Frequently asked questions
Gain practical insights about the fundamental concepts, guiding principles and content elements of the Integrated Reporting Framework, as well as the relationship between the Framework and the IFRS Sustainability Disclosure Standards and other frameworks and standards in the corporate reporting landscape.
About integrated reporting
What is the IFRS Foundation?
The IFRS Foundation is a not-for-profit, public interest organisation established to develop high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards.
The standards are developed by two standard-setting boards, the International Accounting Standards Board (IASB) and International Sustainability Standards Board (ISSB). The IASB sets IFRS Accounting Standards and the ISSB sets IFRS Sustainability Disclosure Standards. The IASB and ISSB are jointly responsible for the Integrated Reporting Framework.
What is integrated reporting?
The Integrated Reporting Framework defines integrated reporting as ‘a process founded on integrated thinking that results in a periodic integrated report by an organisation about value creation over time and related communications regarding aspects of value creation.’ Integrated reporting brings together material information about an organisation’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 organisation 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.
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.
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 organisations to bridge business units and functions, time horizons, and internal and external perspectives to evolve the business model and strategy. Through this bridging process, organisations benefit from reduced organisational 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 Integrated Reporting Framework.
What is integrated thinking?
The Integrated Reporting Framework defines integrated thinking as ‘the active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation 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 organisation uses or affects, and the dependencies and trade-offs between them as value is created. In applying this mindset, the organisation 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 organisation’s business model and various forms of capital.
If a report does not fully adhere to the Integrated Reporting 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 Integrated Reporting 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 Integrated Reporting Framework sets the conditions for any communication claiming to be an integrated report and referencing the Integrated Reporting Framework. More specifically, such reports should apply all requirements shown in bold italic type (summarized on pages 55–56 of the Integrated Reporting Framework), unless specific conditions preclude their application.
That said, many organisations are legitimately on the path to integrated reporting and have published reports that largely adhere to the Integrated Reporting Framework, recognising 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 Integrated Reporting Framework.
The Integrated Reporting Framework
What is the Integrated Reporting Framework?
The Integrated Reporting Framework explains the concepts of integrated reporting and underpins our work. It 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 organisations.
The Integrated Reporting Framework was developed in 2013 and revised in 2021, following extensive consultation and testing by report preparers and users in all regions of the world.
Why does the Integrated Reporting Framework not require standardised indicators?
The Integrated Reporting Framework acknowledges the uniqueness of individual entities and so strikes an important balance between flexibility and prescription. Its principles-based approach encourages organisations to communicate their unique value creation story, while at the same time enabling a sufficient degree of comparability across organisations. The Integrated Reporting 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 Integrated Reporting Framework encourages both qualitative and quantitative disclosures, as each provides context for the other. Where measurement is appropriate, we endorse 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.
Are organisations expected to achieve full Integrated Reporting Framework adherence within a certain time limit?
No. We do not impose a time limit to meet the Integrated Reporting Framework’s 19 requirements. Preparers of integrated reports learn from experience, so to assign a deadline to this learning process would be inconsistent with the Integrated Reporting Framework’s principles-based approach. The process of integrated reporting and integrated thinking is a journey whose time frame varies according to organisational size, complexity, regulatory context and disclosure history.
Notwithstanding this stance, new preparers are encouraged to make full Integrated Reporting Framework adherence a priority, particularly as this commitment factors into the statement of responsibility from those charged with governance (paragraph 1.20). Based on observed market practice, organisations new to integrated reporting generally achieve full Integrated Reporting Framework adherence within three or four reporting cycles.
When was the Integrated Reporting Framework revised?
Revisions to the Integrated Reporting Framework were published in January 2021, to enable more decision-useful reporting. Find out more.
Why does the Integrated Reporting Framework not formally define the term ‘purpose’?
As part of the 2021 revision of the Integrated Reporting Framework process, the term ‘purpose’ was added to Figure 2. This recognised the term’s growing use and acceptance in the business vernacular.
In practice, the word purpose can be interpreted differently across organisations; its meaning can even mirror or overlap with related concepts such as mission and vision. With this in mind, the Framework treats these closely-related themes generically and encourages organisations to consider how their central commitment or raison d’être – regardless of the chosen label – influences the process through which value is created, preserved or eroded.
Paragraphs 1.23-1.24 of the Integrated Reporting Framework (2021) encourage process disclosures. What do these process disclosures include?
Process disclosures outline the measures an organisation takes to ensure the integrity of the integrated report. Such disclosures, which should be relevant to the organisation, can include the following:
Role of those charged with governance, including relevant committees
- Validation of the materiality determination process and material matters
- Oversight by, and final recommendation of, the relevant board committee
- Approval of the final integrated report
Related systems, procedures and internal controls, including key responsibilities and activities
- Role of internal audit function and external assurance providers
- Approach to combined/integrated assurance
- Executive(s) with accountability for report preparation and presentation
- Functional composition of the reporting team, including key departments and subject-matter experts involved
- Information sources, including outside support
- Timing of significant processes and activities
- Other quality measures (e.g. peer reviews)
In South Africa, preparers of integrated reports will also benefit from market-specific guidance issued by the Integrated Reporting Committee of South Africa. In particular, page 9 of the publication Disclosure of Governance Information in the Integrated Report (Updated): An Information Paper presents sample process disclosures.
Integrated reporting and other report forms
How does the Integrated Report relate to other report forms?
Comparisons of the purpose, audience and scope of various report forms
|Sustainability disclosures in accordance with IFRS S1 and IFRS S2
|Multi-stakeholder sustainability report
|To provide financial information about a reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity and in assessing management’s stewardship of the entity’s economic resources.
|To provide management’s insights into factors that have affected an entity’s financial performance and financial position, and factors that could affect the entity’s ability to create value and generate cash flows in the future.
|To provide information about an entity’s sustainability/climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.
|To explain to providers of financial capital how an organisation creates value over time.
|To communicate a company’s broader social and environmental impacts, strategies and goals that is useful to various stakeholders.
|Existing and potential investors, lenders and other creditors.
|Existing and potential investors, lenders and other creditors.
|Existing and potential investors, lenders and other creditors.
|Providers of financial capital.
|Various stakeholders (including investors).
|Information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity and in assessing management’s stewardship of the entity’s economic resources.
|Areas of content:
(a) the entity’s business model—how the entity creates value and generates cash flows;
(b) management’s strategy for sustaining and developing that business model, including the opportunities management has chosen to pursue;
(c) the resources and relationships on which the business model and strategy depend, including resources not recognised as assets in the entity’s financial statements;
(d) risks that could disrupt the business model, strategy, resources or
(e) factors and trends in the external environment that have affected or could affect the business model, strategy, resources, relationships or risks; and
(f) the entity’s financial performance and financial position—including how they have been affected or could be affected in the future by the matters discussed for the other areas of content.
|Material information on sustainability/climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (entity’s prospects).
– organisational overview and external environment;
– business model;
– risks and opportunities;
– strategy and resource allocation;
– performance; and
|Major impacts on economic, environmental, social and governance performance.
Source: informed and updated by the guidance publication issued jointly by the International Integrated Reporting Council and the International Federation of Accountants (IFAC), Materiality in Integrated Reporting, IFAC, 2015.
How does the Integrated Reporting Framework relate to the IASB’s Exposure Draft Management Commentary?
The IFRS Foundation recognises that the Integrated Reporting Framework (revised in January 2021) and the proposals in the Exposure Draft Management Commentary (published in May 2021) have both similarities and differences. The IFRS Foundation staff has analysed and presented these similarities and differences at the IFRS Advisory Council and Integrated Reporting and Connectivity Council meetings in April 2023 and in an IASB education session in May 2023.
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.
|Explain to providers of financial capital how value is created over time
|Provide context for financial statements and forward-looking information
|Providers of financial capital and others interested in the organization’s ability to create value
|Current and prospective investors, lenders and other creditors
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.
How does integrated reporting’s concept of financial capital relate to that found in traditional financial reporting?
The Integrated Reporting Framework describes financial capital as the pool of funds available to an organisation 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 recognises that the value of financial capital lies in its use as a medium of exchange, and that value is realised 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 organisation (such as IFRS financial reports), it is prepared on the same basis as, or is easily reconcilable with, that other information.
Why doesn’t the Integrated Reporting Framework use the same language as used in IFRS S1, IFRS S2 and the IASB’s Exposure Draft Management Commentary? How do the concepts of ‘providers of financial capital’ and ‘capitals’ relate to those of ‘primary users’ and ‘resources and relationships’?
The Integrated Reporting Framework has become an IFRS Foundation resource following the Foundation’s consolidation with the Value Reporting Foundation (which included the International Integrated Reporting Council and the Sustainability Accounting Standards Board). Therefore, the language used in the Framework sometimes differs from that used in other IFRS Foundation documents, even if the meaning is the same.
Table 1—Terms used in the Integrated Reporting Framework compared with those used in other Foundation documents
|Concept in the Integrated Reporting Framework
|Definition provided in the Integrated Reporting Framework Glossary
|Term (in bold) and definition or description provided in the Exposure Draft Management Commentary
|Term (in bold) and definition or description provided in IFRS S1 and IFRS S2
|Stocks of value on which all organisations depend for their success as inputs to their business model, and which are increased, decreased or transformed through the organisation’s business activities and outputs. The capitals are categorised in the Integrated Reporting Framework as financial, manufactured, intellectual, human, social and relationship, and natural.
|Resources and relationships
The resources and relationships on which the business model and strategy depend, including resources not recognised as assets in the entity’s financial statements.
|Resources and relationships that an entity depends on and affects by its activities and outputs can take various forms, such as natural, manufactured, intellectual, human, social or financial.
|Providers of financial capital
|Equity and debt holders and others who provide financial capital, both existing and potential, including lenders and other creditors. This definition includes the ultimate beneficiaries of investments, collective asset owners and asset or fund managers.
|Investors and creditors
The primary users of an entity’s general purpose financial statements and management commentary —existing and potential investors, lenders and other creditors.
|Primary users of general purpose financial reports (primary users) or users of general purpose financial reports (users)
Existing and potential investors, lenders and other creditors.
|Those charged with governance
|The person(s) or organisation(s) (eg the board of directors or a corporate trustee) with responsibility for overseeing the strategic direction of an organisation and its obligations with respect to accountability and stewardship. For some organisations and jurisdictions, those charged with governance might include executive management.
|Management (and governing board)
According to the IASB’s Conceptual Framework for Financial Reporting, the term ‘management’ refers to management and the governing board of an entity unless specifically indicated otherwise.
|Governance body(s) (which can include a board, committee or equivalent body charged with governance) or individual(s) responsible for oversight of sustainability/climate-related risks and opportunities.
How does an integrated report differ from a multi-stakeholder sustainability report?
Generally, multi-stakeholder sustainability reports cater to a wide audience and communicate a company’s impacts on the economy, the environment and society. In contrast, an integrated report explains to providers of financial capital how the company creates value over the short, medium and long term. Notably, the integrated reporting movement was founded on the premise that traditional financial reporting provided an incomplete picture of a company’s ability to create and preserve longer-term value. Integrated reporting, therefore—like the disclosures required by IFRS S1 and IFRS S2—reflects the influence of human, intellectual, manufactured, social and relationship, and natural capital on the company. Some information normally found in a multi-stakeholder sustainability report might migrate to the integrated report, but only if the information is material to investors in providing information about an entity’s prospects.
Other reporting frameworks and standards use different materiality approaches than the one in the Integrated Reporting Framework. Can these approaches be reconciled?
Whether information is material varies from one company to the next and also varies according to the purpose of a report. An integrated report’s primary purpose is to explain to providers of financial capital how a company’s value has been created, preserved or eroded over time. In contrast, a multi-stakeholder sustainability report’s primary purpose is to explain to a range of stakeholders a company’s economic, environmental and social impact, and a financial report’s primary purpose is to explain to investors a company’s financial position and financial performance. Clearly, the information that is material will vary depending on the document’s purpose, and therefore, so will the definition of materiality. For more information, see the FAQs on materiality.
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.
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 organisational 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 characterised by yet another feature: an emphasis on conciseness.
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 organisation 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 Integrated Reporting Framework, it can be considered an integrated report. If the report is required to include information beyond that required by the Integrated Reporting Framework, the report can still be considered an integrated report, provided that other information does not obscure the concise information required by the Integrated Reporting Framework.
What does ‘value’ mean in the context of integrated reporting?
The concept of value is entity-specific, given the unique business model and context of a company, which is why the Integrated Reporting Framework does not have a one-size-fits-all definition of value creation. And it is also why we encourage companies—public or private, large or small, for-profit or not-for-profit—to develop and express their own interpretations of value. In doing so, companies should consider the needs for decision-useful information by providers of financial capital, recognising that the value created, preserved or eroded for the company generally is inextricably linked to the value created, preserved or eroded for others. Developing an interpretation of value also requires an understanding of the factors that influence value; in particular, how a company’s business model transforms resources and relationships (or ‘capitals’) into products, services, by-products and waste.
The Integrated Reporting Framework does not explicitly require a company to provide its own definition of value in its integrated report; however, defining and expressing the company’s understanding of value builds a collective understanding among management and those charged with governance, setting the stage for report preparation.
How does an organisation determine whether it’s creating, preserving or eroding value?
To evaluate how successfully a company 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. So analysis will involve a degree of subjectivity and uncertainty, and some companies might have an imperfect knowledge of the interdependencies and trade-offs between the capitals. Despite these limitations, the Integrated Reporting Framework provides a robust approach for identifying and communicating how value is created, preserved or eroded, beyond the financial bottom line.
Does the Integrated Reporting Framework require that value creation be quantified?
No. The Integrated Reporting 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 organisation itself. Assessments of value are the role of others using information presented in the report.
Integrated Reporting Framework reference: Paragraph 1.11
Is there common ground between materiality definitions across report forms?
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.
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 with the International Federation of Accountants, organisations 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.
Integrated Reporting Framework reference: Paragraphs 3.5 and 4.37
To what extent should the materiality determination process in integrated reporting align with existing business processes?
The process for determining the content of the integrated report ‘(the so-called ‘materiality determination process’) should be consistent with, and ideally embedded in, existing value creation processes (eg strategic development, business planning, risk management, governance, stakeholder engagement and business model refinement). The reasoning is simple: an integrated report explains how a company creates value; therefore, if the integrated report reflects what the company does—and what it does to create value—the processes involved in determining material information and explaining how the company creates value would be aligned.
Matters relevant to value creation—which represent the first step in determining which information to report, and which correspond to risks and opportunities that could reasonably be expected to affect a company’s prospects—are typically discussed at board meetings. Such matters are often discussed in relation to elements of the company’s value creation process and are often connected to strategic themes, performance objectives and risk management. However, the process of understanding relevant matters is dynamic, so the board agenda might not offer a full picture of all relevant matters.
Is it necessary to consult stakeholders in preparing the integrated report?
The short answer is ‘no’. Ultimately the materiality determination process outlined in the Integrated Reporting Framework that is applied to determine what to report on in the integrated report is a company-specific assessment’. This assessment could usefully be informed by engagement with stakeholders, but the Integrated Reporting Framework does not require such engagement. In fact, it is important to make a distinction: the purpose of stakeholder engagement is not to tailor the report’s content to the information needs of all stakeholders. Instead, the purpose is to understand impacts and dependencies, to ascertain the matters that are likely to be relevant to value creation and thus important for providers of financial capital.
Some companies might choose to carry out a dedicated consultation to inform this aspect of the materiality determination process; however, this approach may be unnecessary for those who already engage with providers of financial capital during the normal course of business. Some, for instance, regularly interact with customers and suppliers as a quality control measure or to inform stakeholder satisfaction scores. Others engage with a broad stakeholder base to carry out 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 into the company’s processes, the more likely the legitimate interests of providers of financial capital will be reflected in normal business activities.
If a stand-alone stakeholder consultation exercise does occur as part of the Integrated Reporting materiality determination process, its findings should be considered alongside those from other engagement mechanisms and, most importantly, the company-specific assessment.
For more information, see Integrated Reporting Framework paragraphs 3.10 and 3.13.
How is the time frame for materiality decisions determined in Integrated Reporting?
In integrated reporting, the materiality determination process focuses on value creation over the short, medium and long term. Similarly to the disclosure requirements in IFRS S1, the length of each time frame is defined by the company, with reference to its industry or sector, business and investment cycles, and strategies. The nature of the company’s business model outcomes will also influence the time frame considered in this materiality determination process. For example, issues affecting natural or social and relationship capitals can be very long term. Clear identification of the periods considered in the integrated report is helpful to users.
The time frame considered in integrated reporting is typically longer than in traditional financial reporting such as in the financial statements’. A company should consider, in particular, issues that might, if left unchecked, become more damaging or difficult to manage long term.
For more information, see Integrated Reporting Framework paragraphs 3.23 and 4.57–4.59, and S1.30–31.
How are the time horizons for short, medium and long term disclosures established?
By addressing the International Integrated Reporting Framework’s eight Content Elements, the integrated report naturally covers past, present and future time dimensions. With respect to future-oriented disclosures, the Integrated Reporting Framework encourages report preparers to consider short, medium and long term time horizons. Given the nature of the issues addressed in integrated reporting, organisations 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 organisation 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.
Integrated Reporting Framework reference: Paragraphs 4.57-4.59
Does an integrated report need to list which matters are material?
No. Organisations needn’t explicitly identify which matters are considered material. The Integrated Reporting 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 Integrated Reporting 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.
Integrated Reporting Framework reference: Paragraphs 3.8 and 3.17
Is it necessary to include a materiality matrix in the integrated report?
No. A materiality matrix, more commonly associated with multi-stakeholder sustainability reporting, is not required by the Integrated Reporting Framework. In fact, plotting issues according to ‘importance to the company’ and ‘importance to stakeholders’ is inconsistent with the Framework’s concept of materiality, which focuses on value creation over time, looking primarily from a provider of financial capital’s perspective.
For more information, see Integrated Reporting Framework paragraph 1.7.
Is an organisation required to disclose its materiality determination process in the integrated report?
Yes, the Integrated Reporting Framework requires an integrated report to answer the question, “How does the organisation 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 organisation’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).
Integrated Reporting Framework reference: Paragraphs 4.40–4.42
What are ‘the capitals’?
An integrated report provides insight into the resources and relationships used or affected by the organisation – the Integrated Reporting Framework refers to these collectively ‘the capitals’. Capitals are stocks of value on which an organisation’s business model depends as inputs, and which are increased, decreased or transformed through its business activities and outputs. The capitals are categorised in the Integrated Reporting Framework as financial, manufactured, intellectual, human, social and relationship and natural.
Integrated Reporting Framework reference: Paragraphs 2.10 – 2.19
Why does the Integrated Reporting 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 organisation 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 Integrated Reporting Framework applies this same convention to the full range of resources and relationships on which organisations rely or have an effect.
Must an integrated report adopt the capitals categories and terminology used in the Integrated Reporting Framework?
No. Paragraphs 2.17 – 2.18 of the Integrated Reporting Framework recognise that the categories of capitals may not suit all organisations. 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’. Organisations 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 organisation 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’.
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 Integrated Reporting Framework, an organisation is free to structure its integrated report however it chooses. Of course, an organisation may choose to structure its integrated report around the capitals if it thinks this is the best way to explain its value creation story.
Are the six categories of capitals material to all organisations?
No. While most organisations 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.
How does integrated reporting’s capitals-based approach align with a traditional stakeholder analysis?
As an organisation 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 organisation’s workforce. Page 24 of the publication Capitals: Background paper for Integrated Reporting illustrates links between capitals and stakeholders to demonstrate how an organisation can use the capitals approach in conjunction with a stakeholder analysis when determining its reporting boundary.
To what extent should an integrated report discuss capitals that are not owned by the organisation?
Not all capitals an organisation 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 organisation’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 organisation’s ability to create value, whether they are owned by the organisation or not.
Integrated Reporting 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 organisation’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 organisation 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 organisation to determine which combination of quantitative and qualitative information best explains its value creation story over time.
Integrated Reporting Framework reference: Paragraphs 1.11, 4.54-4.55
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.
Integrated Reporting Framework reference: Paragraph 3.8
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 among 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 among 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, prioritising 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 measurement.
Despite these limitations, the Integrated Reporting Framework reminds us that alternative courses of action invite different balancing acts in terms of their effects on the capitals. If these effects, and their potential trade-offs, are material to a company’s value creation story, they are included in the integrated report.
For more information, see Integrated Reporting Framework paragraphs 2.11–2.14 and 4.56.
Should disclosures made in accordance with IFRS S2 be included only under natural capital in an integrated report?
No. Climate can affect other capitals. The climate-related risks and opportunities described in IFRS S2 can also encompass social aspects, such as just transition to a lower-carbon economy (which is related to social and relationship capital). Furthermore, IFRS S2 disclosures may be relevant in a range of ‘places’ in an integrated report as shown in How to apply the Integrated Reporting Framework with IFRS S1 and IFRS S2: A mapping tool. Therefore, in providing these disclosures, it is important for a company to take into consideration the wider process of value creation, preservation and erosion, and the relationships and trade-offs between the capitals that are part of that process.
Those charged with governance
Does the definition of ‘those charged with governance’ allow boards to delegate responsibility for the integrated report to management?
No. The definition of those charged with governance acknowledges that in some cases (e.g. family-owned enterprises, public sector entities, small businesses with a single owner-manager or certain non-profits), management is involved in, or responsible for, governance-related matters. However, this should not be mistaken for permitting or encouraging governing bodies to abdicate responsibility for the integrated report. Quite the contrary, paragraph 1.20 of the Integrated Reporting Framework requires that those charged with governance provide a statement of responsibility for the integrated report. Similarly, paragraphs 1.23 and 1.24 encourage preparers to indicate the role of those charged with governance in preparing and presenting the integrated report.
Risks and opportunities
Is it expected that disclosures made in accordance with IFRS S1 and IFRS S2 be included only under risks and opportunities in an integrated report?
The disclosure on risks and opportunities provided in accordance with IFRS Sustainability Disclosure Standards reflects different aspects of how a company’s value is created, preserved or eroded over time. As a result, these disclosures may be relevant across different guiding principles and content elements in an integrated report.
Why is it important to disclose information on opportunities, in addition to risks?
Opportunity-based disclosures offer insight into an organisation’s understanding of and readiness for new developments. Such forward-looking information help providers of financial capital and others evaluate how the organisation is positioned for the future. It also influences readers’ confidence in the adaptability of the organisation’s strategy and longer-term business model.
Effective organisations 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.
Integrated Reporting Framework reference: Paragraphs 2.26 and 2.27
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 organisation’s ability to create value over the short, medium and long term, and how is the organisation managing them?
Some reports address risks more comprehensively than opportunities; however, the International <IR> Framework does not emphasise 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 organisation 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. Organisations 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.
Integrated Reporting Framework reference: Paragraph 4.23-4.25, 4.36, 4.50
Competitive landscape and market positioning
Why is it important to discuss the organisation’s competitive landscape and market positioning?
To create value over the short, medium and long term, organisations 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 organisation out of business very quickly. Therefore an organisation’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.
Integrated Reporting Framework reference: Paragraph 4.5
What information about the competitive landscape and market positioning should be disclosed?
An organisation 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.
Integrated Reporting Framework reference: Paragraph 4.16
Should disclosures on opportunities still be made if this 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 organisation than including it, particularly in terms of investor and stakeholder confidence.
Integrated Reporting Framework reference: Paragraphs 3.51, 4.50