What Does Big Business Think About the Integrated Reporting Framework?

What does big business think about the Integrated Reporting Framework?

Another issue that needs to be dealt with HSBC: IR promises a major early comes from those CEOs or CFOs saying, “well, this just sounds like more breakthrough in reporting quality work”. I don’t believe that’s the case – I think it’s a question of starting afresh, Russell Picot, chief accounting officer at HSBC, ensuring a broad engagement programme within the company and looking at tells Jessica Fries why they’re one of the first to join your corporate communication model the IIRC’s pilot programme to test integrated reporting. and then deciding what’s important.

He explains the risks of not being involved and the If it’s just a programme by the finance benefits they’ve experienced so far function, for the finance function, the company’s not going to reap the You’ve been on board from the in our numbers. Then we put all our sort of benefits that they should expect. start of the integrated reporting standing data and boilerplate information (IR) journey – so why are you about our systems (which may not So what are the key benefits involved, and why is HSBC a change) at the back of the document. of adopting an integrated pilot company? reporting approach? We believe in expressing our corporate Are there a few key messages The major benefit of IR is clarity of voice on issues that we think matter to from investors about what communication to the market. I think society quite broadly. We also believe in they want from integrated that over time, we will see that this a voluntary approach in this area, and reporting? could lead to a lessening of the financial reporting burden – creating a much more that’s why we’re heavily involved in the It really is a classic example where less relevant model of corporate reporting. pilot programme with the International will be more. No one wants to see Integrated Reporting Council (IIRC). another 50 or 100 pages of material. It also provides a unifying, integrating We’re trying to develop good ideas, So the challenge is to distil it down. bring corporate and institutional voices force within a company. The CEO, the major business heads and the together and avoid the concern that If you look at the banking industry, some of these very innovative ideas department heads are getting into investors said very clearly that they a room and discussing how they might get hard-coded into legislation thought banks’ business models were too early. create shareholder value and how quite opaque, and that in some parts they communicate that to the market of the market, they were uncertain In February, we released about 700 – and that’s really powerful. It has about the viability of funding models. pages of investor material to the market both internal and external benefits. They said that they were exacting a – it’s a big challenge for us to distil the important messages about our strategy. heavy penalty in terms of our equity ■ www.pwc.com/gx/en/corporate- So we see integrated reporting as prices being marked down. reporting/integrated-reporting/ holding the promise to provide a major what-is-the-ir-framework-and-why-is-it- breakthrough in the quality of For investors, it’s all about clarity and important.jhtml corporate reporting, globally. transparency, which all good corporates should want to achieve anyway. So what steps have you taken as a company to really shape And what are the key the reporting? challenges? Our annual report is our main Because this is a voluntary programme, communication to the market – we don’t it requires voluntary support, and that’s have a preliminary results announcement. one challenge – to harness the interests So we’ve been experimenting with of all the stakeholders. restructuring our risk document – bringing upfront what happened in the Also, this won’t be successful if we don’t Russell Picot get a strong investor voice. My message market during the year, how we Chief accounting officer at HSBC responded to it, and how it’s reflected for investors is: “please get involved, please send us your views”.

12 World Watch Issue 2 2013 Corporate Reporting Interviews

Unilever: Is your business model safe without IR? Charles Nichols, group controller at Unilever, tells Jessica Fries why integrated reporting is critical for companies and investors to be able to take a longer-term view of their business model and properly assess its performance

How does integrated reporting How have you attempted to I think that this is a unique opportunity support your business model? overcome some of the barriers? to shape something that’s probably It’s really about the needs of our We’ve taken a fairly phased approach. We going to happen anyway and really business. We live in a very volatile world launched our Unilever Sustainable Living start to shape this thing for the future. where businesses such as Unilever face Plan a few years ago and developed a If companies don’t get their act issues that need long-term solutions. number of metrics to measure our together, then sooner or later the I think it’s natural that we should be performance on it. So far, we’ve been regulators are going to do it for us. thinking in terms of how we talk about trying to improve the robustness and our long-term perspective internally and the maturity of those metrics, ready to But are investors really asking the way we tell our story externally. offer them up for independent assurance. those broad non-financial questions? Is IR already having an impact We shouldn’t lose sight of the fact that If they’re not, then they should be. There on internal decisions and we spent 150 years developing our are enough highly-publicised examples of external reporting? financial KPIs and here we are, in 18 market failures where companies have destroyed inordinate amounts of value Yes. One thing you’ll notice is that in months trying to do the same on the because investors, and in some cases, the our 2012 annual report, we talk about non-financial front. boards, haven’t really understood the our business model more holistically. Do you see a role for assurance? business model and been able to ask the Internally, there’s a growing recognition right questions at the right time. that sustainability isn’t just about I think there is a role for independent assurance. It provides credibility to corporate social responsibility, but is A passive approach risks losing control external stakeholders – there is some actually a fundamental economic of this agenda, so I would encourage degree of scepticism out there – so business issue. We’re not only thinking companies and investors to respond. about what outcomes we’re looking independent verification of the progress that’s being reported is important. to achieve in terms of financial So what’s your vision for the performance, but also in terms of our future of integrated reporting? impact on the environment and society. It also raises the bar in terms of the rigour and discipline of our own internal It would be nice to think that in the processes. If you know that the KPI not too distant future we will have one Do you see any barriers to single approach to corporate reporting integrated reporting? you’re responsible for is going to be subject to external assurance, that’s a across the world. It might be wishful Potentially, yes. The first is fragmentation: pretty high motivation to do a good job. thinking, but standardised non- we could get a proliferation of financial KPIs, comparable between regulation with stakeholders pushing It’s also about future-proofing. I see it as different companies and across the development in different directions, inevitable over time that non-financial world, would be nice to have. which would be a great shame. information will become an ever more important part of our corporate One of the most important components I think fear is another barrier. Inherently, narrative – so we might as well get our for ‘nirvana’, as it were, is a shift away companies are more comfortable with ducks in a row now. And we need the from the short term and the backward backward-looking financial information kind of rigour that assurance provides. view of life, towards something that is rather than forward-looking non- more forward looking and longer term. financial information. I think there So far, the IIRC has adopted ■ www.pwc.com/gx/en/corporate- are understandable concerns about a market-led approach. exactly how much transparency is Do you think that without a reporting/integrated-reporting/ appropriate before you start providing ‘regulatory stick’, integrated what-is-the-ir-framework-and-why-is-it- more information to the competition reporting will become the important.jhtml than you would normally wish to share. norm for how companies communicate to the market Charles Nichols and stakeholders? Group controller at Unilever

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