbon energy options such as solar, biofuels and biomass, Games in India 760 000 tons of GHG emissions a year. as well as nuclear, hydro and natural gas. EBIT margin (in2007 %) 2008 6.5 20096.9 The2010 Netherlands our awareness1,000 that a strong1,100 business case2020, exists and wefor havesustainable spent R100 million (US$11,1 million) in 2009 on energy the emissions increase. The targets we have set for all our operations availability or pricing. Operating income 133 275 Germany development. 1,600 1,300 Geo-mix revenue by destination t
Signed a landmark agreement with the Forest effi ciency-related projects, which should achieve a reduction of around refl ect not only our desire to be a responsible company, but also Stewardship Council Moving average ROI (in %) 4.7 5.2 Sweden 600 600 760 000 tons of GHG emissions a year. our awareness that a strong business case exists for sustainable UK 2,200 2,200 development. t
Let’s Color campaign continued to gather momentum Key value chains with carbon Other European countries 5,400 5,100 A Decorative Paints Europe 4 52 annual review 2010 • our business • our integrated business model 5 t
Presence in China increased to more than 600 cities footprint assessment Other regions 1,100 1,100 B Decorative Paints Americas 31Revenue breakdown by business unit Total 21,900 22,000 4 annual review 2010 • our business • our integrated business model 5 in % Succinct summary of key developments C Decorative Paints Asia 17Link between revenue generation and Discussion of material issues that arise as a result of business activities, Identification of strategic responses to changing response to market drivers highlighted including targets and costs business environment 20% 108 7% C 42% 17% Product: Eco-premium solutions North America Emerging Europe % of revenue Asia Pacific 32 Mature Europe 16 www.theiirc.org 29 Towards Integrated Reporting 17 2009 2010 A 22 B 15 15

Total reportable rate of injuries 2007 2008 2009 2010 3% Geo-mix revenue by destination per million hours Rest of the world Key value chains with carbon 11% A Decorative Paints Europe 52 5.7 footprint assessment B Decorative Paints Americas 31 Latin America 4.9 4.7 4.0 C Decorative Paints Asia 17 20% 108 7% 42% 17% 2007 2008 2009 2010 North America Emerging Europe Asia Pacific 32 Mature Europe 2009 2010

Total reportable rate of injuries 3% AkzoNobel Report 2010 | Business performance | AkzoNobel Decorativeper million Paints hours 53 Rest of the world

11% 5.7 Latin America 4.9 4.7 4.0

2007 2008 2009 2010

AkzoNobel Report 2010 | Business performance | AkzoNobel Decorative Paints 53 Towards Integrated Reporting – Innovation in Action (continued)

BHP Billiton 2010 Annual Report pp 152 – 153 http://www.bhpbilliton.com/home/investors/reports/Documents/bhpBillitonAnnualReport2010.pdf Anglo American Annual Report 2010 pp 14 – 15 http://www.angloamerican.com/investors/reports/2011rep 14 Anglo American plc — Annual Report 2010 15 Anglo American plc — Annual Report 2010 These pages show the linkage between key financial and performance, and includes quantification of remuneration OPERTheyATIN Gpages AND FINANCIAL give a REVIEWsnapshot: Key peofrf ormancperformance.e indicators They are and non-financial. They explain how KPIs are calculated and non-financial drivers of strategy, remuneration policy and practices and the alignment between remuneration and structured so that the reader can easily see the link between include quantification of past results and targets for the future. remuneration6 Remuneration practice. Report This continued is reinforced through discussion company performance. key strategic objectives and performance, both financial of the linkages between remuneration and both risk and

6 Remuneration Report continued Ov er 6.2.2 Strategic alignment MEASURING OUR PERFORMANCE We measure performance against the four strategic view the Remuneration6.2.2 Strategic Committee alignment recognises that we operate in a global environment and that our performance depends on the quality elements of our strategy through Group-wide targets of our people.the Remuneration Remuneration Committee is recognisesused to thatreinforce we operate the in aGroup’s global environment strategic and objectives, that our performance and the depends committee on the quality keeps the remuneration policy under regularof our people.review Remuneration to ensure is it used is appropriateto reinforce the Group’s for the strategic needs objectives, of the andGroup. the committee keeps the remuneration policy KEY INDICATORS and improvement measures. under regular review to ensure it is appropriate for the needs of the Group. the diagramthe diagram below below illustrates illustrates how how BHP BHP Billiton’s Billiton’s remuneration remuneration policy is linked policy to the issix linkedkey drivers to of the our strategysix key and drivers how the of our strategy and how the

remunerationremuneration structures structures for for executives executives (including (including the members the members of the GMC) ofserve the to supportGMC) and serve reinforce to support these linkages. and reinforce these linkages. Operati ng

Explanation and quantification of STRATEGIC ELEMENTS KPI TARGETS Explicit link made between strategic RESULTS AND TARGETS an

NON-FINANCIAL FINANCIAL d

alignment between remuneration and aims and KPI targets financial 14 Investing Anglo American plc — Annual Report 2010 15 Anglo American plc — Annual Report 2010 PEOPLENON-FINANCIALLICENCE WORLD-CLASS FINANCIAL PROJECT PIPELINEFINANCIALGROWTH OPTIONS strategic objectives, both financial and

TO OPERATE ASSETS STRENGTH AND OPERATING AND FINANCIAL REVIEW: Key performance indicators non-financial In world class assets in the Total shareholder return (TSR) Capital projects and investment Page 16 Return on capital employed Underlying earnings per share Capital projects and investment review DISCIPLINE most attractive commodities Share price growth plus dividends reinvested over Optimise the pipeline of projects and ensure that (ROCE) A summary of the Group’s capital PEOPLEThe foundation We dependLICENCE on MaintainingWORLD-CLASS Balancing FINANCIALFocus on LookingPROJECT beyond PIPELINE GROWTH OPTIONS the performance period. A performance period of three new capital is only committed to projects that 2010 projects and investments can be found of our business key safety and high-quality financial flexibility delivering an the project 2010 TO OPERATE ASSETS STRENGTH AND years is used and TSR is calculated annually deliver the best value to the Group on a risk on pages 18 to 19 is our people. environmental assets and with the cost DISCIPLINEenhanced resource pipeline to 24.8% $4.13 Talented and imperatives and managing them in of finance in endowment to pursue new adjusted net present value basis motivated people on our ability the most effective effective capital underpin future growth options. The Driversfoundation of strategy We depend on Maintaining Balancing Focus on Looking beyond 2009 Total shareholder return (TSR) are our most to operate within and efficient way. management generations Ov 2009 of our businessprecious keyour Code safety of and high-qualityprograms. financialof growth. flexibility delivering an the project Return on capital employed (ROCE) Underlying earnings per share er Please refer to the Remuneration

resource.� Business Conduct. We measure performance against the four strategic 14.4% view is our people. environmental assets and with the cost enhanced resource pipeline to Total operating profit before impairments for the year Underlying earnings are net profit attributable to $2.14 report on pages 98 to 109 Talented and imperatives and managing them in of finance in endowment to pursue new MEASURING OUR PERFORMA14 NCEdivided by the average total capital less otherel ementsequi ofty shareholderAn ourglo Americ strategys,an adju plc —st Anednu foral Reththrpoe efrt 20feough10ct of Gr15oup-wide targets Anglo American plc — Annual Report 2010 motivated people on our ability the most effective effective capital underpin future growth options. OPERATING ANDinve FINANCIALstments REVIEW and adju: Keysted pe rfforormanc impairmente indicatosrs special items and remeasurements and any Drivers of strategy are ourWe most provide Remunerationto operate within Remunerationand frameworks efficient reward way. managementConsistent with our long-term strategicgenerations related tax and non-controlling interests competitive rewards frameworks reward achievement of demanding financial focus, performance measures are linked KEY INDICATORS and improvement measures. Governance preciousto attract, motivate strongour Codeperformance of performance targets, driving superior programs.to long-term growth.6.2.3 This Risk rewards alignmentof growth. 6.2.4 Performance alignment and retain highly in the areas results across the Group. executives for delivering sustainable 14 Anglo American plc — Annual Report 2010 15 Anglo American plc — Annual Report 2010 OPERATING AND FINANCIAL REVIEW: Key performance indicators resource.�skilled executives ofB health,usiness safety, Conduct. returns and avoidingthe excessive global risks.financial crisis has heightened the focus on risk While the Board recognises that market forces necessarily 6 Remuneration Report continued Organising willing to work environment management within organisations, and in particular on influence remuneration practices, it strongly believes that Ov Operati

Supported by around the world. and community remuneration frameworks that work to ensure executives take the fundamental driver behind our remuneration structure is 6.2.2 Strategic alignment 6.2.3 Risk alignment 6.2.4 Performance alignment er development. Efficiently and effectively Asset optimisation (AO) Supply chain Page 20 Asset optimisation (AO) Supply chain view

a long-term approach to decision-making – minimising activities business performance. Accordingly, while target remuneration We measure perfOv ormance against the four strategic remuneration policy remuneration the Remuneration Committee recognises that we operate in a global environment and that our performance depends on the quality the global financial crisis has heightened the focus on risk While the Board recognises that market forces necessarily er

of our people. Remuneration is used to reinforce the Group’s strategic objectives, and the committee keeps the remuneration policy that focusmanagement only within on organisations, short-term and in resultsparticular on at the expenseinfluence remuneration of longer practices, it stronglyis believes structured that to attract and retain executives, the amount Sustainable operating profit benefit OperatingWe profi measurt and eca perfpitaormancl spende b againstenefits the to thfoure strategic view MEASURING OUR PERFORMANCE 2009 $749 million 2009ng $445 million under regular review to ensure it is appropriate for the needs of the Group. remuneration frameworks that work to ensure executives take the fundamental driver behind our remuneration structure is MEASURING OUR PERFORMANCE term businessa long-term approach growth to decision-making and success. – minimising activities business performance. Accordingly, while targetof remunerationSTRA TEGI actuallyC ELEMENTS received is dependentKP onI TA theRGET S RESULTS AND TARGETS elements of our strategy through Group-wide tar gets We provide Remuneration Remuneration frameworks reward Consistent with our long-term strategic an the diagram below illustrates how BHP Billiton’s remuneration policy is linked to the six key drivers of our strategy and how the from optimised performance of the asset Group resultingelements from of centralisedour strategy procurement through Group-wide targets 2010 $1,548 million 2010 $713 million remuneration structures for executives (including the members of the GMC) serve to support and reinforce these linkages. that focus only on short-term results at the expense of longer is structured to attract and retain executives, the amount • GMC base salaries • 15% of STI for • STI outcomes for the GMC are weighted • The LTIP operates over a long-term horizon. achievement of superior business and individual performance d competitive rewards frameworks reward achievement of demanding financial the Remunerationterm businessfocus, growth performance andCommittee success. has measures consideredof areremunerationthe wayslinked actually in which received is dependent on the and improvement measures. (1) (2) KEYba INDIse of thCAe coreTO busineRSsses from core businesses financial are aligned with GMC members is towards achievement of challenging Performance Shares are ttestedhe Remuneration over aCommittee has considered the ways in which achievement of superior business and individualand performance on generating sustained shareholder value. and improvement measurTarget es.$1 billion by 2011 Target $1 billion by 2011 and on generating sustained shareholder value. KEY INDICATORS to attract,comparable motivate strongmeasured performance against financialperformance KPIs linking remuneration targets, to the driving superiorfive-year performance risk management period.risk managementto long-term is reflectedis reflected throughout growth. BHPthroughout Billiton’s This reward rewardsBHP Billiton’s reward Investing NON-FINANCIAL FINANCIAL structure for all executives, and is satisfied that it reinforces Short-term performance indicators and outcomes Operati and retainroles highly in global in health,the areas safety, performanceresults of BHP across Billiton’s the assets Group. and structurethe desired forexecutives behaviours.all executives, this is largelyfor achieveddeliveringand is through satisfied the sustainable that it reinforces Short-term performance indicators and outcomes • The LTIP links a significantGroup’s component approach to S tI and LtI rewards, which comprise An individual scorecard of measures is set for each executive ng

companies of PEOPLEenvironment LICENCE WORLD-CLASScapital managementFINANCIAL programs:PROJECT PIPELINE GROWTH OPTIONS the desired behaviours. this is largely achievedat the through commencement the of each financial year. theseIn scorecards world class assets in the review Total shareholder return (TSR) Capital projecSTRATEtsGIC anELEMENTSd investKPmentI TARGETS Page 16 Return on cRESUapiLTtaS ANl Dempl TARGETSoyed Underlying earnings per share Capital projects and investment a significant portion of remuneration for the GMC. Operating an skilled executives of health, TOsafety, OPERATE ASSETS STRENGTH AND of pay for executives to the deliveryreturns and avoiding excessiveinclude risks. the key financial and non-financial measuresAn individual that the scorecard of measures is set for each executive Operati and community d a similar size – Profit AfterDISCIPLINE Tax (adjusted for foreign Group’sthe approachequity component to of SStI trewardsI and is deferredLtI rewards, for a two-year which comprise financial of superior returns. Board believes will drive BHP Billiton’s performance.mo At thest attractive commodities Share price growth plus dividends reinvested over Optimise theIn vepipelinesting of projects and ensure that (ROCE) A summary of the Group’s capital willing toand work complexity. Theenvironment foundationdevelopment We depend on Maintainingexchange, Balancing price and exceptionalFocus on items)Looking beyond period, and performance under the LtIP is measured over a conclusion of the financial year, each individual’sat the achievement commencement of each financial year. these scorecards of our business key safety and high-quality financial flexibility delivering an the project – Executives onlya derive significantfive-year value period.from portion the actual of rewards remuneration received by members for of the GMC.

against their measures is assessed by the Remuneration Financia

2010 review

In world class assets in the Total shareholder return (TSR) Capital projects and investment Page 16 Return on capital employed Underlying earnings per share Capital projects and investment ng Base salaries for is our measures.people. environmental assets and Earningswith the Before cost Interestenhanced resource and Taxpipeline – to the GMC therefore reflect the Group’s performance and share include the key financial and non-financial measuresthe perf thatormance the period. A performance periodSafe lyof, suthreestai nablnewy capital is onlyWo commitrk relatedted to pr fatojecalts inju thatry Total water use 2010Page 24 projectsWork relatedand investments fatal injury can be found Energy consumption Corporate social investment

Supported by Committee and Board and their cash StI reward is determined. around the world. Talentedand and community imperatives and managing them in of finance in endowment to pursue new their LTIP awards where BHP Billiton most attractive commodities Share price growth plus dividends reinvested over Optimise the pipeline of projects and ensure that (ROCE) A summary of the Group’s capital price over an extended period. STRATEGIC ELEMENTS KPI TARGETS RESULTS AND TARGETS the equity component of StI rewards is deferredthis is matched for a with two-year an allocation of Deferred Shares or Options (3)(4) an other executives motivated people on our ability the most25% effective to 50%effective weighting. capital underpin future growth options. Board believes will drive BHP Billiton’s performance.years is At us theed and TSR is calculated annually deliver the best value to the Groupthe performance on period.a risk A pe rformance period of three new capital is only committed to projects that 2010 2010 projects and investments can be found on pages 18 to 19 Drivers of strategy • The Group’s performs strongly relative to comparator (or a combination of the two), to which the individual will and responsibly frequency rate (FIFR) Total water use includes only water used for frequency rate (FIFR) 2009 102.1 million GJ total 2009 $82.5 million, 1.9% of aredevelopment. our most to operate within and efficient way. management generations In addition, StI and LtI outcomes are not driven by a years is used and TSR is calculated annually deliver the best value to the Group on a risk 24.8% on pages 18$ to4.13 19 d remuneration policy remuneration are market period, and performance under the LtIP is measured over a 24.8% precious our Code of programs. of growth. not have access for two years (unless they leave the Group financial performance – Capital management (cost and schedule) companies in growing formulaicits TSR. approach. the Remuneration Committee applies conclusion of the financial year, each individual’s achievement adjusted net present value basis $4.13 resource.� Business Conduct. under specific circumstances). adjusted net presenFIFRt va lueis ca balculatedsis as the number of fatal injuries to primary activities 2009 20 fatalities, 0.010 FIFR energy used profit before tax competitive within 10% to 15% weighting. five-yeara qualitative period. judgement the to determiningactual rewardsStI rewards and received to by members of Investing 2009 Total shareholder return (TSR) l in the areas of – Full vesting under the LTIP only occurs against their measures is assessed by the Remuneration sta each geography, vesting under the LtIP, and may determine that rewards not the relationship between StI rewards and the performance employeesRe orturn c onontra capital emplctoroyeds (ROpeCEr )20 0,000 Underlyinghours earningsworke pedr share 2009 2009 Please refer to the Remuneration Total shareholder return (TSR) health, safety, where BHP Billiton’sthe GMC TSRbe provided outperforms therefore in circumstances reflect where thethe committee Group’s determines performance of the Group overand the share past five years indicates the success of Total operating profit before impairments for the year Underlying earnings are net profit attributable to 14.4% report on pages 98 to 109 2010 14 fatalities, 0.008 FIFR 2010 100.7 million GJ total 2010 $111 million, Committee and Board and their cash StI reward is determined. $2.14 tement

We provide Remuneration Remuneration frameworks reward Consistent with our long-term strategic it to be inappropriate or would provide unintended outcomes. and equitable • ‘On target’ performance against the KPIs our remuneration strategy in aligning executive rewards with In world class assets in the divided byTo theta avel rageshareholde total capital less otrher return (TeSRquity )shareholder s, adjusted for the effect of Capital projects and investment 2009 Page 16 Return on capiPtaleasel empl refoyered to the RemunerationUnderlying earnings per share Capital projects and investment review competitiveenvironment rewards frameworks reward achievement of demanding financial focus, performance measures are linked the index TSR byprice more over tthanhe Remuneration an30% extended over Committee doesperiod. not apply any discretion to shareholder interests (as shown in the graphst hisbelow). is Further matched with an allocation of DeferredRe Sharesturn oron Options capita l employed (ROCE) Underlying earnings per share Corporate social investment energy used 1.3% of profit before tax across the Group. to attract, motivate strong performance performancedelivers targets, a driving cash superior STI rewardto long-term of 80% growth. of This base rewards allow vesting when performance hurdles have not been satisfied. most attractive commodities investmentShs arande adju prsticede for grow impairmentth splus dividendspecias l reinveitems and stremeaedsuremen overts and any Optimise the14.4 pipeline% of projects and ensure that Target Zero fatal incidents A summary of the Group’s capital and retainand highly community in the areas results across the Group. executives for delivering sustainable a five-year period. details of the Group’s Attributable Profit and Basic Earnings related tax and non-controlling interests (ROCE) • GMC base salaries • 15% of STI for • STI outcomes for the GMC are weighted • The LTIP operates over a long-term horizon. (or a combination of the two), to which the individualTotal op eratingwill profit before impairments for the year Underlying earnings are net profit attributable to Social investment as defined by the London Governance report on pages 98 to 109 skilled executives of health, safety, salary. The maximum cashreturns award and avoiding of excessive 160% risks. In addition, StI and LtI outcomes are not drivenper Share by over a the past five years can be found in section 3 Lost time injury frequency rate (LTIFR) $2.14 2010 Target A 15% intensity reduction • Further rewards development the performance period. A performance period of three new capital is only committed to projects that 2010 projects and investments can be found s willing to work environment is rarely awarded, and is only available • The Minimum Shareholding Requirement of this Annual Report (including descriptionsnot of these have terms). access for two years (unless they leave the Group are aligned with Supported by aroundGMC the world. membersand community is towards achievement of challenging formulaic approach.Performance the Remuneration Shares are Committee tested over applies a divided by the average total capital less other equity shareholderOrganisingThes, adju numbersted for of thloest ef timefect inju of ries (LTIs) per 200,000 Benchmarking Group includes donations, gifts in are available impacts STIdevelopment. years is used and TSR is calculated annually deliver the best value to the Group on a risk Lost time injury on pages 18 to 19 Enterprise development remuneration policy remuneration by 2014 where all non-financial and financial was increased in aJuly qualitative 2010Average to STI300% reward judgement forof GMC members to determining StI rewardsAverage STI reward and for GMCto members under specific circumstances). 24.8% $4.13 comparableto executives measuredoutcomes for against financial KPIs linking remunerationannual gross to base the salary vs for Profit the Attributablefive-year CEO toand Shareholders performance (excluding exceptional items) period.vs Basic Earnings per Share investments and adjusted for impairments special itemsEf ficientlyand an remeahourd effectivsel yworsuremenkeAssetd. op Antstimisa an LTtiondI (AanisO) an y occupationalSuppl injuy chainry which kindadju anstded st Panetafgef 20presentime fort vaAsset adminilue optimisationbasisst ering (AO) communitSupply chainy frequency rate (LTIFR) targets are fully achieved. 300 100 Sustainable operating profit benefit Operating profit and capital spend benefits to the 2009 $749 million 2009 $445 million 2009 Businesses supported: for performance • GMC baseall salariesexecutives. • 15% of STI for • STI outcomes for the GMC are weighted • The LTIP operates over a long-term horizon. vesting under16 the LtIP, and may100 determine that rewards not 200% for other GMC members to ensure the relationship between StI rewards and the performance related tax and non-controllingfrom intere optimised pestrformances of the asset Group resulting from centralised procurement 2010 $1,548 million 2010 $713 million 2009 Total shareholder return (TSR) roles in global are alignedhealth, with GMCsafety, members is towards achievement ofperformance challenging Performance of Shares BHP are tested Billiton’s over a assets and 90 renders the person unable to perform his/her duties for programmes and volunteering in company time 90 90 Governance against all at risk • Cash STI rewards are matched by an award 14 base of the core businesses from core businesses (1) (2) 2009 0.76 GHG emissions 3,720 comparable measured against financial KPIs linking remuneration to the five-year performance period. be provided• Thein circumstances LTIP links a where significant the committee component determines 2009 Or • The Remuneration executives and shareholders interests 250 of the Group over the past five years indicates the success of Return on capital employed (ROCE) Underlying earningsTarget per $1shar billione by 2011 Target $1 billion by 2011 Please refer to the Remuneration companiescomponents of of roles environmentin global health, safety, performanceof BHP of BHP Billiton Billiton’scapital assets equity, and management which• The LTIP is links deferred a significant component forprograms: 80 80 one full shift or more the day after the injury was and is shown as percentage of profit before tax (4) 14.4% e Re companiesCommittee of environment has capital management programs: of pay for executives to the delivery remain aligned. it to be inappropriate12 of pay for or executiveswould provide to unintended the delivery outcomes. 2010 0.57 2009 19 Mt CO equivalent Jobs sustained: a similar size and community – Profit After Tax (adjusted for foreign 70 70 our remuneration strategy in aligning executive rewards with Total operating profit before impairments for the year Underlying earnings are net profit attributable to report on2 pages 98 to 109 two years providing an appropriateof superior returns. focus 200 Operating $2.14 remuneration. and complexity. development exchange, price and exceptional items) a similar size andan overriding community – Profit After– Executives Tax only derive (adjusted value from for foreign the Remuneration10 Committee does not apply any discretion to incurred, whether a scheduled workday or not Base salaries for measures. and Earnings Before Interest and Tax – • Executives are prohibited from 60 60 shareholder interests (as shown in the graphs below). Further divided by the average total capital less other equity shareholders, adjusted for the effect of se on the longer-term time frame,their LTIP awardseven where in BHP Billiton of superior returns. Organising Safely, sustainably Work related fatal injury Total water use Page 24 Work related fatal injury Energy consumption Corporate social investment Financia Target Zero incidents – 2010 20 Mt CO equivalent 12,982 The at risk other executives 2 discretion• Theto Group’s 25% to 50% weighting. (3)(4) performs strongly relative to comparator allow vesting8 when performance50 hurdles have not150 been satisfied. 50 and responsibly frequency rate (FIFR) Total water use includes only water used for frequency rate (FIFR) 2009 102.1 million GJ total 2009 $82.5 million, 1.9% of and complexity. development rv components are market performance – Capitalregard management to annual (cost exchange,and schedule) STI rewards.companies price in growing and its TSR. exceptionalhedging anyitems) unvested equity and any details of the Group’s Attributable Profit and Basic Earnings investments and adjusted for impairments Enterprisspecial itemse de andve remealopmentsuremen ts and any competitivereduce within incentive 10% to 15% weighting. – Executives only derive value from FIFR is calculated as the number of fatal injuries to primary activities 2009 20 fatalities, 0.010 FIFR energy used profit before tax

l 2010 Businesses supported: in the areas of – Full vesting under the LTIP only occurs 40 40 the ultimate goal of zero Target A 10% intensity reduction es each geography, shares that are held as part6 of the per Share over the past five years can be found in section 3 employees or contractors per 200,000 hours worked related tax and non-controlling interests sta Base salariesserve the for dual measures.health, safety, where BHP Billiton’s TSR outperforms 100 2010 14 fatalities, 0.008 FIFR 2010 100.7 million GJ total 2010 $111 million, Number of companies supported and tement and equitable • ‘On target’ performance againstand the KPIs Earnings Before Interest and Tax – Energy consumption Governance outcomes 30 30 Efficiently and effectively Asset optimisation (AO) Supply chain Page 20 Asset optimisation (AO) Supply chain environment the index TSR by more than 30% over Corporate social investment an across the Group. delivers a cash STI reward of 80% of base Minimum Shareholding Requirement.their LTIP awards where BHP Billiton Target Zero fatal incidents energy used 1.3% of profit before tax 9,392 purpose of: and community a five-year period. 4 of this Annual Report (including descriptions of these terms). Social investment as defined by the London harm remains by 2014 to reflect salary. The maximum cash award of 160% 20 20 Lost time injury frequency rate (LTIFR) Target A 15% intensity reduction s other executives • Further rewards development 25% to 50% weighting. Improvements in energy efficiency are measured number of jobs sustained by companies d – incentivising • The Group’s is rarely awarded, and is only available • The Minimum Shareholding Requirement performs strongly relative to50 comparator Sustainable operating profit benefit Operating profit and capital spenThe numberd b ofenefit lost time injusries to (L TIths) epe r 200,000 Benchmarking Group includes donations, gifts in 2009 $749Lost million time injury 2009 $445Enterprise million development are available impacts STI (as % of maximum award) STI reward Average

2 by 2014 Minera below-target where all non-financial and financial was increased in July 2010 to 300% of 10 (as of % maximum award) STI reward Average Jobs sustained: to executives outcomes for 10 hours worked. An LTI is an occupational injury which kind and staff time for administering community frequency rate (LTIFR) Enacted through remuneration structures remuneration through Enacted 2009 Businesses supported: are marketand rewarding targets are fully achieved. annual gross base salary for the CEO and items (US$B) exceptional attributable – excluding Profit Organising from a 2004 baseline supported by Anglo American enterprise

for performance all executives. – Capital management (cost and schedule) items (US cents per share) exceptional Basic EPS – excluding from optimised performance of the asset Group resulting from centralised procurement performancesafety or 200% for other GMC members to ensure 0 0 0 0 renders the person unable to perform his/her duties for programmes and volunteering in company time 2010 $1,5482009 0.76million GHG emissions2010 $713 million3,720

companies in growing its TSR. Or against all at risk • Cash STI rewards are matched by an award Average STI reward for GMC members Average STI reward for GMC members Total water use 17,200 • The Remuneration executives and shareholders interests 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 one full shift or more the day after the injury was and is shown as percentage of profit before tax (4) executives for e Re of BHP Billiton equity, which is deferred for 2010 0.57 2009 19 Mt CO2 equivalent Jobs sustained: competitive within componentsenvironmental of Committee has remain aligned. vs Profit Attributable to Shareholders (excluding exceptional items) vs Basic Earnings per Share base of the core businesses from core businesses development initiatives (1) (2) 3 two years providing an appropriate10% focus to 15% weighting. incurred, whether a scheduled workday or not (4) remuneration.in the areas of Profit attributable– toFull shareholders vesting (excluding exceptional under items) the LTIP Basiconly Earnings peroccurs Share Efficiently and effectively Target $1 billionTarget Zero by incidents 2011 – 2010 20 MtTarget CO2 equivalent $1 billion 12,982 by 2011 se exceptional an overriding • Executives are prohibited from Asset optimisation (AO) Supply chain Page 20 Asset optimisation (AO) Supply chain 2009 125.3 million m l Re on the longer-term time frame, even in Enterprise development rv Target Businesses supported: The atperformance. risk discretion to Average STI reward for GMC members Average STI reward for GMC members 2010 Businesses supported:

the ultimate goal of zero Target A 10% intensity reduction es each geography,performance; components regard to annual STI rewards. hedging any unvested equity and any 16 100 300 100 GreenhousEnergye ga consumptions (GHG) emissions Number of companies supported and reduce incentive Sustainable operating profit benefit Operating profit and capital spend benefits to the 3 servehealth, the dual safety, shares that are held as part of the where BHP Billiton’s TSR outperforms harm remains by 2014 9,392 2009 an $749 million 2009 $445 million source outcomes Minimum Shareholding Requirement. Improvements in energy efficiency are measured number of jobs sustained by companies d 2010 115.2 million m 3,500 and equitableand purpose of: to reflect • ‘On target’ performance against the KPIs Reduction finrom COa 20from042 ba emisselin optimisede sions pe performancer unit of ofproducsuppor thete asd byse Antionglot Am iseric an enterprise Group resulting from centralised procurement Jobs sustained: Minera – incentivisingenvironment below-target the index TSR by more90 than 30% over 90 Total water use 17,200 2010 $1,548 million 2010 $713 million

Enacted through remuneration structures remuneration through Enacted development initiatives – promoting and rewarding safety or 14 Operating (4) 3 Target Under revision Jobs sustained: 2009 125.3 million m l Re (1) (2) across the Group. executives for delivers a cash STI reward of 80% of base measured fromba ase 20 of04 the ba coreselin businee sses from core businesses Target Businesses supported: environmental 250 Greenhouse gas (GHG) emissions 3 Target $1 billion by 2011 Target $1 billion by 2011 retention and exceptionaland community a five-year period. 2010 115.2 million m 3,500 source performance. 80 80 Reduction in CO2 emissions per unit of production is s performance; salary. The maximum cash award of 160% Target Under revision Jobs sustained: 18,000 rewarding and measured from a 2004 baseline

12 s

18,000 Financia • Further rewards – promotingdevelopment Safely, sustainably Work related fatal injury Total water use Page 24 Work related fatal injury Energy consumption Corporate social investment loyalty. retention and is rarely awarded, and is only available • The Minimum Shareholding70 Requirement 70 200 Operating (3)(4) are available rewardingimpacts STI and responsibly frequency rate (FIFR) Total water use includes only water used for frequency rate (FIFR) 102.1 million GJ total $82.5 million, 1.9% of loyalty. 10 Employing 2009 2009 where all non-financial and financial was increased in July 2010 to 300% of 60 O 60 the

to executives outcomes for FIFR is calculated as the number of fatal injuries to primary activities Financia Employing Safely, suThestai benablst peopley VoluntarWoy labourrk relatedturnover fatal injury Voluntary HIV counselling Total wa2009Pateger 32 us e 20 fatalities,Voluntary labour 0.010 turnover FIFRVoluntary HIV counselling PaenergygeGender 24 used diversity Work relatedr fatal injuryprofit beforeEnergy tax consumption Corporate social investment l information

annual gross base salary for the CEO and O

targets are fully achieved. sta 150 50 and responsibly Number of permanent employee resignations as and testing (VCT) Total water use includes2009 on ly6. wate8% r used for and testing (VCT) 2009 12% females, (3)(4) 8 50 frequency rate (FIFR) frequency rate (FIFR) 2009 102.1 million GJ total 2009 $82.5 million, 1.9% of the for performance all executives. employees or contractors per 200,000 hours worked a percentage of total permanent employees Percentage of employees in southern Africa 2010 14 fatalities,2010 5.3% 0.008 FIFR2009 82% 2010 100.7 million19% female managersGJ total 2010 $111 million, 200% for other GMC members to ensure tement FIFR is calculated as the numbeunder ofrtaki fangta voluntl injuary anriesnual HItoV tests with primary activities 2010 94% 2010 14 females, 2009 20 fatalities, 0.010 FIFR energy used profit before tax r against all at risk • Cash STI rewards are matched by an award The best people Corporate socialVo inveluntstarmentyGender labour diversit yturn over compulsory counselling support Voluntary HIV counselling Page 32 Voluntary labour turnover Voluntary HIV counselling Genderl diversity 40 21% female managers sta • The Remuneration executives and shareholders40 interests Target Zero fatal incidents Target 95% VCT in high diseaseenergy used 1.3% of profit before tax information 6 Percentaemployeege of women ands femaleor c ontramanagersct ors per 200,000 hours worked burden countries (100% is 2010 14 fatalities, 0.008 FIFR 2010 100.7 million GJ total 2010 $111 million, of BHP Billiton equity, which is deferred for 100 Social investment Numberas defined of bypermanent the London employee resignations as and testing (VCT) and testing (VCT) tement components of Lost time injury frequency rate (LTIFR) employed by the Group the longTarget term goal) A 15% intensity reduction 2009 6.8% 2009 12% females, Committee has remain aligned. 30 30 Corporate social investment s two years providing an appropriate focus The number of lost time injuries (LTIs) per 200,000 Benchmarking Groupa percen includtaesge don of toationstal permanen, gifts in t employees Percentage of employees in southern Africa Target Zero fatal incidents energy used 82% 1.3% of profit before tax 19% female managers remuneration. 4 Lost time injury frequency rate (LTIFR) Social inveLoststment time as injury defined by the London by 2014 Enterprise2010 5.3% developmentTarget A 15% intensity 2009reduction an overriding 20 20 s The at risk on the longer-term time frame, even in • Executives are prohibited from 50 hours worked. An LTI is an occupational injury which kind and staff time for administeringThe communitnumber of loyst time injuries (LTIs) per 200,000 undeBenchmarkingrtakifrequencyng volunt Groupar rate yinclud an nu(LTIFR)esal don HIationsV test, gisft withs in Lost time injury2009 Businesses supported: 2010 94%Enterprise development 2010 14 females, (1) $1 bn of sustainable operating profit benefit from core businesses by the end of 2011. (3) The 2009 figure was revised since the publication of the 2009 Annual Report after amendments in accounting methodologies. by 2014

discretion to (as % of maximum award) STI reward Average 2 (2)

Average STI reward (as of % maximum award) STI reward Average $1 bn of operating profit and capital spend benefits from core businesses by the end of 2011. It includes operations that have since become independently managed. 152 | BHP BILLItON ANNUAL REPORt 2010 hedging any unvested equity and any BHP BILLItON ANNUAL REPORt 2010 | 153 hours worked. An LTI is an occupational injury which kind and staff time for administering community 10 renders the person unable to perform his/her duties for programmes and volunteering in company time compulsory counselling(4) support frequency rate (LTIFR) components regard to annual STI rewards. 10 Gender diversity 2009 0.76 Includes businesses since divested. GHG emissions 3,720 2009 Businesses supported: 21% female managers

TargetOr 95% VCT in high disease reduce incentive items (US$B) exceptional attributable – excluding Profit renders the person unable to perform his/her duties for programmes and volunteering in company time 2009 0.76 Basic EPS – excluding exceptional items (US cents per share) exceptional Basic EPS – excluding (4) GHG emissions 3,720 6.2.3 Risk alignmentshares that are held as part of the 6.2.4 Performance alignmentone full shift or more the day after the injury was and is shown as percentage of profit before tax Or serve the dual 0 0 Percentage of women and female managers e Re 0 0 one full shift or more the day after the injury was and is show2010n as percen0.57tage of profit before tax 2009 19 Mt CO2 equivalent Jobs sustained:(4 ) burden countries (100% is outcomes 2010 0.57 2009 19 Mt CO equivalent Jobs sustained: e Re purpose of: 2006 Minimum2007 2008 Shareholding2009 2010 Requirement. 2006 2007 2008 2009 2010 incurred, whether a scheduled workday or not employed by the Group 2 the global financial crisis has heightened the focus on risk While the Board recognises that market forces necessarily incurred, whether a scheduled workday or not Target Zero incidents – 2010 20 Mt CO2 equivalent 12,982 se the long term goal) to reflect Target Zero incidents – 2010 20 Mt CO2 equivalent 12,982 se

Enterprise development rv – incentivising managementProfit attributable within to shareholders organisations, (excluding exceptional and items) in particular on Basic Earnings perinfluence Share remuneration practices, it strongly believes that Enterprise development 2010 Businesses supported: rv the ultimate goal of zero Target A 10% intensity reduction es 2010 Businesses supported: below-target the ultimate goal of zero Target A 10% intensity reduction es Average STI reward for GMC members Average STI reward for GMC members Number of companies supported and Number of companies supported and

Enacted through remuneration structures remuneration through Enacted Energy consumption Energy consumption

an and rewarding safety or remuneration frameworks that work to ensure executives take the fundamental driver behind our remuneration structure is harm remains by 2014 harm remains 9,392 by 2014 an 9,392 152 | BHP BILLItON ANNUAL REPORt 2010 Improvements in energy efficiency are measured number of jobs sustained by companies d

Improvements in energy efficiency are measured number of jobs sustained by companies d

executives for Jobs sustained: Minera environmental a long-term approach to decision-making – minimising activities business performance. Accordingly,from a 2004 ba whileselin etarget remuneration supported by Anglo American entefromrprise a 20 04 baseline supported by Anglo American enterprise Jobs sustained: Minera exceptional Quantified demonstration of alignment Total water use Total water use 17,200 performance. that focus only on short-term results at the expense of longer is structured to attract and retain executives, the amount development initiatives 17,200 (4) 3 development initiativ(1) es (3) 2009 125.3 million m l Re performance; $1 bn of sustainableGreenhous operating profite benefit gas (GfromHG co)re emission businesses sby the end of 2011. (4) 3 The 2009 figure was revised since the publication of the 2009 Annual ReportTarget after amen Businessesdments in acco supported:unting methodologie s. (2) 2009 125.3 million m Target Businesses supported: 3 l Re

term business growth and success. of remuneration actually received is dependent on the source between remuneration and companyGreenhous e gas (GHG) emissions $1 bn of operating profiRetdu anctd caionpi tainl spenCO d emis benefitsions froms pe cor reun busineit of producsses by thtione en isd of 2011. It includes operations that2010 have sinc e115.2 becom emillion independently m managed. 3,500 and 2 3 (4) achievement of superior business and individual performance 2010 115.2 million m Includes busine3,500sses sinceTarget divested. Under revision source Jobs sustained: the Remuneration Committee has considered the waysperformance in which Reduction in CO2 emissions per unit of production is measured from a 2004 baseline – promoting Target Under revision Jobs sustained: 18,000 s risk management is reflected throughout BHP Billiton’s reward and on generating sustainedmeasured shareholder from a 20 value.04 baselin e retention and 18,000 s structure for all executives, and is satisfied that it reinforces rewarding Short-term performance indicators and outcomes Employing the desired behaviours. this is largely achieved through the O loyalty. the An individual scorecard of measures is set for each executive Employing The best people Voluntary labour turnover Voluntary HIV counselling Page 32 Voluntary labour turnover Voluntary HIV counselling Gender diversity r

Group’s approach to StI and LtI rewards, which comprise information Number of permanent employee resignations as and testing (VCT) 2009 6.8% and testing (VCT) O 2009 12% females, a significant portion of remuneration for the GMC. at the commencement of each financial year. these scorecards the a percentage of total permanent employees Percentage of employees in southern Africa 2009 82% 19% female managers The bestinclude people the key financialVo andlunt non-financialary labour turn measuresover that the Voluntary HIV counselling Page 32 Voluntary labour turnover Voluntary HIV counselling2010 5.3%Gender diversity r undertaking voluntary annual HIV tests with information the equity component of StI rewards is deferred for a two-year Board believes will driveNumber BHP Billiton’s of permanent performance. employee At re signationsthe as and testing (VCT) 2009 6.8% and testing (VQuantificationCT) of past2009 and12% present females,2010 94% 2010 14 females, Gender diversity compulsory counselling support 21% female managers period, and performance under the LtIP is measured over a a percentage of total permanent employees Percentage of employees in southern Africa 2009 82% 19% femaleTarget managers 95% VCT in high disease conclusion of the financial year, each individual’s achievement Percentage of women and female managers 2010 5.3% performance data and future targets burden countries (100% is five-year period. the actual rewards received by members of against their measures is assessed by the Remuneration undertaking voluntary annual HIVemployed tests with by the Group 2010 94% 2010 14 females, the long term goal) the GMC therefore reflect the Group’s performance and share Committee and Board andGender their dicashver sitStyI reward is determined. compulsory counselling support Target 95% VCT in high disease 21% female managers Explanationprice over is anreinforced extended period. through discussion this is matched with anPerc allocationentage of womenDeferred and Shares female or manage Optionsrs burden countries (100% is employed by the Group of linkIn with addition, risk SandtI and performance LtI outcomes are not driven by a (or a combination of the two), to which the individual will the long term goal) Includes an array of non-financial (1) $1 bn of sustainable operating profit benefit from core businesses by the end of 2011. (3) The 2009 figure was revised since the publication of the 2009 Annual Report after amendments in accounting methodologies. formulaic approach. the Remuneration Committee applies not have access for two years (unless they leave the Group (2) $1 bn of operating profit and capital spend benefits from core businesses by the end of 2011. It includes operations that have since become independently managed. (4) a qualitative judgement to determining StI rewards and to under specific circumstances). as well as financial KPIs Includes businesses since divested. vesting under the LtIP, and may determine that rewards not the relationship betweenBHP BILLItON ANNUAL StI REPORrewardst 2010 | 153and the performance be provided in circumstances where the committee determines (1) $1 bn of sustainable operating profit benefit from core businesses by the end of 2011. (3) The 2009 figure was revised since the publication of the 2009 Annual Report after amendments in accounting methodologies. of the Group over the past(2) $1 bnfive of operatin yearsg profi indicatest and capital spen thed benefitsuccesss from coofre businesses by the end of 2011. It includes operations that have since become independently managed. it to be inappropriate or would provide unintended outcomes. our remuneration strategy in aligning executive rewards with (4) Includes businesses since divested. 18 www.theiirc.org the Remuneration Committee does not apply any discretion to shareholder interests (as shown in the graphs below). Further Towards Integrated Reporting 19 allow vesting when performance hurdles have not been satisfied. details of the Group’s Attributable Profit and Basic Earnings 152 | BHP BILLItON ANNUAL REPORt 2010 per Share over the past five years can be found in section 3 of this Annual Report (including descriptions of these terms).

Average STI reward for GMC members Average STI reward for GMC members vs Profit Attributable to Shareholders (excluding exceptional items) vs Basic Earnings per Share

16 100 300 100

90 90 14 250 80 80 12 70 70 200 10 60 60

8 50 150 50

40 40 6 100 30 30 4 20 20 50

2 (as % of maximum award) STI reward Average 10 10 (as of % maximum award) STI reward Average Profit attributable – excluding exceptional items (US$B) exceptional attributable – excluding Profit

0 0 items (US cents per share) exceptional Basic EPS – excluding 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Profit attributable to shareholders (excluding exceptional items) Basic Earnings per Share Average STI reward for GMC members Average STI reward for GMC members

BHP BILLItON ANNUAL REPORt 2010 | 153 Key points in this section WHAT WILL INTEGRATED The main benefits and challenges of Integrated Reporting are presented here from the following perspectives: REPORTING MEAN FOR ME? • reporting organizations; • investors; • policy-makers, regulators and standard-setters; and “Integrated Reporting and transparency is not only the right thing to do, but it has brought • other stakeholders. with it a broad range of business benefits, ranging from richer access to capital markets and identification of cost savings to an increase in employee engagement.” Lord Sharman of Redlynch, Chairman, Aviva

Benefits and Challenges Reporting Organization Perspective The implications of Integrated Reporting will vary for different participants in the reporting supply chain depicted in the diagram below. This section of the Discussion Paper outlines the main benefits and challenges with respect to Integrated Reporting for Directors’ duties – The fiduciary and other duties of reporting organizations, investors, policy-makers, regulators and standard-setters, and other stakeholders. The benefits of Integrated Benefits those charged with governance are not consistent across all Reporting set out in this section are equally relevant to other key stakeholders such as customers, suppliers and governments who are Although Integrated Reporting is an emerging practice, a jurisdictions. Consequently, the focus of an Integrated increasingly demanding demonstration of a more integrated picture of performance as a prerequisite for doing business. number of benefits have been identified in research to date, Report may differ, in particular in relation to the users 9 as summarized below: to whom the Integrated Report is addressed. Policy-makers, Regulators and Standard-setters Assurance Providers • reported information better aligned with investor needs; Directors’ liability – Because the scope of Integrated • more accurate non-financial information available for Reporting will cover new and evolving subjects, with a greater data vendors; focus on the future, concerns about the liability of those charged • higher levels of trust with key stakeholders; with governance will need to be addressed. This might be through the adoption of globally accepted and harmonized • better resource allocation decisions, including cost reductions; “safe harbours” or a broad business judgement rule. Reporting Organizations Reporting Investors • enhanced risk management; Commercial confidentiality – • better identification of opportunities; Organizations will need to provide a more strategic focus and, in some cases, information • greater engagement with investors and other stakeholders, Other Users not currently subject to mandatory disclosure requirements in including current and prospective employees which their Integrated Reports. They will, therefore, need to balance improves attraction and retention of skills; the benefits mentioned above with the desire to avoid disclosing • lower reputational risk; competitive information. • lower cost of, and better access to, capital because of Capacity building – Building knowledge and experience Alternative pathways to Integrated Reporting improved disclosure; and across the reporting system will be essential to long-term success. • development of a common language and greater The IIRC Pilot Programme (see page 24 for more details) will While the IIRC anticipates that an Integrated Report will • Publishing a concise, standalone, Integrated Report as collaboration across different functions within help to build this capacity, with the learning captured and ultimately become the primary report for all organizations, the only addition to a statutorily required annual report the organization. disseminated by the IIRC for all to access. An online forum individual organizations will follow different routes over or regulatory filing. This may be particularly attractive will also be created to encourage knowledge sharing. different timeframes towards that end. All organizations will for organizations not currently producing a separate Challenges be bound by existing regulatory reporting requirements until sustainability report that their stakeholders have come Information systems – Organizations will need to Regulation – Many components of Integrated Reporting are these are changed, but this will affect them in different ways to expect. establish or strengthen information systems for capturing the subject of existing local regulations which vary between depending on the jurisdiction(s) and industry(ies) in which and aggregating information. • Modifying the sustainability report or, to the extent jurisdictions. Progress towards Integrated Reporting is, therefore, they operate. Alternative routes that organizations may follow permitted given the organization’s regulatory likely to evolve at different speeds in different countries. Organizations that are interested in experimenting include the following. environment, the management commentary by tailoring International consensus on the direction taken will be important, with Integrated Reporting over the next two years • Combining the sustainability report with the management it in accordance with the Guiding Principles and Content in particular for organizations operating across jurisdictions. are invited to join the IIRC Pilot Programme – see commentary or the full annual report. While a combined Elements of Integrated Reporting. page 24 for more details. report is not an Integrated Report, it can be a logical • Adopting Integrated Reporting internally to underpin first step for some organizations as they explore management information. This will provide business opportunities to integrate the content of the two reports benefits while liaising with regulators either to introduce into a more concise form and build understanding of Integrated Reporting for all organizations or to introduce how performance in one area drives value in another. “safe harbours” for those who choose to innovate and experiment. Q9. From your perspective as a reporting organization: (a) Do you agree with the main benefits as presented in the Discussion Paper? Why/why not? (b) Do you agree with the main challenges as presented in the Discussion Paper? Why/why not?

20 www.theiirc.org Towards Integrated Reporting 21 What Will Integrated Reporting Mean for Me? (continued)

Investor Perspective Policy-maker, Regulator and Standard-setter Perspective

Benefits an organization’s long-term value. Benefits • Stewardship of common resources – Because of the • Improved analysis – Analysts, both sell-side and buy- broader perspective required by Integrated Reporting, both • Fiduciary duty – The provision of a more integrated • More effective capital allocation – The more in terms of the resources and relationships that it takes into information set will help those who invest on behalf of side, will have access to an organization’s most significant meaningful communication brought about through information in one concise and integrated form, with the account and the longer timeframe over which value creation others, such as pension funds, to discharge their fiduciary Integrated Reporting will support more effective capital is considered, it leaves organizations better placed to act, and duty by taking into account the full range of issues that opportunity to “drill down” to more detailed information allocation across the economy generally and, to the extent where necessary. This can streamline the analytical process be more accountable, as stewards of the community’s common affect organizational, and therefore financial, success that Integrated Reporting supports capital flowing to those resources, in particular human, natural and social capital. and investment returns. and help analysts to incorporate a wider set of KPIs and organizations that are responding most effectively to future other factors into their analysis. challenges, can encourage the investment necessary to • Access to information – Integrated Reporting, • Future orientation and outlook – Integrated by providing decision-relevant information, can support Reporting puts greater emphasis on information about • More effective decisions, better investment respond to issues such as energy security, food scarcity and returns and more effective capital allocation – climate change. effective action by policy-makers and regulators as users the future. This will assist investors in assessing the of that information. organization’s ability to generate future cash flows. Collectively, the above benefits will result in more effective • Harmonization of approaches and reduced “red investment decisions, better long-term investment returns • Risks and opportunities – Integrated Reports disclose tape” – Reporting is shaped by a patchwork of laws, Challenges and more effective capital allocation. regulations, standards, codes, guidance and stock key risks and opportunities as management views them. • Revising legislation, regulation and exchange listing requirements, described in a recent This will enable investors to assess the short-, medium- and Challenges standards – Mechanisms for revising legislation, report as “a jigsaw in pieces”.10 Integrated Reporting long-term impact of these risks and opportunities across their regulation and standards require leadership, political • Revised analytical techniques – Analytical tools that offers a platform for policy-makers, regulators and investment portfolio. will, coordination, time, resources, consultation and due incorporate a wide range of financial and non-financial factors standard-setters, working together, to: • Comparability – Integrated Reporting provides a are evolving. The IIRC Pilot Programme will work with investors process. This is particularly so where proposed changes –– integrate reporting requirements within a jurisdiction; platform to help enhance sector-specific reporting models to develop disclosures relevant for investment analysis. involve more than one subject area (e.g., environmental and to bring together information from different forms of –– harmonize advances in reporting that have been law and securities law), and more than one jurisdiction. • Investment supply chain – Many of the current reporting. This assists improved sectoral and geographical achieved in different jurisdictions; and compensation and incentive structures along the investment • Liability and business confidentiality –The scope of analysis and comparison of issues such as business ethics, supply chain drive a focus on the short term. A wide range –– approach new reporting issues on a consistent basis Integrated Reporting will cover new and evolving subjects management of conflicts of interests, and bribery and corruption of steps are being taken by regulatory and non-regulatory as they emerge across jurisdictions. and will have a more strategic focus. The resulting concerns where they are relevant and material to the organization. actors to rebalance this focus. Integrated Reporting can • Economic and market stability – The recent global of management, those charged with governance and • Connected information – Integrated Reporting makes support these efforts by taking into account the whole financial crisis has made it clear that risks can develop, be assurance providers about liability, fiduciary duties and clearer the linkages between the organization’s strategy, spectrum of factors that impact an organization’s success harboured and be transmitted through market participants business confidentiality will need to be addressed. governance and financial performance and the social, and, therefore, its long-term investment returns. and practices that fall outside the traditionally prudentially environmental and economic context within which it Investors interested in developing integrated regulated institutions. One important tool in addressing operates. It also better aligns externally reported information disclosures relevant for investment analysis are these risks is greater transparency of market participants, with information that management uses for decision invited to join the IIRC Pilot Programme – see page which Integrated Reporting can facilitate. This, linked with making. This enables investors to assess more effectively the 24 for more details. the better internal decision making and behaviours that combined impact of the diverse factors that materially affect Integrated Reporting encourages, as well as the longer- term perspectives that it enables, may well deliver lower volatility in markets. Moreover, it permits policy-makers and regulators to identify such risks as they emerge so that they can be dealt with in a timely way, thus adding to greater economic and market stability.

Q9. From your perspective as an investor: (a) Do you agree with the main benefits as presented in the Discussion Paper? Why/why not? Q9. From your perspective as a policy-maker, regulator or standard-setter: (b) Do you agree with the main challenges as presented in the Discussion Paper? (a) Do you agree with the main benefits as presented in the Discussion Paper? Why/why not? Why/why not? (c) Do you agree that Integrated Reporting will drive the disclosure of information (b) Do you agree with the main challenges as presented in the Discussion Paper? that is useful for integrated analysis? Why/why not? Why/why not?

22 www.theiirc.org Towards Integrated Reporting 23 What Will Integrated Reporting Mean for Me? (continued) FUTURE DIRECTION

Key points in this section Other Perspectives • The development of Integrated Reporting will require a change in established thinking about decision making and reporting. • Actions that the IIRC is planning include: Civil Society to gain a better understanding of how their performance –– developing an Exposure Draft of the Framework; links to the objectives of the organization and to identify • Alignment of sustainable issues – Organizations that –– working with others on emerging measurement and reporting practices; how they contribute to the ability of the organization to adopt Integrated Reporting will display their stewardship –– outreach, encouraging organizations to adopt and contribute to the evolution of Integrated Reporting; not only of financial capital, but also of human, natural, create and sustain value over time. –– exploring opportunities for harmonizing reporting requirements within and across jurisdictions; and social and other capitals, which is likely to align with the Assurance providers interests of many civil society interest groups. –– consultation regarding the ongoing governance of Integrated Reporting. • Independent assurance – The independent audit of • Stakeholder engagement – Integrated Reporting’s financial statements currently plays a critical role in the emphasis on stakeholder engagement is likely to result in world’s capital markets, and independent assurance of greater consultation with civil society interest groups. sustainability reports is recognized as best practice. It is • Supply chain – Integrated Reporting will provide greater therefore reasonable to expect that when an Integrated visibility of how an organization impacts on the stakeholder Report is an organization’s primary report, investors and groups across its supply chain. other stakeholders will want that report to The development of Integrated Reporting is designed to –– additional research conducted by the IIRC and others; and enhance and consolidate existing reporting practices. Through • Focus on specific issues –The integration of be subject to independent assurance. –– ongoing engagement with investors and other key collaboration, consultation and experimentation, the IIRC plans to stakeholders. environmental and social issues with financial issues could • New techniques – Some information in an Integrated move towards a reporting framework that provides the information It is anticipated that an Exposure Draft of an International result in a reduction in focus on some issues of concern to Report may be more difficult to assure than information needed to assess organizational value in the 21st century. particular civil society interest groups. The IIRC is engaging disclosed under traditional reporting frameworks. This will Integrated Reporting Framework will be published for with key civil society interest groups and will utilize existing require the development of new techniques, standards There will be a period of transition. comment in 2012. The intention is to ensure that the guidelines, codes, etc. throughout the development of and reporting mechanisms to support assurance on Framework has the scope and flexibility to support the future • Some jurisdictions will introduce Integrated Reporting the Framework. Integrated Reports. development of reporting for several decades, recognizing requirements ahead of others. This is the case in South that it will need to be revised periodically to continue to Employees Academics Africa for example, where the Johannesburg Stock meet the evolving needs of the market and society. Exchange has introduced a listing requirement for • Future prospects – Current and prospective employees Research – • As researchers, academics will have a strong companies to prepare, or publicly explain why they • Measurement and reporting practices – Monitor will be able to gain an integrated perspective on the future role to play in the development of the initial Framework prospects of their employer. They will also be better able to have not prepared, an Integrated Report. and, where appropriate, contribute to or potentially lead and in researching emerging topics as Integrated Reporting development of emerging measurement and reporting discern whether their employer’s values are consistent with evolves over time. • In other jurisdictions, organizations will experiment their own. with Integrated Reporting within the existing reporting practices relevant to Integrated Reporting. This may Education – • As educators, academics will have a strong requirements. A number of organizations have already include the development of techniques to enable those • Connecting the organization – Integrated reporting role to play in education and capacity building across areas of business impact and interdependence that are facilitates the breaking down of reporting silos and the released Integrated Reports in this context. The IIRC Pilot the reporting system, which will be essential to Integrated Programme will facilitate further experimentation. currently treated as externalities to be better quantified and introduction of integrated thinking. This allows employees Reporting’s long-term success. integrated into decisions and reporting – whether as risks Developing an effective Framework and supporting mechanisms and opportunities or as part of performance statements. will require a collaborative effort from all those involved in the reporting system. The IIRC is seeking to encourage and facilitate • Outreach – Conduct regional roundtables and other that collaboration. Actions that the IIRC is currently planning engagement and communication activities to raise awareness The IIRC Pilot Programme relate to the following. of Integrated Reporting among investors and other key stakeholders, and to encourage organizations to adopt and The IIRC is conducting a two-year Pilot Programme, commencing in October 2011, to test and further develop the International • Pilot Programme – Run a two-year Pilot Programme, contribute to the evolution of Integrated Reporting. Integrated Reporting Framework. Working as a network of peer-group organizations and investors with whom knowledge can be commencing in October 2011 to test the proposals set out • Harmonization – Explore with national, regional and exchanged and experiences shared, the IIRC Pilot Programme aims to: in this Discussion Paper and provide practical examples global policy-makers, regulators and standard-setters, of Integrated Reporting. Companies, investors and others • encourage organizations to innovate in their reporting practices; opportunities for harmonizing reporting requirements within participating in the IIRC Pilot Programme will provide a key and across jurisdictions, and help to develop a compatible • inform the future evolution of reporting and investor practices; and contribution to the Framework’s development over the next regulatory landscape. • drive convergence in international reporting guidance. two years (see page 24 for more details). • Governance – Develop, through public consultation, • Framework – Develop the International Integrated For more details and to express interest in participating, see www.theiirc.org/pilot institutional arrangements for the ongoing governance Reporting Framework on the basis of: of Integrated Reporting. –– responses received to this Discussion Paper; –– the insights emerging from the IIRC Pilot Programme;

Q9. From your perspective as a key stakeholder: Q10. (a) Do you agree that the actions listed in the Discussion Paper should be the next steps undertaken (a) Do you agree with the main benefits as presented in the Discussion Paper? by the IIRC? Why/why not? Are there other significant actions that should be added? Why/why not? (b) What priority should be afforded to each action? Why? (b) Do you agree with the main challenges as presented in the Discussion Paper? Why/why not? Q11. Do you have any other comments that you would like the IIRC to consider?

24 www.theiirc.org Towards Integrated Reporting 25 SUMMARY OF CONSULTATION ABOVE ALL, INTEGRATED REPORTING QUESTIONS IS ABOUT GOOD BUSINESS

The IIRC welcomes comments on all aspects of the Discussion Guiding Principles (page 13) “In Tata Group the core belief is what we do must benefit society and this is why we support the development of Paper from all stakeholders, whether to express agreement Integrated Reporting. Sustainability must be in your DNA.” or to recommend changes. Your answers to the Consultation Q7. Do the Guiding Principles identified in the Discussion Questions, and any other comments you would like to make, Paper provide a sound foundation for preparing an Ishaat Hussain, Finance Director, Tata Sons Limited should be submitted to [email protected] or online at Integrated Report – are they collectively appropriate; www.theiirc.org. For the purpose of analysis, you are asked to is each individually appropriate; and are there other “Managing pension assets means that we have a responsibility towards millions of people to ensure they receive identify the organization to which you belong and where it is Guiding Principles that should be added? Why/why not? decent pensions; we therefore need to generate decent returns in a responsible manner over the long term. Integrated located. All comments received will be considered a matter of Content Elements (page 14) Reporting helps us get the full picture of a company’s performance and make sound investment decisions.” public record and will be posted on www.theiirc.org. Comments Professor Angelien Kemna, Chief Investment Officer, APG and should be submitted by Wednesday 14th December 2011. Q8. Do the Content Elements identified in the Discussion Paper provide a sound foundation for preparing an Integrated Chief Executive Officer, APG Asset Management The World has Changed – Reporting Must Too (page 4) Report – are they collectively appropriate; is each Q1. (a) Do you believe that action is needed to help improve individually appropriate; and are there other Content “The case for globally consistent financial reporting standards is well understood and accepted. It is appropriate to how organizations represent their value-creation Elements that should be added? Why/why not? apply the same global approach to other aspects of corporate reporting. This initiative represents an important step process? Why/why not? What Will Integrated Reporting Mean for Me? (Reporting on that journey.” (b) Do you agree that this action should be international organizations – page 21, Investors – page 22, Policy- Hans Hoogervorst, Chairman, International Accounting Standards Board in scope? Why/why not? makers, regulators and standard-setters – page 23, Other perspectives – page 24) “It is about time that we stopped printing together financial and sustainability reports without any visible and concrete Towards Integrated Reporting (page 6) Q9. From your perspective: links between them.” Q2. Do you agree with the definition of Integrated Reporting Professor Nelson Carvalho, Universidade de São Paolo on page 6? Why/why not? (a) Do you agree with the main benefits as presented in the Discussion Paper? Why/why not? An International Integrated Reporting Framework (page 8) “If you are a company committed to the long term, and one of your ambitions is to be trusted, you have no choice – (b) Do you agree with the main challenges as presented Integrated Reporting is the way to communicate.” Q3. Do you support the development of an International in the Discussion Paper? Why/why not? Integrated Reporting Framework? Why/why not? Jim Singh, Chief Financial Officer, Nestlé (c) Do you agree that Integrated Reporting will drive Q4. (a) Do you agree that the initial focus of Integrated the disclosure of information that is useful for Reporting should be on reporting by larger companies “The goal of the IIRC is not to increase the reporting burden on companies and other entities. Rather, it is to help them integrated analysis (from the perspective of investors)? and all their stakeholders make better resource allocation decisions. All of us have a stake in a sustainable society.” and on the needs of their investors? Why/why not? Why/why not? Göran Tidström, President, International Federation of Accountants (b) Do you agree that the concepts underlying Integrated Future Direction (page 25) Reporting will be equally applicable to small and medium enterprises, the public sector and not-for-profit Q10. (a) Do you agree that the actions listed in the Discussion “Integrated Reporting builds on the practice of financial reporting, and environmental, social and governance reporting. organizations? Paper should be the next steps undertaken by the It equips companies to manage their operations, brand and reputation strategically and to manage better any risks that IIRC? Why/why not? Are there other significant may compromise the long-term sustainability of the business.” Business Model and Value Creation (page 10) actions that should be added? Professor Mervyn King, Deputy Chairman, IIRC and Chairman, GRI Q5. Are: (a) the organization’s business model; and (b) its (b) What priority should be afforded to each action? ability to create and sustain value in the short, medium Why? and long term, appropriate as central themes for the future direction of reporting? Why/why not? Q11. Do you have any other comments that you would like the IIRC to consider? Q6. Do you find the concept of multiple capitals helpful in explaining how an organization creates and sustains value? Why/why not?

26 www.theiirc.org Towards Integrated Reporting 27 ACKNOWLEDGEMENTS AND ENDNOTES

IIRC members Roberto Pedote, Senior Vice President of Financial Claudia Kruse, Head of Sustainability and John Paluszek, Chair, Global Alliance for Public Robert H. Herz, Former Chairman, Financial Endnotes and Legal Affairs, Natura Governance, APG and Chair, ICGN Integrated Relations and Communication Management Accounting Standards Board (former member of Sir Michael Peat, Principal Private Secretary to TRH 1 Ocean Tomo (2010), “Ocean Tomo’s Business Reporting Committee the IIRC) The Prince of Wales and The Duchess of Cornwall Russell Picot, Group Chief Accounting Officer, Sallie Pilot, Director of Research & Strategy, Intangible Asset Market Value Study” HSBC Bob Laux, Director, Accounting and Reporting, Black Sun Donald Hill, Design Director, Black Sun (Chairman) 2 Management commentary is also known as Microsoft Professor Mervyn King, Chairman, King Committee James H. Quigley, Senior Partner, Deloitte LLP Peter Proestakes, Assistant Director, Financial Britt Keay, Account Manager, Black Sun management discussion and analysis, business on Corporate Governance and Chairman, Global René Ricol, General Commissioner for Public Jerome Lavigne-Delville, Special Advisor, UN Accounting Standards Board Mitsuru Komiyama, Former Executive Board review and narrative reporting Global Compact Office Reporting Initiative (Deputy Chairman) Investment (France) Nick Ridehalgh, Senior Director, KPMG Sydney Member, The Japanese Institute of Certified Public 3 Sustainability reporting is also known as triple Helen Brand, Chief Executive, ACCA Atsushi Saito, President & CEO, Tokyo Stock Ernst Ligteringen, Chief Executive, Global Tom Rotherham, Associate Director, Hermes Equity Accountants (former member of the Working bottom line reporting, environmental, social Reporting Initiative Group) Professor Nelson Carvalho, Universidade de São Exchange Group, Inc Ownership Services (EOS) and governance (ESG) reporting, corporate responsibility reporting and corporate social Paulo, Brazil and Chairman, 25th Session of Rick Samans, Managing Director, WEF and Steve Maslin, Partner, Grant Thornton Neil Stevenson, Brand Executive Director, ACCA Richard Reid, London Chairman, KPMG (former UNCTAD’s ISAR member of the Working Group) responsibility reporting Chairman, Climate Disclosure Standards Board Dr. Robert Kinloch Massie, Senior Fellow, Initiative Alan Willis, Independent Standards Advisor 4 See, for example, Boston College Carroll Paul Clements-Hunt, Head of Unit, UNEP Finance Maria Helena Santana, Chairman of the Executive for Responsible Investment, Kennedy School of Victoria Scott, Research Analyst, Black Sun School of Management (2008), “The Use Initiative Committee of the International Organization of Government, Harvard University Secretariat Takayuki Sumita, Chairperson, World Intellectual of Non-Financial Information: What Do Securities Commissions David Matthews, Partner, KPMG Capital Initiative (WICI) Aron Cramer, President and CEO, Business for Jessica Fries, Director, The Prince’s Accounting Investors Want?”, Arnold, V., Bedard, Social Responsibility Leslie Seidman, Chairman, Financial Accounting Dr Anthony Miller, Accounting and Corporate for Sustainability Project (A4S) and Director, Sir David Tweedie, Former Chairman of the C., Phillips, J. and Sutton, S. (2009), Robert Eccles, Professor of Management Practice, Standards Board Governance Programme, UNCTAD PricewaterhouseCoopers International Accounting Standards Board “Understanding Professional and Non- Harvard Business School Jim Singh, Chief Financial Officer, Nestlé Dr Jeanne Ng, Director, Group Environmental Lisa French, Director Reporting Framework, Global (former member of the IIRC) Professional Investors’ Information Requirements”, Financial Services Council Gerald Edwards, Senior Advisor on Accounting Björn Stigson, President, World Business Council Affairs, CLP Holdings Limited Reporting Initiative In addition, the IIRC would like to thank the many and The Australian Council of Superannuation and Auditing Policy, Financial Stability Board for Sustainable Development David Phillips, Partner, PricewaterhouseCoopers Superna Khosla, Head of Communications hundreds of people around the world who have Investors (2011), “ESG Reporting Guide (Observer) and Engagement, A4S and Senior Manager contributed to the development of Integrated Göran Tidström, President, International Federation Janet Ranganathan, Vice President for Science and for Australian Companies – Building The PricewaterhouseCoopers Reporting and this Discussion Paper through John Elkington, Founding Partner & Executive of Accountants Research, WRI Foundation For Meaningful Reporting”, participation in meetings, roundtables, seminars, Chairman, Volans Mike Krzus, President, Mike Krzus Consulting Haigh, M. and Shapiro, M.A. (2011), Charles Tilley, Chief Executive, CIMA Professor Roger Simnett, Associate Dean, online discussion and other events Dr Wolfgang Engshuber, President, Corporate “Financial Institutions: taking greenhouse Jim Turley, Chairman and Chief Executive Officer, Research, University of New South Wales Mariko Mishiro, Research Fellow, World Centers, Munich Re America and UNPRI gases into account” produced by the Climate Ernst & Young Susanne Stormer, Vice President, Global Triple Intellectual Capital Initiative (WICI) Disclosure Standards Board for the Department Tim Flynn, Chairman, KPMG International Bottom Line Management, Novo Nordisk Charlotte Masiello-Riome, Communications Doug Webb, 100 Group of Finance Directors for Environment, Food and Rural Affairs, UK Hans Hoogervorst, Chairman of the International Alan Teixeira, Director of Technical Activities, Strategy Advisor, A4S Christy Wood, Chair, International Corporate 5 UN Global Compact-Accenture (2010), Accounting Standards Board (from July 2011) International Accounting Standards Board Michael Nugent, Senior Technical Manager, Governance Network (ICGN) “A New Era of Sustainability, UN Global Ishaat Hussain, Chief Financial Officer, Tata International Federation of Accountants Li Yong, Vice Minister of the Ministry of Finance, Graham Terry, Strategy & Thought Leadership, Compact-Accenture CEO Study 2010” SAICA Senior Executive, South African Institute Dr. Jeremy Osborn, Project Manager, CIMA Michael Izza, ICAEW Chief Executive and Global P.R. China and President of CICPA (from July 6 Bloomberg (2010), “The Sustainability Edge, of Chartered Accountants Accounting Alliance 2011) Mike Reid, Project Manager, A4S and Manager, Sustainability Report 2010” Dr Steve Waygood, Head of Sustainability Grant Thornton Professor Angelien Kemna, Chief Investment 7 See, for example, Financial Reporting Review Working Group members Research and Engagement, Aviva Investors Officer, APG and Chief Executive Officer, APG Beth A. Schneider, Director, Deloitte & Touche LLP Panel and Accounting Standards Board Asset Management Paul Druckman, Executive Board Chairman, Yuki Yasui, Deputy Head, UNEP Finance Initiative Bethan Walker, Communications Officer, A4S (2011), “Cutting the Clutter. Combating clutter Thomas Kusterer, Chief Financial Officer, EnBW The Prince’s Accounting for Sustainability Project in an annual report” Joris Wiemer, Senior Coordinator – External Energie Baden-Württemberg AG (Co-Chairman) Additional Task Force and Advisory Relations, Global Reporting Initiative 8 These sources include White, A.L (2010), Huguette Labelle, Chair, Transparency International Ian Ball, Chief Executive Officer, International Group members “The Five Capitals of Integrated Reporting – Victoria Windmill, Project Manager, A4S and Federation of Accountants (Co-Chairman) Toward a Holistic Architecture for Corporate Mindy Lubber, President of Ceres and Director Marjolein Baghuis, Communications and Network Manager, Deloitte of INCR Dr Nelmara Arbex, Deputy Chief Executive, Relations Director, Global Reporting Initiative Disclosure” and Forum for the Future (2009), Global Reporting Initiative Bastian Buck, Manager – Technical Development, Other acknowledgements “The Five Capitals Model – a framework Charles A. McDonough, Vice President and for sustainability” Controller, The World Bank Frank Curtiss, Head of Corporate Governance, Global Reporting Initiative Members of the Accounting Bodies Network of Railpen and Board member ICGN Ralf Frank, Managing Director, DVFA The Prince’s Accounting for Sustainability Project 9 See, for example, Eccles, R.G. and Krzus, M.P. Sir Mark Moody-Stuart, Chairman of the (2010), “One Report: Integrated Reporting for Peter Dart, Director, WPP Foundation for the Global Compact Robert Giglietti, Deputy Controller-Financial Robert Bruce, Journalist a Sustainable Strategy” and Hopwood, A.H., Dennis Nally, Chairman, PricewaterhouseCoopers Jessica Fries, Director, The Prince’s Accounting for Reporting, GE Robert Bunting, Past President, International Unerman, J. and Fries, J. (2010), “Accounting International Limited Sustainability Project (Secretary) Gavin Grant, Chairman, Burson-Marsteller UK Federation of Accountants (former member of for Sustainability: Practical Insights” Jeremy Newman, Chief Executive Officer, BDO James Gifford, Executive Director, United Nations Lois Guthrie, Secretary, Climate Disclosure the IIRC) 10 CIMA, PwC and Tomorrow’s Company International Principles for Responsible Investment Standards Board Lauren Dalley, Group Account Director, Black Sun (2011), “Tomorrow’s Corporate Reporting Edward Nusbaum, Chief Executive Officer, Eric J. Hespenheide, Partner, Deloitte & Touche LLP Jonathon Hanks, Founding Director, Incite Jane Diplock, Former Chairman of the Executive – A critical system at risk” Grant Thornton International Kiyoshi Ichimura, Executive Board Member, The Sustainability Committee of IOSCO (former member of the IIRC) David Nussbaum, WWF-UK Chief Executive, Japanese Institute of Certified Public Accountants Yoichi Mori, Technical Director, The Japanese Alan Fisk, Technical Editor, International WWF International Alan Knight, Independent Standards Advisor Institute of Certified Public Accountants Accounting Standards Board

28 www.theiirc.org Towards Integrated Reporting 29 Your comments requested Please join us in this unique effort to develop an overarching framework for Integrated Reporting by providing feedback on this Discussion Paper. Your answers to the Consultation Questions in this Discussion Paper, and any other comments you would like to make, should be submitted to [email protected] or online at www.theiirc.org. For the purpose of analysis, you are asked to identify the organization to which you belong and where it is located. All comments received will be considered a matter of public record and will be posted on www.theiirc.org. Comments should be submitted by Wednesday 14th December 2011.

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