Getting to the next level

05/12/2017


With 1,500 companies worldwide following its framework, the International Integrated Reporting Council has moved from concept to consolidation. Richard Howitt, recently appointed Chief Executive Officer, explains to George W. Russell how he hopes to guide the organization to the global mainstream with support from partners such as the Hong Kong Institute of CPAs

Richard Howitt wants to bring a new “global norm” to financial reporting. The British politician, now Chief Executive Officer of the International Integrated Reporting Council, is on a mission to promote good corporate governance, long-term investment and climate risk management to the business mainstream.

“We are coming out of a breakthrough phase for integrated reporting which was all about innovation and testing a new idea,” Howitt says from his office at the IIRC’s London headquarters in the modernist building known as The Helicon. Now, he says, “My mission is to turn [integrated reporting] from being an idea to being the universal practice.”

It is less than seven years since the IIRC was formed, and only three years since the International Integrated Reporting Framework was issued. Since then, about 1,500 mostly large companies around the world have adopted its principles.

“I think there was such a buzz around the idea of integrated reporting and the power it can bring, with its multi-capital outlook, broad take on value creation, and focus on forward-looking information, that people forget it is still a relatively new idea,” he says.

The core of integrated reporting is its Six Capitals, its broad quantitative and qualitative measures that consolidate a company’s financial and non-financial metrics, composed of financial, human, manufactured, intellectual, natural, and social and relationship capital.

The result should be a clear, concise explanation of how a company’s resources create value that encourages deeper thought about the design of business plans and strategies and how to manage key risks. Companies that adopt integrated reporting see it as having “long-term value creation for the business at its heart,” according to Howitt.



“ Hong Kong-listed companies are now adopting integrated reporting as awareness of the importance of pre-financial information grows”.

Howitt sees a lot of potential in the Asia-Pacific region. He points out that 300 companies – a fifth of the total – issuing integrated reports are in Japan. Meanwhile, the 30 biggest listed companies in Malaysia have committed to integrated reporting, while in February the Securities and Exchange Board of India, the stock market regulator, called on the country’s top 500 listed companies to adopt it. “That’s incredible,” says Howitt.

In China, the Ministry of Finance joined the IIRC’s council this year, while in Hong Kong interest has increased since the stock exchange’s decision in 2015 to adopt a “comply or explain” listing rule on environmental, social and governance reporting. “Hong Kong-listed companies are now adopting integrated reporting as awareness of the importance of pre-financial information grows,” says Howitt.

 

Partners in progress

Part of the surging local and Asia-Pacific interest, Howitt explains, is due to encouragement from the Hong Kong Institute of CPAs. “I know the Institute has been drumming up support across the region and building understanding,” he says. “I warmly appreciate all that it is doing.”

The Institute is one of several national accounting organizations that helped advance the framework with the International Federation of Accountants and other global bodies. “IFAC may have endorsed integrated reporting but we only got to that stage because of the drive and determination of accountants around the world,” Howitt maintains.

Howitt also credits the contributions from other Global Accounting Alliance member organizations as well as the large accounting networks. “Our Chairman is Barry Melancon, CEO of the American Institute of CPAs, and the global heads of the Big Four accounting firms all sit on the IIRC’s council,” he says.


However, with the absence of mandatory compliance with integrated reporting, the decision to adopt it rests with individual companies. Hong Kong-listed companies such as CLP Group, Link Real Estate Investment Trust, Pacific Basin and Swire Pacific have adopted all or some of the framework.

Last year, CGN Power, a utility, became the first Mainland-based company to adopt integrated reporting. “CGN stated that it is moving towards integrated reporting because it helps the business to reflect on future strategy and build a long-term dialogue with stakeholders,” Howitt says.

Integrated reporting, Howitt points out, is about behaviour change and looking at financial reporting as a strategic benefit instead of a bureaucratic burden. “Reporting becomes a tool first and foremost for the business and its investors, not something done simply because of the requirements of the regulator.”  

He sees integrated reporting as a long-term process. “It is a journey for companies to adopt integrated reporting, not something which is achieved in one year alone,” he adds, acknowledging that many companies are still taking only the first steps by adding some integrated reporting principles to their existing process.

“They are beginning to connect different parts of the business to the reporting process in a way which had not been done before, or analysing the risks and opportunities to the business according to the Six Capitals,” he says, noting that companies can seek external advice from integrated reporting consultants, such as those in accounting firms, or through utilizing training programmes and other resources provided by the IIRC.

 

Social responsibilities

Howitt is only the second person to become CEO of the IIRC. His predecessor, former Institute of Chartered Accountants in England and Wales president Paul Druckman, left in 2016 to join the board of the Financial Reporting Council. (He is also chair of the FRC’s corporate reporting council and a member of its codes and standards committee).

Howitt was born in Reading, west of London, and raised in public housing by a single mother. He graduated from Oxford University – and has a postgraduate management degree from the University of Hertfordshire – and was drawn to nongovernment organizations, working in advocacy for the disabled and for environmental groups, which spurred his interest in corporate social responsibility.

He entered local politics, serving on a suburban London municipal council. In 1994, Howitt was elected to the European Parliament, where he sat for 22 years. There he was a driving force behind Directive 2014/95/EU, which requires 6,000 large listed companies to disclose environmental and social information in their reports starting from the 2017 financial year.

“The directive is principles-based, can be implemented by using existing international frameworks, and in which the integrated reporting framework has been specifically referenced,” he says. “I believe it can be a major opportunity to grow integrated reporting across Europe.”

He quit his parliamentary seat in 2016 to join the IIRC. “I am not new to integrated reporting,” he notes. “I was there at the inaugural meeting of the IIRC in 2009 and have been an ambassador ever since. I came to the IIRC because I believe in integrated reporting and I want to champion that belief in the world. I saw the limitations of CSR and of sustainability initiatives.”

Howitt says he hopes to be a key public face and a global advocate for reforming the corporate reporting system. “I see my role as growing awareness and understanding of integrated reporting, winning adoption and endorsement at every level, from individual businesses to big international institutions.”

An important role will be to listen to and analyse feedback. “One of the things we pride ourselves on at the IIRC is listening to the market, hearing companies' needs and responding to them,” says Howitt. “That’s why on 1 March we launched a global 60-day comment period for everyone to tell us about the challenges they are facing in adopting integrated reporting – what is working well and what is slightly more tricky.”

 

One out of many

As Howitt settles into his term as CEO, one challenge will be to harness the various complementary and competing sustainability initiatives and encourage them into forming a coherent single platform. “Several different frameworks for company reporting are working together to align, with the overall aim of integration,” he says.

Howitt says it’s time that these strands were brought together through the Corporate Reporting Dialogue, an IIRC initiative convened in 2014, because of a growing understanding that different strands of the reporting system have grown up in silos. “Financial reporting standards have been developed over hundreds of years, while sustainability reporting and other reporting initiatives are much more recent,” he says.



A uniform approach, he believes, will promote consistency of application. “As we move into the global adoption phase of the IIRC’s strategy, we are seeing growing consistency across some of the important content elements,” says Howitt, citing reporting strategy, risks and opportunities and stakeholder engagement as examples.

“These are issues that there is an increasing understanding internationally of their importance, and the importance of communicating how they affect the value creation potential of the organization,” he adds. “There are many companies that are doing fantastic reports. Just by reading them you can see the quality of the management and that they really benefitted from adopting integrated reporting.”

For the IIRC’s part, Howitt says he is committed to developing the council’s own abilities to foster growth and impart wisdom. “I have the privilege of heading a programme of excellence in both advocating and developing integrated reporting, including through our international business network, specialist banking, investor, public sector and technology initiatives, our global training programme, and our technical team.”  

Howitt says the technical expertise – and the strong support from international and national organizations across the world – also encourages his global ambitions for integrated reporting. “Whether in Asia, the Americas or in Europe, those adopting integrated reporting are doing so not because they’ve been told to, but because they understand it is the right thing to do for the continued success of their own company or organization.”

At the end of the day, he is fuelled by optimism. “I’m optimistic because, ultimately, integrated reporting makes sense,” Howitt says. “I don’t know of one business that has adopted integrated reporting and then changed its mind. That’s quite powerful – it demonstrates companies are finding it transformative. That it is really making a difference.”