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The third phase in defining the meaning of integrated reporting is one of Codification. Differing from the first two phases in that it is not based on the efforts of individual companies or commentators, each expressing their own view, in Codification an authoritative body establishes a multistakeholder process to fashion an agreed-upon meaning of the concept of integrated reporting, supported by principles and guidelines to provide guidance on implementation. Others can decide whether to adopt this view or not. If the authoritative body establishing meaning is an organ of the State, its legitimacy is assured. Otherwise, broad credibility for the meaning codification depends upon the perceived legitimacy of the process for fashioning it, as well as the expertise, status, and influence of the individuals and organizations involved in it.

The Integrated Reporting Committee of South Africa

Introduced in the previous chapter, the first attempt at codification was the "Framework for Integrated Reporting and the Integrated Report Discussion Paper"60 (IRC of SA Discussion Paper) by the Integrated Reporting Committee of South Africa (IRC of SA). Addressing both the information and transformation functions of integrated reporting, the IRC of SA Discussion Paper defined an integrated report as follows:

An integrated report tells the overall story of the organisation. It is a report to stakeholders on the strategy, performance and activities of the organisation in a manner that allows stakeholders to assess the ability of the organisation to create and sustain value over the short-, medium- and long-term. An effective integrated report reflects an appreciation that the organisation's ability to create and sustain value is based on financial, social, economic and environmental systems and by the quality of its relationships with stakeholders.61

Although this definition does not include the word "sustainability" (but rather sustainable value creation—the source concept for the Sustainable Value Matrix as discussed in detail in Chapter 6), the word "sustainability" is used 52 times in the report.

Many themes developed in the first two phases of meaning appear in the IRC of S A Discussion Paper: the internal performance benefits of integrated reporting (e.g., how external issues can affect the company's strategy, better risk management, and developing a culture of innovation), the distinction between an integrated report and integrated reporting, the importance of stakeholder engagement for determining materiality, and the performance benefits of stakeholder engagement. As discussed in the previous chapter, the IRC of SA Discussion Paper identified three categories of "Reporting principles"—scope and boundary, selection of the report content, and the quality of the reported information. While it also suggested eight elements to be included in an integrated report, providing a detailed explanation of each and sometimes brief examples to make the point clear, it did not provide a detailed proscriptive format for what an integrated report should look like.62

The International Integrated Reporting Council

The second codification effort—and the most globally significant one to date—is "The International <IR> Framework" published in December 2013 by the IIRC following completion of the IIRC's due process procedures.63 Based on seven "Guiding Principles" (Strategic focus and future orientation, Connectivity of information, Stakeholder relationships, Materiality, Conciseness, Reliability and completeness, and Consistency and comparability) and eight "Content Elements" (Organizational overview and external environment, Governance, Business model, Risks and opportunities, Strategy and resource allocation, Performance, Outlook, and Basis of preparation and presentation), the IIRC's definition of an integrated report is similar to that of South Africa's IRC. "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," it reads.64 However, the 37-page Framework did not cast an integrated report as a fusion of a financial report and a sustainability report, as is the case in the South African publication. In stark contrast to the IRC of SA Discussion Paper, the term "sustainability" is only used three times65 in the <IR> Framework. Table 2.1 shows the major similarities and differences in the two publications.

Echoing the conviction of One Report, the <IR> Framework stated that an integrated report "may be either a standalone report or be included as a distinguishable, prominent and accessible part of another report or communication."66 Not to be confused with endorsing a "combined" report, this simply means the IIRC acknowledged that due to its intended concise nature, the integrated report could be viewed as an "entry point" to more detailed data, such as through hyperlinks on the company's website.67 Furthermore, in a clear signal that the <IR> Framework was indeed intended to become a global standard for the meaning of an integrated report, it stated, "An integrated report should be prepared in accordance with this Framework."68 This raises the obvious question of how an integrated report fits into the context of a company's regulatory reporting requirements.

The <IR> Framework further honed the distinction made in the IRC of SA Discussion Paper between an integrated report and integrated reporting by emphasizing the relationship between the information function of integrated reporting and the transformation function of integrated thinking. Each is defined as contributing to the other in a virtuous cycle. In fact, the very first

TABLE 2.1 Comparison of the IRC of SA's Discussion Paper and the IIRC's International <IR> Framework

Comparison of the IRC of SA's Discussion Paper and the IIRC's International <IR> Framework

sentence of the first section of the International <IR> Framework, "About Integrated Reporting," highlighted this relationship:

The IIRC's long-term vision is a world in which integrated thinking is embedded within mainstream business practice in the public and private sectors, facilitated by Integrated Reporting (<IR>) as the corporate reporting norm. The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability.69

Emphasis on integrated thinking remains one of the IIRC's most important contributions to the meaning of integrated reporting. "Integrated thinking," the paper declared, "is 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."70

If the IRC of SA Discussion Paper contextualized integrated reporting within corporate governance because of South Africa's particular circumstances, the <IR> Framework privileges value creation. Yet, governance remains important; it is cited as one of the eight Content Elements that should be included in the integrated report. "Those charged with governance are responsible for creating an appropriate oversight structure to support the ability of the organization to create value," the <IR> Framework stated.71 The board has the ultimate responsibility for the company's strategy for sustainable value creation and for reporting on its results in an integrated report. Beyond governance, the integrated report should include the uses of and consequences to all of the "capitals" (financial, manufactured, intellectual, human, social and relationship, and natural) a company uses to create value. The importance of value creation in terms of the six capitals and the trade-offs that must be taken into account are reflected in the <IR> Framework's model of value creation (Figure 2.2).72

While both documents emphasized integrated reporting's role in helping companies create value over "the short, medium, and long term,"73 the IRC of SA Discussion Paper and the <IR> Framework defined report audience somewhat differently. The IIRC focused on "providers of financial capital"; the IRC of SA had a multistakeholder approach, stating that an integrated report "allows stakeholders to assess the ability of the organization to create and sustain value over the short-, medium- and long-term."74 That said, the <IR> Framework also noted, "An integrated report benefits all stakeholders interested in an organization's ability to create value over time."75 Similarly, while the <IR> Framework contained materiality as one of its Guiding Principles, it did not distinguish between financial and nonfinancial information, simply defining materiality as "matters that substantively affect the organization's ability to create value over the short, medium and long term."76

Because the <IR> Framework is based on principles rather than rules, the IIRC was very clear that it "does not prescribe specific key performance indicators (KPIs), measurement methods or the disclosure of individual

International <IR> Framework Value Creation Process

FIGURE 2.2 International <IR> Framework Value Creation Process

Source: International Integrated Reporting Council. International <IR> Framework, p. 13,, accessed May 2014.

matters."77 It simply states that the company should determine the material issues and how to disclose them, remaining agnostic about what these are and what standards to use, if any, assuming they exist, for reporting on them.

Such flexibility is less apparent in how the IIRC sees the relationship between its framework and the practice of integrated reporting. In the first section, "Using the Framework," the IIRC stated, "Any communication claiming to be an integrated report and referencing the Framework should apply all the requirements identified in bold italics."78 In this sense, the IIRC is more ambitious than the IRC of SA, which never claimed that any use of the term "integrated reporting" referencing the IRC of SA Discussion Paper should follow its principles and guidelines. The fact that the IIRC is a nonprofit organization with no regulatory backing in any country raises the obvious question of how such a requirement would be enforced. As discussed in Chapter 10, this can happen through a combination of market and regulatory forces. Since the IIRC is a "global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs,"79 it contains elements of both, making it one of the key actors accelerating the momentum of the integrated reporting movement.


1. Eccles, Robert G. and George Serafeim. "Corporate and Integrated Reporting: A Functional Perspective." Harvard Business School Working Paper, No. 14-094, April 2014. (Revised May 2014.)

2. Ibid, p. 2.

3. Ibid, pp. 2-3.

4. Ibid.

5. Mol, Michael J. and Julian Birkinshaw. Giant Steps in Management. London: Financial Times Prentice Hall, 2007, pp. 2, 3, and 182-199. Bloomberg Business. "A History of Big Ideas," 0312_game_changing_timeline/index.htm, accessed May 2014.

6. The convention used in corporate reporting is that the report year refers to the period of time covered by the annual report. For example, the United Technologies Corporation (UTC) Annual Report 2008 is for the year ended December 31, 2008, and was published in early 2009.

7. Novozymes. Annual Report: The Novozymes Report 2002, p. 2, www 7531 /pdf/8 3 5 5 /N0V0ZYMES_Rapport-annuel.pdf, accessed January 2014.

8. Novozymes, The Novozymes Report 2002, p. 5.

9. Novozymes. The Novozymes Report 2002, investor/flnancial-reports/Documents/The%20Novozymes%20report% 202002.pdf, accessed March 2014.

10. Similar to the environmental commitment, the company asks whether social responsibility can be measured as it identifies goals and performance on social issues. Ibid.

11. The company positions itself for greater integration of environmental responsibility into the business model and strategy with a public commitment to "continuously improve our environmental performance by setting objectives and integrating environmental and bioethical considerations into our daily business." Ibid.

12. "The economic bottom line covers many different elements. The latest Global Reporting Initiative (GRI) guidelines for reporting on the Triple Bottom Line include a number of indicators that aim to paint a picture of companies' economic impact on the world around them. These indicators have served as our inspiration when reporting on the third bottom line." Ibid.

13. Ibid.

14. For a more detailed and recent discussion of integrated reporting at Natura, see Eccles, Robert G., George Serafeim, and James Heffernan. "Natura Cosméticos, S.A." Harvard Business School Case 412-052, November 2011. (Revised June 2013.)

15. The 2002 annual report is not available online.

16. Natura. annualreport natum2003, p. 19, 1648/Eng_Annual_Report_2003.pdf, accessed January 2014.

17. Ibid.

18. Natura. Annual Report 2003,, accessed March 2014.

19. In the 2003 edition of the AA1000AS the principles and the standard were published as a single document. This was changed in 2008 when separate versions of AA1000 Assurance Standard and the AA1000 AccountAbility Principles Standard 2008 were issued. AccountAbility. www /Introduction%2 0to%2 0the% 20revised%20AA1000AS%20and%20AA1000APS.pdf, accessed April 2014.

20. The company mentions the Natura Environmental Management System as a channel for registering and replying to the notices of environmental impacts with stakeholders in its description of how the company manages impacts on communities affected by its activities. Natura, Annual Report 2003.

21. For a more detailed and recent discussion of integrated reporting at Novo Nordisk, see Eccles, Robert G. and Michael P. Krzus. "Novo Nordisk: A Commitment to Sustainability." Harvard Business School Case 412-053. Revised June 2013.

22. Novo Nordisk received the top ranking on Corporate Knight's list of Global 100 Most Sustainable Corporations in 2012. Reporting awards include Corporate Register's Best Integrated Report (three time winner), Corporate Register's Best Report for Openness & Honesty, top ranking by Lundquist CSR Online Awards Nordic, Globe Award for sustainability reporting, and Best Danish annual report. Novo Nordisk. sustainability-approach/awards-and-recognition.asp, accessed March 2014. Natura was ranked second on Corporate Knight's list of Global 100 Most Sustainable Corporations in 2011 and 2012. Reporting awards include winner Aberje Award for Print Media (Annual Report), IR Magazine Brazil Awards for Best Social and Environmental Sustainability, and Transparency Trophy recognition as one of the five most transparent publicly traded companies. Natura. .pdf, accessed March 2014.

23. John Elkington coined the phrase "triple bottom line." Elkington, J. "Towards the sustainable corporation: Win-win-win business strategies for sustainable development," California Management Review 36, no. 2. 1994. The "Triple Bottom Line" (TBL) reporting approach, which ultimately gave rise to the "ESG plus financials" approach favored today, appeared with the great frequency (11 times) in the 112-page 2004 report. Novo Nordisk. Annual Report 2004: Financial, Social and Environmental Performance Report, www Report%2004%20UK.pdf, accessed March 2014.

24. Ibid., p. 9.

25. Ibid.

26. Ibid.

27. Novo Nordisk. novo nordisk annual report: financial, social & environmental performance 2005, images/2005/Annual%20Report%2005%20UK.pdf, accessed January 2014, p. 40.

28. Ibid., p. 6.

29. GRI G2 Guidelines were released at the August-September 2002 World Summit on Sustainable Development in Johannesburg. Global Reporting Initiative., accessed April 2014.

30. The United Nations (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. By doing so, business, as a primary driver of globalization, can help ensure that markets, commerce, technology and finance advance in ways that benefit economies and societies everywhere." UN Global Compact. About Us, Overview, AboutTheGC/index.html, accessed May 2014. "The UN Global Compact's ten principles in the areas of human rights, labour, the environment and anti-corruption enjoy universal consensus and are derived from: The Universal Declaration of Human Rights; The International Labour Organization's Declaration on Fundamental Principles and Rights at Work; The Rio Declaration on Environment and Development and The United Nations Convention Against Corruption. The UN Global Compact asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment and anti-corruption. Human Rights: Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses. Labour: Principle 3 : Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation. Environment: Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption: Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery." UN Global Compact. About Us, The Ten Principles,, accessed May 2014. "Business participants in the UN Global Compact commit to make the Global Compact ten principles part of their business strategies and day-to-day operations. Companies also commit to issue an annual Communication on Progress (COP), a public disclosure to stakeholders (e.g., investors, consumers, civil society, governments, etc.) on progress made in implementing the ten principles of the UN Global Compact, and in supporting broader UN development goals. "The Communication on Progress (COP) is frequently the most visible expression of a participant's commitment to the Global Compact and its principles. Violations of the COP policy (e.g., failure to issue a COP) will change a participant's status to non-communicating and can eventually lead to the expulsion of the participant." UN Global Compact. Reporting, What is a Cop? unglobal, accessed May 2014.

31. Philips, Annual Report 2008, Financial, social and environmental performance, p. 180, Philips2008_AnnualReport.pdf, accessed January 2014.

32. Eccles, Robert G. and George Serafeim. "The Performance Frontier: Innovating for a sustainable strategy." Harvard Business Review 91, no. 5 (May 2013): 50-60.

33. For a detailed discussion of UTC's first integrated report and the evolution of its corporate reporting practices see, Eccles, Robert G. and Michael P. Krzus. One Report: Integrated Reporting for a Sustainable Strategy. New York: John Wiley & Sons, Inc., 2010. Chapter 2, pp. 29-50.

34. United Technologies. United Technologies Corporation Annual Report: 2008 Financial and Corporate Responsibility Performance, More with less, 20Annual%20Report.pdf, accessed January 2014.

35. United Technologies. News, United Technologies publishes combined Annual and Corporate Responsibility Report - determined to do "more with less," www +Corporate+Responsibility+Report?Page=ll&channel=/News/Archive/ 2009, accessed April 2014.

36. Ibid.

37. Eccles and Krzus, One Report, p. 10.

38. Given the timing of these papers, it is highly unlikely that either author knew about the other's work. This is yet another example of how separate events occur simultaneously when an idea's time has come.

39. White, Allen L. "New Wine, New Bottles: The Rise of Non-Financial Reporting." A Business Brief by Business for Social Responsibility, 2005, www, accessed May 2014.

40. Ibid., p. 2.

41. It is interesting that Novozymes is not mentioned and to this day Novo Nordisk has received a great deal more attention for its efforts in integrated reporting than its former sister company.

42. Ibid., p. 5.

43. Ibid.

44. Solstice Sustainability Works, Inc. "integrated reporting: issues and implications for reporters," August 2005, documents/IntegratedReporting.pdf, accessed January 2014.

45. Ibid., p. 1.

46. Ibid., p. 4.

47. Ibid., p. 3.

48. Ibid., p. 1

49. Ibid., p. 2.

50. Ibid., p. 5.

51. Ibid., p. 7.

52. Ibid., p. 11.

53. Ibid., p. 13.

54. Ibid., p. 14.

5 5. Eccles and Krzus did not become aware of the White and Solstice papers until sometime after their book was published. These papers were buried deep in the Internet, suggesting that both were some years ahead of their time.

56. Ibid., p. 3.

57. Eccles and Serafeim. "The Performance Frontier."

58. Eccles and Krzus, One Report, Chapter 6, pp. 145-179.

59. The Economist Intelligence Unit. Reputation: Risks of Risks, white paper, December 2005, pp. 5, 22.

60. We have referred to the IRC Discussion Paper of South Africa so as to avoid confusion with the Discussion Paper of the IIRC.

61. Integrated Reporting Committee of South Africa. "Framework for Integrated Reporting and the Integrated Report," January 25, 2011. www .sustainabmtysa.Org/Portals/0/IRC%20oP/o20SA%20Integrated%20Reporting %20Guide%20Jan%2011.pdf, accessed January 2014.

62. The eight elements are: 1. Report profile (What is the scope and boundary of the report?), 2. Organisational overview, business model, and governance structure (How do we create value and make decisions?), 3. Understanding of the operating context (What are the circumstances under which we operate?), 4. Strategic objectives, competencies, KPIs and KRIs (Where do we want to go and how do we intend to get there?), 5. Account of the organisation's performance (How have we fared over the reporting period?), 6. Future performance objectives (Informed by our recent performance, what are our future objectives?), 7. Remuneration policies (What is our approach towards remuneration?),

8. Analytical commentary (what are the views of the leadership about the organisation?), Ibid., Contents Page.

63. The Framework was developed in consultation with the Technical Task Force on the basis of feedback received from a range of sources including: the Working Group, responses to the 2011 Discussion Paper, consultation with Pilot Programme participants, discussions with Council members and round-tables conducted in various places around the world. The Consultation Draft was open for public comment for a period of 90 days. Prior to submitting the Framework to the IIRC Board for approval, all comments received on the Consultation Draft were considered, summarized, and the Board was advised of disposition. The process also required that at least two-thirds of the Working Group recommend the Framework to the Board and that two-thirds of the Council endorse the Framework. International Integrated Reporting Council. IIRC Due Process,, accessed March 2014.

64. International Integrated Reporting Council. International <IR> Framework, p. 7,, accessed May 2014.

65. The first mention seems to refer to the sustainability of the capital markets: "The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability." Ibid. p. 2. The second time is to emphasize that an integrated report is more than producing a single report that contains information on both financial and sustainability performance: "An integrated report is intended to be more than a summary of information in other communications (e.g., financial statements, a sustainability report, analyst calls, or on a website); rather, it makes explicit the connectivity of information to communicate how value is created over time." Ibid. p. 8. The third time is in saying that information in the integrated report should be compatible with information in other reports: "For example, when a KPI covers a similar topic to, or is based on information published in the organization's financial statements or sustainability report, it is prepared on the same basis, and for the same period, as that other information." IRC of SA Discussion Paper, p. 30.

66. <IR> Framework, p. 8.

67. Ibid.

68. Ibid.

69. Ibid., p. 2.

70. Ibid.

71. Ibid., p. 13.

72. Ibid.

73. <IR> Framework, p. 2 and IRC of SA Discussion Paper, p. 6.

74. IRC of SA Discussion Paper, p. 13.

75. These stakeholders include employees, customers, suppliers, business partners, local communities, legislators, regulators, and policy-makers. <IR> Framework, p. 4.

76. International <IR> Framework, p. 19.

77. Ibid., p. 7.

78. Ibid., p. 8.

79. International Integrated Reporting Council. The IIRC, the-iirc/, accessed April 2014.

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