Frequently-asked questions About integrated reporting What is the International Integrated Reporting Council (IIRC)? What is integrated reporting? What is the aim of integrated reporting? Who benefits from integrated reporting? What is an integrated report? What is integrated thinking? If a report does not fully adhere to the International <IR> Framework, can it still be called an integrated report? Where can I find examples of integrated reporting concepts in practice? The International <IR> Framework What is the International <IR> Framework? In what languages is the International <IR> Framework available? Why does the International <IR> Framework not require standardized indicators? When will the International <IR> Framework be revised? Integrated reporting and other report forms Does an integrated report need to be a stand-alone document? What is the difference between a combined report and an integrated report? Can an integrated report respond to existing compliance requirements? Is the goal to replace International Financial Reporting Standards (IFRS)? How does the integrated report relate to the narrative report in financial reporting? How does integrated reporting’s concept of financial capital relate to that found in traditional financial reporting? How does an integrated report differ from a sustainability report? Other reporting frameworks use different materiality approaches. Can these approaches be reconciled? Are efforts underway to explain or simplify the corporate reporting landscape? Value creation What does ‘value’ mean in the context of integrated reporting? How does an organization determine whether it’s creating, maintaining or eroding value? Does the International <IR> Framework require that value creation be quantified? Materiality How and why do materiality definitions differ across report forms? Is there common ground between materiality definitions across report forms? Can materiality approaches used in other report forms support the preparation of an integrated report? To what extent should the materiality determination process in integrated reporting align with normal operations? Is it necessary to consult stakeholders specifically for the preparation of the integrated report? How is the time frame for materiality decisions determined? How are the time horizons for short, medium and long term disclosures established? Does an integrated report need to list which matters are material? Is it necessary to include a materiality matrix in the integrated report? Is an organization required to disclose its materiality determination process in the integrated report? The capitals What are ‘the capitals’? Why does the International <IR> Framework refer to resources and relationships as ‘capitals’? Must an integrated report adopt the capitals categories and terminology used in the International <IR> Framework? Is it necessary to structure an integrated report along the lines of the capitals? Are the six categories of capitals material to all organizations? How does integrated reporting’s capitals-based approach align with a traditional stakeholder analysis? Intellectual capital, human capital, and social and relationship capital all relate to people. How do they differ? Is social and relationship capital the same as the social aspect of sustainability or CSR reporting? To what extent should an integrated report discuss capitals that are not owned by the organization? Is it necessary to quantify or monetize each form of capital for disclosure purposes?
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Frequently-asked questions About integrated reporting
What is the International Integrated Reporting Council (IIRC)? What is integrated reporting? What is the aim of integrated reporting? Who benefits from integrated reporting? What is an integrated report? What is integrated thinking? If a report does not fully adhere to the International <IR> Framework, can it still be called an integrated report? Where can I find examples of integrated reporting concepts in practice? The International <IR> Framework
What is the International <IR> Framework? In what languages is the International <IR> Framework available? Why does the International <IR> Framework not require standardized indicators? When will the International <IR> Framework be revised? Integrated reporting and other report forms
Does an integrated report need to be a stand-alone document? What is the difference between a combined report and an integrated report? Can an integrated report respond to existing compliance requirements? Is the goal to replace International Financial Reporting Standards (IFRS)? How does the integrated report relate to the narrative report in financial reporting? How does integrated reporting’s concept of financial capital relate to that found in traditional financial reporting? How does an integrated report differ from a sustainability report? Other reporting frameworks use different materiality approaches. Can these approaches be reconciled? Are efforts underway to explain or simplify the corporate reporting landscape? Value creation
What does ‘value’ mean in the context of integrated reporting? How does an organization determine whether it’s creating, maintaining or eroding value? Does the International <IR> Framework require that value creation be quantified? Materiality
How and why do materiality definitions differ across report forms? Is there common ground between materiality definitions across report forms? Can materiality approaches used in other report forms support the preparation of an integrated report? To what extent should the materiality determination process in integrated reporting align with normal operations? Is it necessary to consult stakeholders specifically for the preparation of the integrated report? How is the time frame for materiality decisions determined? How are the time horizons for short, medium and long term disclosures established? Does an integrated report need to list which matters are material? Is it necessary to include a materiality matrix in the integrated report? Is an organization required to disclose its materiality determination process in the integrated report? The capitals
What are ‘the capitals’? Why does the International <IR> Framework refer to resources and relationships as ‘capitals’? Must an integrated report adopt the capitals categories and terminology used in the International <IR> Framework? Is it necessary to structure an integrated report along the lines of the capitals? Are the six categories of capitals material to all organizations? How does integrated reporting’s capitals-based approach align with a traditional stakeholder analysis? Intellectual capital, human capital, and social and relationship capital all relate to people. How do they differ? Is social and relationship capital the same as the social aspect of sustainability or CSR reporting? To what extent should an integrated report discuss capitals that are not owned by the organization? Is it necessary to quantify or monetize each form of capital for disclosure purposes?
To what extent should capitals be discussed separately in the integrated report? Do the trade-offs between capitals represent a zero-sum game? Risks and opportunities
Why is it important to disclose information on opportunities, in addition to risks? Should opportunities be discussed to the same degree as risks? Competitive landscape and market positioning
Why is it important to discuss the organization’s competitive landscape and market positioning? What information about the competitive landscape and market positioning should be disclosed? Should disclosures on opportunities still be made if this could cause competitive harm?
About integrated reporting
What is the International Integrated Reporting Council (IIRC)? ▼
The IIRC is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. The coalition promotes communication about value creation as the next step in the evolution of corporate reporting.
The IIRC’s mission is to establish integrated reporting and thinking within mainstream business practice as the norm in the public and private sectors. Its vision is to align capital allocation and corporate behaviour to the wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking.
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What is integrated reporting? ▼
The International <IR> Framework defines integrated reporting as ‘a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation.’ Integrated reporting brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how the organization demonstrates stewardship and how it creates value, now and in the future.
But integrated reporting isn’t just a reporting process. It’s founded on integrated thinking, or systems thinking. Integrated thinking drives an improved understanding of how value is created and enhances decision-making by boards and management. The more integrated thinking is embedded in daily operations, the more naturally this information will be expressed in internal and external communications. On this basis, integrated thinking and integrated reporting are mutually reinforcing.
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What is the aim of integrated reporting? ▼
Integrated reporting aims to:
• Improve the quality of information available to providers of financial capital to support the efficient and productive allocation of capital
• Promote a more cohesive and efficient approach to corporate reporting, one that draws on various reporting strands and communicates the full range of factors that materially affect an organization’s ability to create value over time
• Enhance accountability and stewardship for the broad base of capitals and promote an understanding of their interdependencies
• Support integrated thinking, decision-making and actions that focus on value creation over time.
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Who benefits from integrated reporting? ▼
An integrated report benefits anyone who’s interested in an organization’s ability to create value. This includes, but is not limited to, providers of financial capital. Employees, customers, suppliers, business partners, local communities, legislators, regulators and policy-makers may also have an interest in an organization’s integrated report.
The process of integrated reporting, which is underpinned by integrated thinking, also benefits the organization’s management and governing bodies. Integrated thinking pushes organizations to bridge business units and functions, time horizons, and internal and external perspectives to evolve the business model and strategy. Through this bridging process, organizations benefit from reduced organizational silos, a clearer understanding of cause and effect, and improved decision making.
What is an integrated report? ▼ The integrated report is the most visible and tangible product of integrated reporting. It is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to value creation over time. An integrated report should be prepared in accordance with the International <IR> Framework.
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What is integrated thinking? ▼
The International <IR> Framework defines integrated thinking as ‘the active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects.’ Integrated thinking leads to integrated decision-making and actions that consider the creation of value over the short, medium and long term. In simple terms, this means thinking holistically about the resources and relationships the organization uses or affects, and the dependencies and trade-offs between them as value is created. In applying this mindset, the organization views itself as part of a greater system, one shaped by the quality, availability and cost of resources, as well as evolving regulations, norms and stakeholder expectations. Owing to its holistic approach, integrated thinking is a subset of systems thinking; in this case, the focus happens to be on the interaction between the organization’s business model and various forms of capital.
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If a report does not fully adhere to the International <IR> Framework, can it still be called an integrated report? ▼
We discourage use of the label ‘integrated report’ on reports that have not been prepared in accordance with the International <IR> Framework, as such reports can send a confusing and misleading signal to the market about what integrated reporting really is. Paragraph 1.17 of the <IR> Framework sets the conditions for any communication claiming to be an integrated report and referencing the <IR> Framework. More specifically, such reports should apply all requirements shown in bold italic type (summarized on pages 34–35 of the <IR> Framework), unless specific conditions preclude their application.
That said, many organizations are legitimately on the path to integrated reporting and have published reports that largely adhere to the <IR> Framework, recognizing there may be areas for improvement (e.g., the report may not yet be as concise as intended). We see no harm in such reports being labelled ‘integrated reports’, so long as the reports communicate an intent to continuously evolve future reports to achieve full adherence to the <IR> Framework.
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Where can I find examples of integrated reporting concepts in practice? ▼
Considerable advancements are being made in corporate reporting in response to the International <IR> Framework. The <IR> Examples Database showcases innovative and inspiring examples of integrated reporting in practice.
Released in December 2013, the International <IR> Framework explains the concepts of integrated reporting and underpins the IIRC’s work. The release followed extensive consultation and testing by report preparers and users in all regions of the world, including the 140 business and investor participants in the IIRC’s Pilot Programme. The <IR> Framework benefited from over 359 submissions from Africa, the Americas, Asia, Europe, the Middle East and Oceania, as well as from many global organizations.
The <IR> Framework establishes Fundamental Concepts, Guiding Principles and Content Elements governing the preparation and presentation of an integrated report. It’s written primarily in the context of private sector, for-profit companies of any size, but is also applied by public sector and not-for-profit organizations.
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In what languages is the International <IR> Framework available? ▼
The International <IR> Framework is available for download in Chinese, English, French, Italian, Japanese, Korean, Portuguese, Russian, Spanish, Traditional Chinese and Turkish.
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Why does the International <IR> Framework not require standardized indicators? ▼
The <IR> Framework acknowledges the uniqueness of individual entities and so strikes an important balance between flexibility and prescription. Its principles-based approach encourages organizations to communicate their unique value creation story, while at the same time enabling a sufficient degree of comparability across organizations. The <IR> Framework promotes a convergence in approach in the sense that all report preparers should provide core business information, as formalized in required Content Elements. Core disclosures include information about the business model, strategy and resource allocation, performance and governance. In providing such information, the <IR> Framework encourages both qualitative and quantitative disclosures, as each provides context for the other. Where measurement is appropriate, the IIRC endorses the use of generally accepted measurements methods to the extent they are appropriate to the organization’s circumstances and consistent with the indicators used internally by those charged with governance.
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When will the International <IR> Framework be revised? ▼
In March 2017, we launched a formal consultation to invite market feedback on Framework application. The feedback indicated that the Framework stands up well to the challenges of implementation. On this basis, we have no plans to initiate a formal Framework revision process prior to 2019. In fact, our priority for 2018 and 2019 is to develop supplementary guidance, foster research and pursue meaningful conversation aimed at helping report preparers and others on the path to integrated reporting.
Does an integrated report need to be a stand-alone document? ▼
No. An integrated report can be either a stand-alone report or included as a distinguishable, prominent and accessible part of another report or communication. For example, it may be included at the front of a report that also includes the organization’s full financial statements.
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What is the difference between a combined report and an integrated report? ▼
A combined report merges a range of existing disclosures, including, for example, the organization’s financial report, sustainability report, governance filings and website content. Although the combined report offers a one-stop shop for organizational information, it can also suffer several drawbacks. Whereas each component report had a well-defined purpose, and was prepared with a specific audience and set of information needs in mind, the consolidated report is inevitably larger in volume and broader in scope. In this case, it seems the whole is not greater than the sum of its parts.
By contrast, the content of an integrated report is viewed through a fine lens: value creation over time. It’s on these terms that information ‘earns’ a spot in the integrated report, regardless of its original source. Notably, the integrated report is intended to be more than merely a summary of information found elsewhere; rather, it makes explicit the connectivity of information in the context of value creation. Finally, with its sharpness in focus and clarity of purpose, the integrated report is characterized by yet another feature: an emphasis on conciseness.
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Can an integrated report respond to existing compliance requirements? ▼
Yes, an integrated report may be prepared in response to existing compliance requirements. For example, an organization may be required by local law to prepare a management commentary or other report that provides context for its financial statements. If that report also meets the requirements of the International <IR> Framework, it can be considered an integrated report. If the report is required to include information beyond that required by the <IR> Framework, the report can still be considered an integrated report, provided that other information does not obscure the concise information required by the <IR> Framework.
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Is the goal of integrated reporting to replace International Financial Reporting Standards (IFRS)? ▼
No. In early 2013, the International Integrated Reporting Council and the International Accounting Standards Board formed an agreement that would see the two organizations deepen their cooperation on the IIRC’s work. The Memorandum of Understanding demonstrates a common interest in improving the quality and consistency of global corporate reporting to deliver value to investors and the wider economy. A renewed Memorandum of Understanding with the IFRS Foundation in 2014 underscored the complementarity of their organizations’ respective roles, on the basis that financial reporting is a key pillar on which integrated reporting is based.
How does the integrated report relate to the narrative report in financial reporting? ▼ In general, narrative reports such as the directors’ report, management commentary, management’s discussion and analysis, and operating and financial review supplement the financial statements and provide contextual information. This information, provided through the eyes of management or directors, helps users of the financial statements understand the effects of transactions and other events on the organization’s economic resources and the claims against it.
An integrated report goes further than providing context to the financial statements, requiring a broader multi-capitals perspective, over a longer time horizon, to better communicate how value is created.
The main differences between the two report forms, in terms of purpose, audience and scope are as summarized below. Integrated report Narrative report
Purpose Explain to providers of financial capital how value is created over time
Provide context for financial statements and forward-looking information
Audience Providers of financial capital and others interested in the organization’s ability to create value
Current and prospective investors, lenders and other creditors
Scope • Organizational overview and external environment • Governance • Business model • Risks and opportunities • Strategy and resource allocation • Performance • Outlook • Basis of preparation and presentation
• Risk exposure • Risk management strategies and the effectiveness
of those strategies • Effect of beyond financial statement factors on
operations and financial statement performance
Depending on the jurisdiction, there is potential to apply integrated reporting to existing regulatory arrangements for narrative reporting. This can be achieved by ensuring that the key concepts and principles of integrated reporting are incorporated into the reporting requirements for the narrative report.
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How does integrated reporting’s concept of financial capital relate to that found in traditional financial reporting? ▼
The <IR> Framework describes financial capital as the pool of funds available to an organization for use in the production of goods or the provision of services. It includes funds obtained through financing, such as debt, equity or grants, or generated through operations or investments. In a sense, this could be equated to the credit side of the balance sheet in terms of traditional financial reporting (i.e., it is the source of money, rather than its application when it is used to purchase other forms of capital). This is not to imply that all other forms of capital are or can be purchased with money, or even measured in monetary terms. Rather, it recognizes that the value of financial capital lies in its use as a medium of exchange, and that value is realized when it is converted to other forms of capital. As with other forms of capital, the Framework does not prescribe specific measurement methods or the disclosure of individual matters with respect to financial capital; however, it does expect that when information in an integrated report is similar to, or based on other information published by the organization (such as IFRS financial reports), it is prepared on the same basis as, or is easily reconcilable with, that other information.
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How does an integrated report differ from a sustainability report? ▼ Generally, sustainability reports cater to a broad stakeholder base and communicate organizational impacts on the economy, the environment and society. By contrast, an integrated report explains to providers of financial capital how the organization creates value over the short, medium and long term. Notably, the integrated reporting movement was founded on the premise that traditional financial reporting, with its disproportionate emphasis on historical financial statement performance, provided an incomplete picture of the organization’s ability to create and preserve longer term value. Integrated reporting, therefore, extends the scope of the core investor document beyond financial capital to also reflect the influence of human, intellectual, manufactured, social and relationship, and natural capital. Some information normally found in a sustainability report may very well migrate into the integrated report, but only to the extent that it materially relates to value creation over time. The main differences between the two report forms, in terms of purpose, audience and scope are as summarized below.
Integrated report Sustainability report
Purpose Explain to providers of financial capital how value is created over time
Communicate the entity’s broader social and environmental impacts, strategies and goals
Audience Providers of financial capital and others interested in the organization’s ability to create value
Multi-stakeholder
Scope • Organizational overview and external environment • Governance • Business model • Risks and opportunities • Strategy and resource allocation • Performance • Outlook • Basis of preparation and presentation
Significant impacts in the following performance areas: • Economic • Environmental • Social, including labour practices, human rights
and broader societal influences • Governance
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Other reporting frameworks use different materiality approaches. Can these approaches be reconciled? ▼ The concept of materiality is context specific. So, as well as varying from one organization to the next, information that is material for inclusion in a report will vary according to the purpose of that report. In the case of an integrated report, the primary purpose is to explain to providers of financial capital how an organization creates value over time. This is different from other types of reports, e.g., the primary purpose of a sustainability report is to explain to a range of stakeholders an organization’s economic, environmental and social impact, and the primary purpose of a financial report is to explain to investors an organization’s financial position and financial performance. Clearly, the information that is material to each of these purposes will differ, so too, therefore, does the definition of materiality. For more information, see the FAQs on materiality.
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Are efforts underway to explain or simplify the corporate reporting landscape? ▼ Yes, via the Corporate Reporting Dialogue. This initiative was designed to respond to market calls for greater coherence, consistency and comparability between corporate reporting frameworks, standards and related requirements. It aims to:
• Communicate about the direction, content and ongoing development of reporting frameworks, standards and related requirements
• Identify practical ways and means by which respective frameworks, standards and related requirements can be aligned and rationalized
• Share information, and express a common voice on areas of mutual interest, where possible, to engage key regulators.
The Corporate Reporting Dialogue’s participants are CDP, the Climate Disclosure Standards Board, the Financial Accounting Standards Board (observer status), GRI, the International Accounting Standards Board, the International Integrated Reporting Council, the International Organization for Standardization and the Sustainability Accounting Standards Board.
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Value creation
What does ‘value’ mean in the context of integrated reporting? ▼
The concept of ‘value’ is subjective. It’s why there’s no one-size-fits-all definition of ‘value creation’ in the International <IR> Framework. And it’s why the IIRC encourages organizations – public or private, large or small, for-profit or not-for-profit – to develop and express their own interpretation of value. This means considering the needs and interests of key stakeholders, recognizing that the value created for the organization generally relies on the value created for others. This also means understanding how value is created and, in particular, how the business model transforms resources and relationships (or capitals) into products, services, by-products and waste.
The Framework does not explicitly call for disclosure of an entity-specific definition of value in the integrated report; however, the internal process of defining and expressing the organization’s value proposition builds a collective understanding among management and those charged with governance, setting the stage for report preparation.
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How does an organization determine whether it’s creating, maintaining or eroding value? ▼
To evaluate how successfully the organization delivers value, it should consider the effects of its outputs and activities on each class of capital. We call these effects ‘business model outcomes’ and, when taken in aggregate, they point to a net positive (value is created), net negative (value is eroded) or neutral position (value is preserved). Of course, this analysis isn’t an exact science. Some outcomes are immeasurable, so there is necessarily subjectivity and uncertainty involved. Organizations might also have an imperfect knowledge of the interdependencies and trade-offs between the capitals, or an incomplete understanding of the perspectives of outside parties. Finally, in prioritizing one set of interests over another set of interests, organizations necessarily apply judgement. Despite these limitations, the <IR> Framework provides a robust approach for identifying and communicating how value is created, beyond the financial bottom line. For more information, see the FAQs under integrated thinking.
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Does the International <IR> Framework require that value creation be quantified? ▼ No. The <IR> Framework does not call for a calculation of net value created or destroyed over the reporting period. Moreover, the integrated report should not attempt to place a value on the organization itself. Assessments of value are the role of others using information presented in the report. <IR> Framework reference: Paragraph 1.11
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Materiality
How and why do materiality definitions differ across report forms? ▼
In integrated reporting, materiality is seen through a value creation lens. By contrast, financial reporting views the concept in relation to financial position and performance; sustainability reporting does so through the lens of environmental, social and economic impacts. With this in mind, the Corporate Reporting Dialogue’s Statement of Common Principles of Materiality notes the challenge of establishing a ‘one size fits all’ quantified definition of materiality. The Statement observes that materiality must be evaluated and applied in context; what is material in one context may be immaterial in another. The guidance publication Materiality in integrated reporting, issued jointly by the IIRC and the International Federation of Accountants, elaborates. Variations in report attributes such as purpose, audience and scope, as shown here, necessarily lead to different materiality assessments (p. 10-11).
Is there common ground between materiality definitions across report forms? ▼ Per page 3 of the Statement of Common Principles of Materiality of the Corporate Reporting Dialogue, for all forms of reporting:
• Material information is any information that is capable of making a difference to the evaluation and analysis at hand • Reporting focuses on the information needs of the primary stakeholders for whom the report is issued • Judgement is necessary to determine the appropriate level of aggregation or disaggregation of detailed information • The inclusion of immaterial information must not obscure material information.
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Can materiality approaches used in other report forms support the preparation of an integrated report? ▼
Some, but certainly not all, information identified as material for other report forms will also be material for the integrated report. Therefore, as noted on page 10 of the publication Materiality in integrated reporting, issued jointly by the IIRC and the International Federation of Accountants, organizations can improve the efficiency of their reporting process by identifying where existing report strands are mutually supportive. For instance, integrated reports typically include a summary of financial performance, as reflected in the financial report. They also include any ‘sustainability’ matters (such as raw material shortages or climate-related risks) that significantly affect the organization’s ability to create value, particularly if those matters affect the continued availability, quality or affordability of key capitals. Ideally, any such matters will connect to explanations and metrics that are consistent with financial, sustainability or other reports. <IR> Framework reference: Paragraphs 3.5 and 4.37
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To what extent should the materiality determination process in integrated reporting align with normal operations? ▼
The process for determining the content of the integrated report should be consistent with, and ideally embedded in, existing value creation processes (e.g., strategic development, business planning, risk management, governance, stakeholder engagement, business model refinement). The reasoning is simple: an integrated report explains how the organization creates value; so, if the integrated report reflects what the organization does – and what it does to create value – then there should be no difference between ‘how to determine which matters to report’ on the one hand, and ‘how to create value’ on the other.
The guidance publication Materiality in integrated reporting, issued jointly by the International Integrated Reporting Council and the International Federation of Accountants, notes that matters relevant to value creation are typically discussed at board meetings. Such matters are often addressed in relation to elements of the organization’s value creation process and are likely connected to strategic themes, performance objectives and risk management. The publication warns that the process of understanding relevant matters is dynamic, so the current board agenda may not offer a full picture of all relevant matters (p. 16).
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Is it necessary to consult stakeholders specifically for the preparation of the integrated report? ▼
The short answer is ‘no’. The longer answer includes a subtle, but important, distinction: The purpose of the Guiding Principle on stakeholder relationships is not to cater the report’s content to the information needs of all stakeholders. Rather, it’s to understand the needs and interests of key stakeholders – as critical drivers of value – and to communicate this understanding.
Some might choose to carry out a dedicated consultation to inform this aspect of the materiality determination process; however, this approach is unnecessary for those who already engage with stakeholders during the normal course of business. Some, for instance, regularly interact with customers and suppliers as part of quality control measures or to inform stakeholder satisfaction scores. Others engage with a broad stakeholder base to perform risk assessments or develop strategic plans. External consultation might also be done for a specific purpose, such as community engagement to inform plans for a factory extension. The more integrated thinking is embedded in the organization, the more likely key stakeholders’ legitimate needs and interests are reflected in normal business activities.
Where a stand-alone stakeholder consultation exercise does occur as part of the materiality determination process, its findings should be considered with those surfaced through other engagement mechanisms. The stand-alone exercise should not disproportionately affect the content of the integrated report. <IR> Framework reference: Paragraphs 3.10, 3.13
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How is the time frame for materiality decisions determined? ▼
In integrated reporting, the materiality determination process focuses on value creation over the short, medium and long term. The length of each time frame is defined by the organization, with reference to its industry or sector, business and investment cycles, strategies, and key stakeholders’ legitimate needs and interests. The nature of its business model outcomes will also influence the time frame considered in the materiality determination process. For example, issues affecting natural or social and relationship capitals can be very long term. It is helpful to clearly identify, in the integrated report, the time periods considered.
The time frame considered in integrated reporting is typically longer than in most other report forms. Issues that are easy to address in the short term, but which may, if left unchecked, become more damaging or difficult to address longer term should be considered.
Pages 18-20 of the publication Materiality in integrated reporting, issued jointly by the IIRC and International Federation of Accountants, provide further guidance on time frame considerations. <IR> Framework reference: Paragraphs 3.23, 4.57–4.59
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How are the time horizons for short, medium and long term disclosures established? ▼
By addressing the International <IR> Framework’s eight Content Elements, the integrated report naturally covers past, present and future time dimensions. With respect to future-oriented disclosures, the <IR> Framework encourages report preparers to consider short, medium and long term time horizons. Given the nature of the issues addressed in integrated reporting, organizations are likely to consider more extended time scales than they would in traditional annual reports.
There is no set answer for establishing the length of each term. And, in fact, the length of the future dimension may vary by sector. Whereas one sector might define the short, medium and long term as one year, two to five years and beyond five years, respectively, another might allocate these time frames over several decades. On this basis, it is important that an organization define its own time horizons based on the pace and scale of key activities and program cycles. It is also useful to explicitly communicate the time horizons used for short, medium and long term in the integrated report. Notably, disclosures about the long term are likely to be more qualitative in nature, as their underlying information tends to be less certain. <IR> Framework reference: Paragraphs 4.57-4.59
Does an integrated report need to list which matters are material? ▼ No. Organizations needn’t explicitly identify which matters are considered material. The International <IR> Framework requires only that they disclose “information about” such matters. Arguably, having conducted a materiality determination process, the vast majority* of information in the report is material – making it unnecessary to prepare a separate list of material matters.
On the other hand, the <IR> Framework does not prohibit such a list, which can lend structure to the report and assist readers’ understanding. However, this approach should not preclude a fully integrated discussion, one that connects material matters to the Content Elements (e.g., discussions of business model, risks and opportunities, and strategy and resource allocation). By fully weaving material matters into the fabric of the report, the report preparer upholds the Guiding Principle of Connectivity of information. * As noted on page 3 of the Statement of Common Principles of Materiality of the Corporate Reporting Dialogue, an organization may include some immaterial information in a report. <IR> Framework reference: Paragraphs 3.8 and 3.17
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Is it necessary to include a materiality matrix in the integrated report? ▼ No, a materiality matrix, more commonly associated with sustainability reporting, is not required by the International <IR> Framework. In fact, plotting issues according to ‘importance to the organization’ and ‘importance to stakeholders’ is inconsistent with the <IR> Framework’s concept of materiality, which focuses on value creation over time, looking primarily from a provider of financial capital’s perspective. <IR> Framework reference: Paragraph 1.7
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Is an organization required to disclose its materiality determination process in the integrated report? ▼ Yes, the International <IR> Framework requires an integrated report to answer the question, “How does the organization determine what matters to include in the integrated report?” The guidance accompanying this requirement confirms an expectation that the materiality determination process is to be summarized in the integrated report. This summary enhances the report’s credibility by indicating, in particular, how embedded the process is in the organization’s normal course of business, including the role of those charged with governance. The summary is intended to be brief and, if necessary, linked to more detailed information elsewhere (e.g., on a website or in an appendix). <IR> Framework reference: Paragraphs 4.40–4.42
An integrated report provide insight about the resources and relationships used or affected by the organization – the International <IR> Framework refers to these collectively 'the capitals’. Capitals are stocks of value on which an organization’s business model depends as inputs, and which are increased, decreased or transformed through its business activities and outputs. The capitals are categorized in the <IR> Framework as financial, manufactured, intellectual, human, social and relationship, and natural. <IR> Framework reference: Paragraphs 2.10 – 2.19
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Why does the International <IR> Framework refer to resources and relationships as ‘capitals’? ▼
The Oxford English Dictionary defines capital as ‘wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing’. When used with a modifier (e.g., financial capital or human capital), it refers to ‘a valuable resource of a particular kind’. The term financial capital is already very much embedded in the language of business and investment. The <IR> Framework applies this same convention to the full range of resources and relationships on which organizations rely or have an effect.
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Must an integrated report adopt the capitals categories and terminology used in the International <IR> Framework? ▼
No. Paragraphs 2.17 – 2.18 of the <IR> Framework recognize that the categories of capitals may not suit all organizations. Rather, they are to be used as a guideline for completeness when preparing the integrated report to ensure a capital that is materially used or affected does not go overlooked. Where different categories are used, an explanation may aid comparability.
Integrated reports need not use the term ‘capitals’. Organizations can use terminology that is consistent with other existing communications, and which may be more understandable to internal and external stakeholders or report users. For example, if an organization uses the term ‘people’ in other communications, it may make sense to use this in the integrated report rather than ‘human capital’. The word ‘partnerships’ may be more appropriate than ‘social and relationship capital’.
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Is it necessary to structure an integrated report along the lines of the capitals? ▼
No, the integrated report needn’t be structured along the lines of the capitals. As noted in Paragraph 2.17 of the International <IR> Framework, an organization is free to structure its integrated report however it chooses. Of course, an organization may choose to structure its integrated report around the capitals if it thinks this is the best way to explain its value creation story.
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Are the six categories of capitals material to all organizations? ▼
No. While most organizations interact with all capitals to some extent, these interactions might be relatively minor or so indirect that they are not sufficiently important to include in the integrated report.
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How does integrated reporting’s capitals-based approach align with a traditional stakeholder analysis? ▼ As an organization defines its reporting boundary, it finds that certain capitals are strongly associated with key stakeholders. For example, human capital is most often linked to the organization’s workforce. Page 24 of the IIRC’s publication Capitals: Background paper for <IR> illustrates links between capitals and stakeholders to demonstrate how an organization can use the capitals approach in conjunction with a stakeholder analysis when determining its reporting boundary.
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Intellectual capital, human capital, and social and relationship capital all relate to people. How do they differ? ▼
The simplest way to differentiate between these three capitals is to consider the ‘carrier’ of each: • For intellectual capital, the carrier is the organization itself • For human capital, the carrier is the individual (typically workers or employees) • For social and relationship capital, the organization and its internal/external networks and partners are joint carriers.
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Is social and relationship capital the same as the social aspect of sustainability or CSR reporting? ▼
No. Social- or societal-based disclosures in sustainability and corporate social responsibility (CSR) reports generally focus on organizational impacts on stakeholders or society at large. Such disclosure often describe the organization’s investment, financial or otherwise, in social and community programs.
By contrast, disclosures on social and relationship capital in an integrated report cover the organization’s significant networks, partnerships and interactions and explain how these various relationships influence the organization’s ability to create value (for better or for worse). Such disclosures might describe, for example, the effects of the organization’s activities and outputs on customer satisfaction or suppliers’ willingness to trade with the organization and the terms and conditions upon which they do so. Such relationships are generally premised on the principles of mutual benefit, trust and shared values, recognizing that the value created for the organization is inextricably linked to the value created for others. <IR> Framework reference: Paragraphs 2.2, 2.6 and 2.15
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To what extent should an integrated report discuss capitals that are not owned by the organization? ▼
Not all capitals an organization uses or affects are owned or controlled by it. Some may be owned by others. For example, a logistics company may rely on the availability, quality and affordability of a government-owned transportation infrastructure. Some capitals may not be owned at all in a legal sense. For instance, social and relationship capital, by its nature, is not ‘owned’ in a traditional sense; nonetheless, an organization’s networks, partnerships and interactions can be essential to its ability to create value.
With these considerations in mind, an integrated report should encompass all capitals that are material to the organization’s ability to create value, whether they are owned by the organization or not. <IR> Framework reference: Paragraphs 4.15, 4.20, 4.54 and 4.56
Is it necessary to quantify or monetize each form of capital for disclosure purposes? ▼ No. Although quantitative information such as performance indicators or monetized metrics can help explain an organization’s use of and effects on the capitals, it is not the purpose of an integrated report to quantify or monetize: (1) the value of the organization at a point in time, (2) the value it creates over a period or (3) its uses of or effects on all the capitals. It is up to the organization to determine which combination of quantitative and qualitative information best explains its value creation story over time. <IR> Framework reference: Paragraphs 1.11, 4.54-4.55
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To what extent should capitals be discussed separately in the integrated report? ▼
Connectivity of information is important to an integrated report, and this includes demonstrating the links between the capitals. So, while it is usual for some information in an integrated report to relate solely to an individual capital, the report also needs to show the important interdependencies and trade-offs between the capitals. <IR> Framework reference: Paragraph 3.8
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Do the trade-offs between capitals represent a zero-sum game? ▼
A zero-sum game is rare in practice. That is, the positive and negative interactions within and across the capitals rarely ‘cancel’ each other out perfectly. We should also bear in mind that it would not be practicable (or even possible, in some cases) to quantify and explain all complex relationships within and across the full range of capitals to derive a net overall impact. Gains and losses can be inherently difficult to measure, in part because their precise evaluation depends on the perspective chosen. Imperfect information about external perceptions also introduces uncertainty and subjectivity to the process. And, of course, prioritizing one set of interests over another set of interests necessarily involves judgement. Finally, the evaluation process assumes that we can reasonably and reliably translate the effects on all capitals into a common unit of measure.
Despite these limitations, the International <IR> Framework reminds us that alternative courses of action invite different balancing acts in terms of their effects on the capitals. When these effects, and their potential trade-offs, are material to the organization’s value creation story, they are included in the integrated report. <IR> Framework reference: Paragraphs 2.11-2.14, 4.56
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Risks and opportunities
Why is it important to disclose information on opportunities, in addition to risks? ▼
Opportunity-based disclosures offer insight into an organization’s understanding of and readiness for new developments. Such forward-looking information help providers of financial capital and others evaluate how the organization is positioned for the future. It also influences readers’ confidence in the adaptability of the organization’s strategy and longer-term business model.
Effective organizations continuously monitor the operating environment for risks and opportunities. It’s important that the integrated report show both sides of the coin; after all, failure to seize opportunities can be as detrimental to a business model as mismanagement of risks, particularly in a disruptive or competitive environment. <IR> Framework reference: Paragraphs 2.26 and 2.27
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Should opportunities be discussed to the same degree as risks? ▼ The integrated report should answer the question: What are the specific risks and opportunities that affect the organization's ability to create value over the short, medium and long term, and how is the organization managing them?
Some reports address risks more comprehensively than opportunities; however, the International <IR> Framework does not emphasize risks over opportunities. In fact, risks and opportunities are referenced together throughout the <IR> Framework – including in a single, dedicated Content Element – because they are often connected. For example, in pursuing its strategic objectives, an organization might aggressively exploit new opportunities, a move that can carry inherent risks. On the flipside, emerging risks that have the potential to disrupt business models can also present new opportunities for innovation and growth.
The level of disclosure on opportunities (and risks) depends on the extent to which they influence value creation. Report preparers should realistically assess the likelihood that the opportunity (or risk) will materialize, as well as the magnitude of the effect if it does. Organizations should also consider their ability to deliver on key opportunities, were they to arise.
Some are reluctant to disclose information about opportunities, for fear of revealing too much to competitors. Where this is of genuine concern, disclosures of a general nature about the matter, rather than specific details, can instead be included. For more information, see the FAQs under competitive landscape and market positioning. <IR> Framework reference: Paragraph 4.23-4.25, 4.36, 4.50
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Competitive landscape and market positioning
Why is it important to discuss the organization’s competitive landscape and market positioning? ▼ To create value over the short, medium and long term, organizations need to establish and maintain advantage over their competitors. This advantage is challenged by the threat of new competition and substitute products or services, the bargaining power of customers and suppliers, and the intensity of competitive rivalry. In a fast changing and competitive environment, if not effectively managed, any one, or a combination, of these factors has the potential to put an organization out of business very quickly. Therefore an organization’s assessment of, and responsiveness to, its competitive landscape and market positioning, is of critical importance to providers of financial capital and others interested in how it creates value over time. <IR> Framework reference: Paragraph 4.5
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What information about the competitive landscape and market positioning should be disclosed? ▼
An organization should show, through its integrated report, its understanding of the external environment and the impact of this environment on its strategy and business model. With respect to competitive landscape and market positioning, this includes (but is not limited to) its awareness of:
• Others in the market, both currently and those with potential to enter • Key market trends, such as changing customer demands and expectations, supply chain issues, or new or changing
legislative and regulatory requirements • Potential disruptors, for example from new technologies, or alternative products and services • Its position in the market, and how it differentiates itself in the market place (e.g., through product differentiation, market
segmentation, delivery channels and marketing) • Specific risks and opportunities related to its competitive landscape and market positioning.
<IR> Framework reference: Paragraph 4.16
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Should disclosures on opportunities be made if doing so could cause competitive harm? ▼ Where disclosures on competitive landscape and market positioning could significantly reduce competitive advantage, it may be appropriate to address those matters more generally. The goal is not to divulge confidential information, but rather to demonstrate awareness of other market players and potential disruptors, and to show proactive consideration and management of their associated impacts. However, the banner of commercial sensitivity should not be used inappropriately to avoid disclosure. If material information is not disclosed because of competitive harm, this fact and the reasons for it should be noted in the integrated report.
It’s important to strike an appropriate balance between achieving the primary purpose of the integrated report through complete disclosures and revealing sensitive information to competitors. There may be circumstances when omitting information could be more damaging to the organization than including it, particularly in terms of investor and stakeholder confidence. <IR> Framework reference: Paragraphs 3.51, 4.50
