Novozymes

The first known company to produce an integrated report was the Danish industrial biotechnology company Novozymes. The second page of the company's compact 108-page 2002 annual report simply declares: “Integrated annual report, Environmental and Social Report.”⁷ In his CEO Statement,⁸ President and CEO Steen Riisgaard declared:

Three bottom lines for future annual reports

This year and in future years Novozymes publishes a combined annual report with information on the areas that we believe to be most important for the majority of our stakeholders. This report is an integrated financial, environmental, and social report that also focuses on knowledge and the economic significance of our business. Our decision to bring everything together in one report is a natural consequence of business and sustainability moving ever closer together, and of various stakeholders asking for a wider overview of the business. We have chosen to keep the printed report relatively short and publish more detailed information on CD-ROM and on the Internet. We plan to expand this in-depth reporting for specific target groups in the coming years. Happy reading!

Riisgaard's use of the term “combined report,” in contrast to the label, “integrated report,” on the second page raised a debate that continues to this day. Although the degree to which interdependencies between financial and ESG performance must be disclosed to earn the title “integrated report” remains contentious, most parties would distinguish between a “combined report” that merely contains information on ESG performance and an “integrated report” insofar as the latter provides this information in a way that shows the relationships between them. Novozymes' integrated report was driven by the now-familiar themes of sustainability's increasing centrality to business success and the rising importance of stakeholders. Both issues point to the question, still being debated today, of exactly whom the audience for an integrated report should be.

Introducing the distinction between an integrated report and integrated reporting, Riisgaard pointedly noted the brevity of this 2002 integrated report, saying that supplementary information could be found on Novozymes' website. Integrated reporting both enables more detailed disclosure to specific stakeholders and more “real time” disclosures, albeit not necessarily in the format of a formal “report.”

While it is clear that Novozymes' 2002 report was more combined than integrated, the progressive nature of its nonfinancial performance disclosures and consideration of noninvestor stakeholders demonstrate that the company had begun to build the foundation for a truly integrated report. In addition to revealing performance on a number of environmental and social indicators, the report presented a section titled “Knowledge as a strategic resource,” which discussed process and technology, innovations, and the aggressive patenting of results. Also addressed were customer needs and organizational and employee development.⁹ In considering these issues, Novozymes anticipated the intangible assets or “capitals” of intellectual, human, and social and relationship that feature prominently in “International <IR> Framework” (<IR> Framework) published by the International Integrated Reporting Council (IIRC) in December 2013.

In its commitment to better integration of social¹⁰ and environmental¹¹ issues into the development of its overall strategic objectives, Novozymes arguably laid a foundation for exploring how environmental and social performance are linked to business success—and thus, integrated reporting. To do so, the company used GRI's G2 Guidelines as a basis for its Triple Bottom Line reporting,¹² indicating that GRI was involved with integrated reporting from the movement's inception and in the very early days of GRI itself. Although the term “materiality” was not mentioned in the report, the company established a 2003 goal to “Explore and implement new approaches to stakeholder engagement.”¹³

Natura

The Brazilian cosmetics, fragrances, and personal hygiene company Natura also published its first integrated report in 2002.¹⁴ Available in Portuguese and English, Natura's 2003¹⁵ 143-page annual report stated, “For the second consecutive year, Natura presents in an integrated manner a report on its activities in the economic-financial, social and environmental fields. Therefore, it reaffirms the commitment made to the many sections of the general public with which it relates and that is stated in its Vision of the World, which is to seek sustainable development, as well as transparency when reporting its initiatives.”¹⁶ Like Novozymes, Natura emphasized a Triple Bottom Line approach without specifically using the term. The report stated that the challenge for the Natura Annual Report was to describe the impacts of Natura's economic, social, and environmental performance integration.¹⁷ Despite a section titled “analysis of the economic-financial, environmental and social results,” the report was, like Novozymes', more combined than integrated. Also like Novozymes, the company reported on a number of nonfinancial indicators like job creation and the company's relationship with the communities in which it operates.

Natura was ahead of its time in two critical areas: life cycle assessment (LCA) and supply chain management. The latter anticipated the “boundary” issue, or to what extent a company is responsible for the actions of its suppliers. This is discussed in the <IR> Framework. Not only did Natura address compliance by using a GRI indicator concerning the discussion of significant environmental impacts of principal products and services as an “integrated approach of concepts, techniques and procedures to access the environmental, economic, technological and social aspects of products and organizations with an aim to continuously improve the lifecycle prospect,” it also set a 2004 target to carry out a packaging LCA study on 100% of products launched and to cover 100% of the packaging of the product portfolio.¹⁸ Another 2004 target mentioned the Natura Environmental Management System and required the evaluation of environmental documentation of suppliers whose activities could impact the environment. No reference was made, however, to Accountability's AA1000 Assurance Standard¹⁹ or to assurance, and the term “materiality” never appeared. While there was no mention of stakeholder engagement by name, three references to stakeholders surfaced in different contexts.²⁰

Novo Nordisk

Along with Natura, Novo Nordisk is one of the most frequently cited examples today of a company producing a high-quality integrated report.²¹ (Both companies have won numerous awards for their reports.²²) Because Copenhagen-based Novo Nordisk and Novozymes formed a single company until a demerger in 2000, one can safely assume that Novo Nordisk was aware of Novozymes' first integrated report. Novo Nordisk followed suit in its 112-page 2004 annual report with what it referred to as its “Triple Bottom Line or TBL” reporting approach but did not call it an “integrated report.”²³ It is highly unlikely that either of these Danish companies was aware of Natura in those early days, providing evidence that when “an idea's time has come,” it occurs independently and simultaneously in different places. In the case of integrated reporting, the concept appeared in dramatically different industries separated by country and language.

Novo Nordisk gave an explanation similar to Novozymes' and Natura's for why it was producing an integrated report, but in its implementation this Danish company went further. Much like that of the previous two companies, its integrated report evolved out of a commitment to “sustainable development.” Unlike the others, however, Novo Nordisk cited its management ethos, “The Novo Nordisk Way of Management,” which “explicitly referred to the Triple Bottom Line (TBL) – social, environmental and financial responsibility – as the company's underlying business principle.”²⁴ Furthermore, in March 2004 Novo Nordisk amended its Articles of Association to specify that the company will “strive to conduct its activities in a financially, environmentally and socially responsible way.”²⁵ In doing so, the company made it clear that its approach was intended “to serve the long term interests of its shareholders.”²⁶ Implicit in this statement was that shareholders' long-term interests are best served by taking account of other stakeholders' interests, an assertion that lies at the core of the movement's argument that it is in a company's long-term self-interest to adopt integrated reporting.

In its second integrated annual report, the company declared, “Novo Nordisk has chosen an integrated approach to reporting on its financial and non-financial performance. Hence, this report follows current international standards in terms of both mandatory and voluntary reporting.”²⁷ In this 116-page report, Novo Nordisk showed leadership in addressing issues at the heart of the integrated movement today: materiality, stakeholder engagement, and assurance. The annual report had an explicit discussion about materiality, an issue absent in its 2004 report as well as the earlier reports of Novozymes and Natura. It also discussed how stakeholder engagement was used to help the company identify the material issues to be managed and reported on:

Ongoing interactions with stakeholders, trendspotting, business monitoring and the integrated systematic risk management process are tools to identify the issues that are material to Novo Nordisk's business. The company's response to current and emerging business and societal challenges, in turn, is shaped in a closer dialogue with representatives of the stakeholders affected by the issue. As a result of this process, Novo Nordisk frames its strategic response and defines its targets. The company regularly reviews its key priorities to ensure that they reflect current agendas, and reports on progress against performance targets.²⁸

The company's Executive Management and Board of Directors affirmed that its nonfinancial reporting was prepared in accordance with AccountAbility's AA1000 AccountAbility Principles Standard 2003 and the 2002 GRI G2 Sustainability Reporting Guidelines,²⁹ and it included a Communication on Progress in support of the United Nations Global Compact.³⁰ PricewaterhouseCoopers reviewed the annual report to express a conclusion based on AccountAbility's AA1000 Assurance Standard 2003.

Philips and United Technologies

In 2008, Philips, a Dutch diversified technology multinational, and United Technologies Corporation (UTC), a U.S. manufacturing conglomerate, produced their first integrated reports. Since then, Philips has developed this practice to a much greater extent than UTC by, among other things, maintaining a sophisticated corporate reporting website. Although the term “integrated report” was only used once in its relatively bulky 276-page annual report, Philips was clear that producing an integrated report was its intention. It explained how this had evolved from previous nonfinancial reporting practices:

In 1999 we published our first environmental annual report. We expanded our reporting in 2003 with the launch of our first sustainability annual report, which provided details on our social and economic performance in addition to our environmental results.

Now, for the first time, Philips is reporting on its annual financial, social and environmental performance in a single, integrated report. This approach reflects the progress we have made to embed sustainability in our way of doing business.³¹

Philips' evolution is fairly typical: companies begin with an environmental report, expand it to a broader sustainability (sometimes called a corporate social responsibility) report, and then make the leap to an integrated report. In fact, it follows general trends in “sustainability.” Pressured heavily by climate change, companies tend to focus first on environmental issues, only later defining sustainability in broader “ESG” terms. When a company reaches the point of accepting that sustainability is no longer just a “program” but is core to strategy and operations, it has formulated the common argument for why integrated reporting makes sense.³²

This is a necessary but not sufficient condition. While many companies today say they “really mean it” when it comes to sustainability, very few are publishing an integrated report. For us, this raises the question of how to separate sincerity from greenwashing. While we acknowledge that an integrated report can itself be used as a form of greenwashing, there are easier ways to do so if that is the company's intent. One discipline to prevent the practice and perception of greenwashing is to clarify which issues and audiences matter to the company and which do not. The basis of this distinction lies in what the company identifies as “material,” something we explore in depth in Chapters 5 and 6.

Albeit in a more modest way than the companies discussed above, an American company can be considered a pioneer in integrated reporting as well: UTC.³³ Though UTC did not use the word “integrated” in a reporting context a single time in its svelte 98-page 2008 annual report,³⁴ it stated in a February 25, 2009, press release announcing the report that “United Technologies Corp. (NYSE: UTX) has become the first among the 30 members of the Dow Jones Industrial Average to publish a fully integrated annual and corporate responsibility report.”³⁵ Echoing the argument of other companies that such integration makes business sense, albeit in the language of “corporate responsibility” rather than “corporate social responsibility” or “sustainability,” the press release goes on to quote Andrea Doane, director of corporate citizenship and community investment: “UTC's 2008 Annual Report reflects the belief that corporate responsibility and profitability go hand in hand.” Doane continued, “For UTC, the evolution to one report is natural, but we believe firmly in the years to come the practice of just one report will be not only widespread, but expected from those who believe corporate responsibility and profitability are inseparable.”³⁶ As discussed in the next chapter, UTC's expectation that this practice would become “widespread” has not yet been met as of 2014.

In their “Dear Shareowner” letter, UTC Chairman George David and President and Chief Executive Officer Louis Chênevert stated, “For the first time, this Annual Report combines business and financial results with those on corporate responsibility.” The report's subtitle, “More with less,” speaks to UTC's efforts to be more efficient in its natural resource use. It is also suggestive of the consolidation of two reports into one, raising the more general question of whether an integrated report means “one report” or whether that additional information should be presented through other means. In 2010, Eccles and Krzus made an argument that an integrated report does not strictly mean “one report”—an issue we will address in greater depth throughout this book.³⁷

New Wine in New Bottles

In a June 20, 2005, publication, Allen White, Vice President and Senior Fellow of Tellus Institute, a nonprofit research and policy organization, wrote, “A quiet renaissance in corporate reporting is gradually transforming its purpose, content and readership.”³⁹ Although his piece primarily focused on nonfinancial reporting, he explicitly mentioned the term “integrated reporting.” He did not specifically define the concept but described it as “embryonic” compared to the “pre-adolescence” stage of nonfinancial reporting.⁴⁰ Citing Novo Nordisk's 2004 Annual Report as providing a “glimpse of next-generation reporting,” he went on to use the efforts of the pioneering cohort to explain the term. Examples he cited of companies combining financial and nonfinancial performance information in a single report included Swiss pharmaceutical company Novartis (2002), British automotive and aerospace engineering company GKN (2002), Canadian electric utility company BC Hydro (2003), Scandinavian airline SAS Group (2004), German chemical company BASF (2004), Dutch chemicals and life sciences company DSM (without giving a specific date), and Natura.⁴¹

White made the case for both the information (“It is integral to doing business and retaining the license to operate in the coming decades.”) and transformation (“If wisely managed, it is also an opportunity to sharpen management's effectiveness while helping to position the firm in the vanguard of firms committed to corporate responsibility.”) functions of integrated reporting.⁴² Claiming that this “reporting renaissance is irreversible,” White made five predictions which have largely emerged as true by 2014: (1) integration of financial and nonfinancial disclosure will accelerate, (2) metrics will continue to evolve “toward a set of generally accepted standards applicable to all companies,” (3) sector-based initiatives will ensure that “disclosed information is in fact material information to stakeholders,” (4) the use of technology “to communicate and access information will experience a quantum leap,” and (5) indices and ratings will become as commonplace for nonfinancial performance as they are for financial performance today.⁴³

The Solstice/Vancity Study

Two months later, the Canadian sustainability consulting boutique Solstice Sustainability Works published a study on integrated reporting sponsored by the Canadian cooperative bank Vancity.⁴⁴ In it, they defined integrated reporting as a fusion of financial and sustainability reporting into a single document: “The working definition of integrated reporting for this research was reporting that meets the needs of both statutory financial reporting and sustainability reporting. In practical terms, this will usually mean one annual report containing sustainability performance information and financial statements.”⁴⁵

As in White's paper, the views expressed in the report were based on company examples (12)⁴⁶ as well as interviews with experts in companies and other organizations. Without references or supporting data, a claim was made in the Introduction to the report that “For many years, integrated reporting has been something of a holy grail for advocates of accountability, something that has not been achieved through most efforts at triple bottom line reporting.”⁴⁷ Solstice was more reserved in its assessment of integrated reporting as a practice, declaring, “Reporters should not count on significant tangible benefits of integrated reporting.”⁴⁸ Instead, its authors saw the primary benefits to be largely intangible and internal: “challenge for staff, improved understanding of the links between sustainability and business strategy, consistent messaging, and improved decision making.” This view was reinforced by their assertion that “there does not appear to be a significant external demand for integrated reporting, yet.”⁴⁹

While Solstice noted that the degree of integration in an integrated report varied and that some “combined reports sometimes look like different stories inexplicably bound in the same volume,” it acknowledged that “the combined report could be seen as a useful first step in integrated reporting.”⁵⁰ In identifying integrated reporting's benefits, Solstice listed reduced cost (not much), efficiencies in report preparation (mixed), recognition for leadership (maybe), interesting challenges for the reporting team (probably), improved internal understanding of business/sustainability linkages (yes), improved consistency of messages (yes), and forcing or reflecting integrated thinking (in theory, yes). In elaborating on integrated thinking, Solstice asked an important “chicken-and-egg” question which remains relevant: “Does integrated reporting encourage holistic management or does a holistic management approach naturally lead to integrated reporting?”⁵¹ Major challenges cited for implementing integrated reporting included getting support from senior management, gathering information on nonfinancial information as quickly as information on financial performance, overly long reports or reports which lose important content on nonfinancial performance for the sake of brevity, the necessity for the team putting the integrated report together to build new skills, and that investors' information needs may dominate over those of other stakeholders.

Solstice addressed three other issues that remain central to the movement today. First, it concluded that regulation could not drive integrated reporting because it was focused on “only the most material social and environmental disclosures.”⁵² Second, they questioned whether an integrated report would lead to an integrated assurance opinion. Arguing that financial auditors do not have the skills to audit nonfinancial information, they remained noncommittal, expressing the concern “that bland or negative assurance will become the norm.”⁵³ Third, they pointed out that technology was enabling a “shift in focus from the report to reporting,” and that it could facilitate integration.⁵⁴

One Report: The First Book on Integrated Reporting

In 2010, five years after the papers by White and Solstice were written, the first book on integrated reporting, written by us, was published.⁵⁵ In keeping with the assertions of pioneer companies and the arguments of White and Solstice, we argued that integrated reporting was an important mechanism for helping companies develop and implement a sustainable strategy, which we defined as “a commitment to corporate social responsibility that is contributing to a sustainable society that takes into account the needs of all stakeholders, of which shareholders are one type.”⁵⁶

We recognized the important transformation function of integrated reporting. Although the difficulty of trade-offs between financial and nonfinancial performance inherent in resource allocation decisions can be reduced or even reversed through innovation, a sustainable strategy requires a company to face them head-on.⁵⁷ Making these decisions assumes the company has a good understanding of the different relationships between the many dimensions of financial and nonfinancial performance. Answering the question asked by Solstice about the relationship between holistic management and integrated reporting, we saw integrated reporting as providing the discipline for developing this understanding and laying the groundwork for reporting on performance in an integrated way. Our view, then and now, is that the information and transformation functions of integrated reporting are mutually reinforcing.⁵⁸

Since integrated reporting was still in its very early stages at the time, we framed our discussion of the information function in the institutional context of current financial and sustainability reporting practices. How integrated reporting builds on and/or conflicts with financial and sustainability reporting remains a core topic of debate today. While some companies, like UTC, have claimed integrated reporting saves money by turning two reports into one, we think this benefit is relatively trivial compared with its organizational change potential as a catalyst for integrated thinking. Furthermore, although we titled our book One Report, we made it clear that integrated reporting was not simply about producing a single document that contained both financial and nonfinancial information:

One Report doesn't mean Only One Report. It simply means that there should be one report that integrates the company's key financial and nonfinancial information. It by no means precludes the company providing other information in many different ways that are targeted to specific users. Rather, One Report provides a conceptual platform that is supplemented by the technology platform of the company's Web site, from which much more detailed data can and should be provided to meet the information needs of a company's many stakeholders.

Based on the experiences of pioneering companies, we identified four major benefits of integrated reporting that form a self-reinforcing cycle. The first is greater clarity about the relationships between financial and nonfinancial performance and the commitments the company is making to specific performance targets. Second, it spawns better internal decision making for a sustainable strategy. Third is deeper engagement with stakeholders and reducing the distinction between shareholders and stakeholders by providing a common message to both. And fourth is lower reputational risk, which now ranks as the top risk, followed by regulatory risk and human capital risk (tied).⁵⁹ We also argued that the adoption of sustainable strategies by companies is necessary both for the long-term survival of those companies and for ensuring a sustainable society. Thus, we posited a societal level benefit from the broad scale adoption of integrated reporting.

Recognizing that the integrated reporting movement faces a collective action problem, in the last chapter we addressed the challenges to this form of reporting becoming a common practice. We identified the responsibilities of all key movement actors (companies, investors, standard setters, NGOs representing civil society, and regulators) to make this happen. Noting that success requires commitment from all groups, we argued that companies, as the reporting entities, must take the lead, with the support of their boards and auditors. Our view here has changed somewhat, and in Chapter 5 we will argue instead that the ultimate responsibility for integrated reporting lies with the board of directors, with support from executive management and the company's auditor. Finally, we also emphasized the importance of innovation and experimentation as the basis for principles-based “comply or explain” regulation, which we felt would ultimately be necessary but which would inevitably proceed at a different pace in different countries. This is still our position as discussed in Chapter 10.

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 SA 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 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 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.