Introduction to Integrated Reporting for IRO's Dec 2013

Eisenman Associates Strategic Communications for Corporations

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INTEGRATED REPORTING THE FUTURE OF CORPORATE REPORTING IS HERE

Join the Conversation! @eisenmandesign #IntegratedReporting

Eisenman Associates Strategic Communications for CorporationsJoin the Conversation! @eisenmandesign #IntegratedReporting2

Jonathan LabreyCommunications Director

International Integrated Reporting Council (IIRC)

Nina EisenmanPresident and Creative Director

Eisenman Associates

PRESENTERS

Eisenman Associates Strategic Communications for CorporationsJoin the Conversation! @eisenmandesign #IntegratedReporting

Does

An Annual Report+ a Sustainability Report

= an Integrated Report ???

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INTEGRATED VS ANNUAL + SUSTAINABILITY REPORTING

Many companies include some environmental, social and governance (ESG) content in their annual reports but that doesn’t make them integrated reports

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ANNUAL REPORTS

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Overview• Principal document used by most public companies to

disclose corporate information to their shareholders• A state-of-the-company report• Sometimes called the “Glossy” annual report• Must be sent to Shareholders prior to the annual meeting• Does NOT need to be filed with the SEC• Many companies now replace traditional financials

with the 10-K to create a “10-K wrap”• Online versions can range from PDFs

to video-enhanced micro-sites

ANNUAL REPORT TO SHAREHOLDERS

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ANNUAL REPORT ON FORM 10-K• A comprehensive overview of a publicly traded company’s

business and financial condition

• Includes audited financial statements• Must be filed with the SEC as per the

Securities Exchange Act of 1934• Companies can elect to send their

shareholders their Form 10-K in lieu of an annual report to shareholders

• Some limited environmental and other sustainability disclosure requirements

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ANNUAL REPORTSTypical content• CEO’s Letter to Shareholders• Narrative content • At-a-Glance• Financial data & results of continuing

operations• Market segment info• New product plans• R&D activities

Target stakeholders• Shareholders, investors & analysts• Business partners & suppliers• Customers & consumers• Current & prospective employees• NGOs & the local community

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SUSTAINABILITY REPORTS

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“Sustainability reporting encompasses an organization’s economic, environmental and social impacts with an eye toward meeting “the needs of the present without compromising the ability of future generations to meet their own needs.”—The World Commission on Environment and Development, 1987

“Non-financial reporting, also known as sustainability reporting, is the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development.”—Global Reporting Initiative (GRI)

SUSTAINABILITY REPORTING

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PepsiCo first included corporate responsibility content in their annual reports in the late 90s. Over time that content expanded and evolved into stand-alone sustainability reports.

SUSTAINABILITY REPORTING

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Overview• Environmental, social and corporate governance (ESG)

performance goals & results

• Many follow the GRI Framework and include a GRI Index• Outside assurance is “best-practice” but not required

Target stakeholders• Local communities & NGOs• Business partners & suppliers• Media• Customers & consumers• Current & prospective employees• Shareholders, investors & analysts


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“In 2013 over half (51%) of reporting companies worldwide now include CR information in their annual financial reports compared to only 20% in 2011 and 9% in 2008.”—KPMG 2013 Survey of Corporate Responsibility Reporting


SUSTAINABILITY REPORTSAlso called• Corporate Social Responsibility Reports (CSR) • Corporate Citizenship Reports

• Global Citizenship Reports

Common formats• Hard copy summary report, limited print run• PDF of full report (only available online)

• PDF of summary report• Browsable online version

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http://reports.shell.com/sustainability-report/2012/servicepages/welcome.html

http://reports.shell.com/sustainability-report/2012/servicepages/welcome.html


SUSTAINABILITY REPORTING: GRI

GRI’s VISION: A sustainable global economy where organizations manage their economic, environmental, social and governance performance and impacts responsibly, and report transparently.

The Global Reporting Initiative (GRI) (globalreporting.org)• Established in 1997 to promote sustainability reporting for public & private organizations• “Sustainability Reporting Framework” helps companies navigate the reporting process

• Sustainability Reporting Guidelines (latest version G4) is GRI’s “how to” guide

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https://www.globalreporting.org/Pages/default.aspx

https://www.globalreporting.org/Pages/default.aspx



53% of all companies in the S&P 500 Index published 2012/2013 sustainability reports, up dramatically from about 20% in 2011.**

* IRRC Institutes’s “2013 Integrated Financial and Sustainability Reporting in the U.S.”

76% of the S&P 500 had some form of sustainability reporting and 36% referenced the Global Reporting Initiative (GRI) Framework in 2012.*

** G&A Institute’s “2012 Sustainability Reporting – Does it Matter?”

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SUSTAINABILITY REPORTING: UN GLOBAL COMPACT

“The Global Corporate Sustainability Report 2013 reveals that businesses around the world are beginning to take sustainability more seriously. A look at the actions taken by the nearly 8,000 companies from 140 countries participating in the United Nations Global Compact tells a promising story.”– H.E. Ba n Ki-moon, UN Secretary-General

The United Nations Global Compact (UN Global Compact) (unglobalcompact.org)

The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.

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http://www.unglobalcompact.org/index.html

http://www.unglobalcompact.org/index.html

http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/anti-corruption.html

http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/anti-corruption.html


SUSTAINABILITY REPORTING & INVESTORS

“10-Ks are filled with numbers and dollar signs. Sustainability reports are filled with photos of smiling people in international settings. I can’t use sustainability reports to conduct my financial analysis of a company.”—Research Analyst, Asset Management firm specializing in Socially Responsible Investing

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INTEGRATED REPORTING <IR>

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<IR>: IIRC The International Integrated Reporting Council (theiirc.org) • A global coalition of regulators, investors, companies, standard setters,

the accounting profession and NGOs that promotes integrated reporting

• Operating in 25 countries around the world• International <IR> Framework was released December 9, 2013

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<IR>: IIRC’S VISION

“Our long term vision is a world in which integrated management and thinking are embedded within mainstream business practice in the public and private sectors, facilitated by <IR> as a corporate reporting norm. The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as forces for financial stability and sustainability.”– The IIRC’s Vision Statement

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“Integrated Reporting builds on the practice of financial reporting and ESG [sustainability] reporting. It equips companies to manage their operations, brand and reputation strategically and to manage better any risks that may compromise the long-term sustainability of the business.”– Professor Mervyn King, Chairman, IIRC and Chairman for the King Committee on Corporate Governance

“An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term.”—The International Integrated Reporting Council

“Integrated Reporting emphasizes the importance of integrated thinking within the organization.”

<IR>: WHAT IS IT?

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<IR>: WHO ARE INTEGRATED REPORTS FOR?

“The primary purpose of an integrated report is to explain to providers of financial capital how an organization creates value over time.”

“An integrated report benefits all stakeholders interested in an organization’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators and policy makers.”—The International Integrated Reporting Council

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Target stakeholders• Shareholders, investors & analysts• Current & prospective employees• Customers & consumers• Suppliers & business partners• Local communities • Non-government organizations (NGOs)• Legislators, regulators and policy makers


INTEGRATED REPORTING: CONNECTIVITYConnectivity• Various operational units contribute to the report• Connectivity not only in reporting but in the management of the business

• Better risk management• Better understanding of where value is actually generated within the business

• Unlocks efficiencies

“In a today’s fast changing environment, where expectation of customers are changing much more rapidly, this concept of being connected to all parts of the business, in having one cohesive story and understanding of where value is generated actually reduces those risks and enables a business to be far more flexible and responsive to the needs of its stakeholders.”– Jonathan Labrey, Communications Director, IIRC

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INTEGRATED REPORTING: EXTERNALITIESExternalities• Integrated reports measure and report on externalities• The business’ impact on the environment, society, local employee base, supply chain

• The business’ role in society and if it is creating or depleting value• Reputation management

“The reputation of the business holds a lot of value, and often it’s the strategic communication people who are are the guardians of that reputation. If the business is not on top of its impact, other people, NGOs, civil society, will be —often in a much more negative way. It’s far better for the business to be ahead of the story and on top of its impact than allow others to do so.”– Jonathan Labrey, Communications Director, IIRC

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INTEGRATED REPORTING: LONG TERMISMLong Termism• More holistic and balanced view of the business • Business put in the context of society and the broader economy

• Allows investors a long term view of the resilience of the business

“How is this business using the resource that are available to it, to protect itself, to enhance value, to manage resources including human resources, intellectual resources, and natural resources, in order to deliver value over the short, medium and long term.”– Jonathan Labrey, Communications Director, IIRC

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INTEGRATED REPORTING: STRATEGYStrategy• Integrated reporting is all about understanding and communicating the business’ strategy• All internal units aligned around a cohesive strategy

“This is key for communicators—integrated reporting is all about understanding and communicating the strategy of the business and making sure that all the different elements in the business are connected to that strategy—that the reporting process is cohesive and consistent with that strategy. That is a key differentiator between integration reporting and other forms of reporting.”– Jonathan Labrey, Communications Director, IIRC

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<IR> DRIVERS: INVESTORSPRI— Principles for Responsible Investment • An international network of investors• More than 1,000 signatory firms world-wide

• Represents assets of over $30 trillion or ~20% of the total value of global capital markets• Signatory firms consider how portfolio companies’ financial returns are impacted by their

environmental, social and corporate governance (ESG) policies• Supported by the United Nations

• PRI’s Six Principles:• We will incorporate ESG issues into investment analysis and decision-making processes.

• We will be active owners and incorporate ESG issues into our ownership policies and practices.

• We will seek appropriate disclosure on ESG issues by the entities in which we invest.

• We will promote acceptance and implementation of the Principles within the investment industry.

• We will work together to enhance our effectiveness in implementing the Principles.

• We will each report on our activities and progress towards implementing the Principles.

Growth of the PRI Initiative

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<IR> DRIVERS: INVESTORS

US SIF Foundation—The Forum forSustainable and Responsible Investment • Sustainable and responsible investing (SRI) accounted for 11.23% of all assets

under professional management in the US at year-end 2011

• $3.74 trillion out of $33.3 trillion of investment assets is held by individuals, institutions, investment companies or money managers that practice SRI strategies

• Total net assets of mutual funds that consider ESG criteria doubled to $641 billion from 2010 to 2011

• More conventional investment firms are beginning to develop SRI divisions

*From the US SIF Foundation “Report on Sustainable and Responsible Investing Trends in the United States 2012”

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<IR> DRIVERS: EXCHANGESThe Sustainable Stock Exchange (SSE) Initiative (sseinitiative.org)• A peer-to-peer learning platform for exchanges, investors, regulators, & companies• Focused on corporate transparency, performance on ESG issues, & sustainable investment

• Co-convened by the Principles for Responsible Investment, the United Nations Environment Programme Finance Initiative, and the UN Global Compact

• NASDAQ is a founding signatory, driving interest in <IR> in the U.S.

“NASDAQ OMX is happy to be a founding signatory of the Sustainable Stock Exchanges commitment and will work together with the other founding signatories – BM&FBovespa, ISE, JSE and EGX – through the World Federation of Exchanges to encourage all exchanges to sign up to the new SSE commitment.” –Sandy Frucher, Vice-Chairman of NASDAQ OMX.

SustainableStock ExchangesInitiative

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http://sseinitiative.org

http://sseinitiative.org


<IR> DRIVERS: STANDARD SETTERSThe Sustainability Accounting Standards Board (sasb.org)

A non-profit that provides standards for use by publicly-listed corporations in the U.S. in disclosing material sustainability issues for the benefit of investors and the public

“For us the integrated report is the Form 10-K. Within the 10-K we intend to develop that language, those standards by which companies can actually disclose a more comprehensive view of their integrated performance…The laws in the US require that all material information be provided to investors and that includes material environmental and social factors.”—Jean Rogers, Executive Director and Founder, SASB

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http://www.sasb.org

http://www.sasb.org


<IR> DRIVERS: REGULATORSEuropean Union Legislative Proposal • In February 2013 the European Commission adopted a legislative proposal requiring all EU companies with

more than 500 employees to disclose information on environmental, social and employee-related matters

• The proposal is now with EU legislators, the European Parliament and the Council of Ministers for adoption

*From the US SIF Foundation “Report on Sustainable and Responsible Investing Trends in the United States 2012”

“Europe is recovering from the worst crisis in 50 years. We need more responsible companies. Existing corporate governance principles should be more effectively implemented. Company boards should reflect gender, geographical, educational, professional and age diversity. Companies should meet their obligations towards employees, consumers, local communities and public authorities. Most importantly, the way these commitments are met should be made public and transparent. That’s why non-financial reporting is such an important issue. I am convinced this serves the interests of investors, shareholders, employees and society at large. In parallel, this is an asset for companies themselves.” – Michel Barnier, European Commissioner for the Internal Market and Services

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<IR> IN THE U.S.

*From the IRRC Institute’s “Integrated Financial and Sustainability Reporting in the United States” April 2013

“Seven companies out of the S&P 500 included a statement on integrated financial and sustainability reporting or declared their 2012 annual financial report to also be a sustainability report. All seven used the GRI guidelines as a reference or otherwise complied with one of GRI’s most recent reporting frameworks.”*

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<IR>: IIRC PILOT PROGRAMME The IIRC Pilot ProgrammeA global Business Network of over 100 companies including:

• Microsoft Corporation

• PepsiCo• Prudential Financial

• The Clorox Company• The Coca-Cola Company

• Cliff’s Natural Resources

A global Investor Network of over 35 institutional investors including:

• Calvert

• CFA Institute• Goldman Sachs

• ING IM International• Rockefeller Financial

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INTEGRATED REPORTS THE CLOROX COMPANY

About Clorox’s 2013 integrated report...

“Our fiscal year 2013 report represents continued progress in integrated reporting, applying several principles from the International Integrated Reporting Council (IIRC) framework, as well as third-party assurance of key non-financial metrics as indicated with a by Ernst & Young LLP. We plan to continue issuing an integrated report annually.”

Clorox won Corporate Secretary Magazine “Most Innovative Corporate Social Responsibility (CSR) Disclosure Policy” Award for its 2011 integrated report

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http://database.globalreporting.org/reports/view/7055





















http://annualreport.thecloroxcompany.com/

http://annualreport.thecloroxcompany.com/


INTEGRATED REPORTS CLOROX: INTEGRATED BUSINESS MODEL

Integrated Business Model (from the Clorox 2013 Integrated Annual Report)

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INTEGRATED REPORTSCLOROX: BUSINESS VALUE DRIVERS

Operating Context: Business Value Drivers(from the Clorox 2013 Integrated Annual Report)

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INTEGRATED REPORTS CLOROX: GRI INDEX

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http://annualreport.thecloroxcompany.com/gri.html

http://annualreport.thecloroxcompany.com/gri.html


INTEGRATED REPORTS CLOROX: EXTERNAL ASSURANCE

External assurance: Y

Type of Assurance Provider: Small consultancy/ boutique firm

Assurance Provider: Other

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IIRC’S INTERNATIONAL <IR> FRAMEWORK

“I am delighted that the day has come when businesses worldwide can use the Framework as a tool for the better articulation of their strategy, and to engage investors on a more long-term journey to attract investment that will be crucial to achieving sustained, and sustainable, prosperity.”– Professor Mervyn King SC, IIRC Chairman

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• Balance between flexibility and prescription• Sufficient degree of comparability across organizations• Does not prescribe specific Key Performance Indicators (KPIs)

<IR> FRAMEWORK: PRICIPLES-BASED APPROACH

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<IR> FRAMEWORK: VALUE CREATION• Increases, decreases or

transformations of the capitals caused by the organization’s business activities and outputs.

• For the organization itself• For others

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*From the IIRC International IR Framework


1. Financial capital2. Manufactured capital3. Intellectual capital4. Human capital5. Social & relationship capital6. Natural capital

<IR> FRAMEWORK: THE SIX CAPITALS

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*From the IIRC Consultation Draft of the International IR Framework


The complete picture of an organization’s value creation process, showing the interaction of the Content Elements and the capitals in the context of the organization’s external environment.*

<IR> FRAMEWORK: VALUE CREATION PROCESS

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• Strategic focus and future orientation• Connectivity of information• Stakeholder relationships• Materiality• Conciseness• Reliability and completeness• Consistency and comparability

<IR> FRAMEWORK: GUIDING PRINCIPLESThe Guiding Principles and Content Elements*

STRATEGIC FO CUS AND FUTURE ORIENTATION

MATERIALITY AND CONCISENESS

RELIABILITY AND COMPLETENESS

STAK

EHOLD

ER R

ESPO

NS IVEN

ESS

CONSI

STEN

CY A

ND COM

PARA

BILIT

Y CONNECTIVITY OF INFORMAT

ION

ORGAN IZATIONAL OVERVIEW AND

EXTERNAL ENVIRONMENT

PERFORMAN CE

OPPORTUN ITIES AND R ISKS

BUSINESS MODELSTRATEGY AND

RESOUR CE ALLOCATION

GOVERNAN CE

FUTURE OUTLOOK


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• Organizational overview and external environment

• Governance• Business model• Opportunities and risks• Strategy and resource allocation• Performance• Outlook• Basis of presentation

<IR> FRAMEWORK: CONTENT ELEMENTSThe Guiding Principles and Content Elements*

STRATEGIC FO CUS AND FUTURE ORIENTATION

MATERIALITY AND CONCISENESS

RELIABILITY AND COMPLETENESS

STAK

EHOLD

ER R

ESPO

NS IVEN

ESS

CONSI

STEN

CY A

ND COM

PARA

BILIT

Y CONNECTIVITY OF INFORMAT

ION

ORGAN IZATIONAL OVERVIEW AND

EXTERNAL ENVIRONMENT

PERFORMAN CE

OPPORTUN ITIES AND R ISKS

BUSINESS MODELSTRATEGY AND

RESOUR CE ALLOCATION

GOVERNAN CE

FUTURE OUTLOOK


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WHO BENEFITS FROM <IR>?

• Investors gain more complete information about a business’ risks and value drivers

• Companies improve operational performance, breaking down of silos and reduce risk and more fully understand the material and systemic issues facing their industry, informing resource allocation strategies, higher share price, lower-share price volatility

• Corporate communications professionals gain a seat at the table

“Leaders in the implementation of integrated reporting will demonstrate to investors and other stakeholders that business interests are not damaged, but rather enhanced, by embracing a sustainable future.”—David Nussbaum, Chief Executive of World Wildlife Fund UK and member of the IIRC Council

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<IR> CORPORATE REPORT COMPARISON

Focus Key Drivers Target Audiences Legally Required

Annual Report to Shareholders

and/or on Form 10-K

Sustainability/CSR Reports

Integrated Reports

Financial Results (historical)

SEC Regulations

Stakeholder Engagement

Investors/Analysts, Customers/Consumers,

Current/Potential Employees, Media, NGOs

Yes

ESG Results(historical)

Stakeholder Engagement,

Core Business Strategy

NGOs, Communities,Customers/Consumers,

Current/Potential Employees, Media, Suppliers

No

Financial & ESG Results & Value Creation

(historical & future outlook)Investor Demand

Investors/Analysts, Customers/Consumers,

Current/Potential Employees, Media, NGOs

No

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• For information about Eisenman Associates: www.eisenman.com

• For information about the IIRC: theiirc.org

• Our blog post: “Integrated Reporting, What Is It and Why Should You Care?”

• IR Magazine’s article: “IIRC opens way for integrated reporting”

RESOURCES

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http://www.eisenman.com

http://www.eisenman.com

http://theiirc.org

http://theiirc.org

http://eisenman.com/integrated-reporting-what-is-it/%23.UrH0OSi9TSc

http://eisenman.com/integrated-reporting-what-is-it/%23.UrH0OSi9TSc

http://www.irmagazine.com/articles/earnings-calls-financial-reporting/19942/iirc-opens-way-integrated-reporting/

http://www.irmagazine.com/articles/earnings-calls-financial-reporting/19942/iirc-opens-way-integrated-reporting/

Investor Relations

Introduction to Integrated Reporting for IRO's Dec 2013