The International Integrated Reporting Council’s (IIRC’s) release of “The International <IR> Framework” is an excellent framework for the global adoption of integrated reporting. The IIRC’s framework consists of a collection of guiding principles and content elements. Core to the focus of this framework is the aspect of the intertwined and positively reinforcing mechanisms that exist between integrated reporting and integrated thinking. This cycle enables integrated decision-making to create value over short, medium, and long terms for an organization and their stakeholders (Eccles and Krzus 2015, 47-49).
In addition to the clear guidelines the framework offers, a particularly strong aspect of the framework is the focus on the value creation process. The value creation model provides avenues for organizations to understand the different forms of capital that is used as inputs into the business model and how those become outputs from the activities of the business. This helps guide organizations to better understand the risks and opportunities directly relevant to their organization in order to build a strategy that leads to measurable performance improvements (International Integrated Reporting Council 2013, 14-15). This clarity between inputs and outputs allows better leadership focus and governance for an organization by highlighting the connectivity of the different elements. The value creation model is a useful tool that not only enables better environmental management, but also leads to final reports that have improved focus on material topics as well.
One of the weaknesses of the <IR> Framework is that these categories of capital that the value process focuses upon are not actually required in the report. The different capitals, like human capital or social capital, are only provided as a way to underpin the concept of value creation and as a guideline for organizations (International Integrated Reporting Council 2013, 13). The strength of frameworks is to provide solid foundations for organizations to report on and to be able to compare different organizations on similar criteria. By allowing an overly flexible structure of reporting on different aspects of capital the framework is weakened in those abilities. The IIRC considers these pieces part of their fundamental concepts but then do not hold firm accountability and structure on those aspects. This provides the potential for less useful and effective reporting that has the risk of developing into more marketing than transparent insights.
Overall, the IIRC’s <IR> Framework is a very good and comprehensive framework founded on strong principles and elements. Like many reporting structures, there are still areas where they can be firmer as adoption grows to ensure this reporting framework continues to evolve. Applying the framework process internally to better understand stakeholder viewpoints from the organizations creating the reports, and the investors reading the reports, could potentially be a useful next step in ratcheting up the requirements and ensuring this framework itself drives value across the globe.
Author: Logan Callen
Eccles, Robert G., and Michael P. Krzus. 2015. The Integrated Reporting Movement: Meaning Momentum, Motives, and Materiality. New York: Wiley.
International Integrated Reporting Council. 2013. The International Framework. Accessed October 6, 2020. http://integratedreporting.org/wp-content/uploads/2015/03/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf.
International Integrated Reporting Council. 2016. Creating Value: The Cyclical Power of Integrated Thinking and Reporting. Accessed October 6, 2020. http://integratedreporting.org/wp-content/uploads/2016/11/CreatingValue_IntegratedThinking_.pdf