On January 13th, 30 community members gathered virtually to discuss what the merger of the International Integrated Reporting Council (IIRC) with the Sustainability Accounting Standards Board (SASB) means for the Integrated Reporting U.S. community.

Although not affected directly by the change, the merger presents an opportunity to think about what the community’s role might be in this new context. Two questions guided the discussion: 1) what does the merger mean for the integrated/multi-capital approach, and 2) what should the community do in the face of this change?

Background on the Community

Mary Adams opened the conversation with background on the IIRC-US community. This grassroots effort was launched in 2017. While not officially part of the IIRC, the IIRC has been supportive by funding costs of the community’s web platform. There are over 450 people of the US community’s mailing list, including corporate leaders, academics, investors, and nonprofit organizations. Since its establishment, the community produced 35 educational programs to shine a light on practices companies use to promote integrative thinking and multiple capitals reporting in their firms. Videos of these sessions are posted on YouTube. Another role has been to create a forum for kindred spirits to get together, learn, and share their experiences and questions about Integrated Reporting.

Impetus for the Merger

Framing the discussion were published comments from Charles Tilley, CEO of the IIRC. He described the importance of achieving a global structure for climate-related and other relevant disclosures that connect relevant societal and environmental factors to core business and capital market decisions in ways that are both rigorous and meet stakeholder demands for transparent standardized information. He views the merger as a stepping stone to bring cohesion and simplicity to the corporate reporting system.

Group Discussion

1. In response to the first question, what does the merger mean for the integrated/multi-capital approach, key themes were:

Benefits

• Merger is generally seen as favorable, recognizing the need for a unified approach to make things easier for organizations trying to meet stakeholder expectations about reporting, and for report users who analyze and use the information for investment decision making.
• SASB has good brand recognition in the US, that can help elevate IIRC and Integrated Reporting.
• Some described the merger as long overdue. It breaks down silos and will help get quicker global traction to value creation reporting. Provides a stronger and louder voice.
• Enables potential for having greater impact on the investor community and putting some pressure on investors to recognize the importance of non-financial disclosures. It also allows for better engagement between investors and their portfolio companies.
• From a macro ESG perspective, the merger may improve enterprise-level awareness in ways that bubble up to the macro community and country level.
• There seems to be a lot of openness about how to make the merger be meaningful.

Concerns

• Potential for dilution of multiple capitals approach. May prioritize environmental, social, governance, and human capital while marginalizing intellectual capital and strategic side of manufactured capital.
• Seems to favor quantitative over qualitative assessments of value creation, potentially losing the cohesive storytelling aspect of qualitative approaches that help report readers understand the connections and interdependencies between the different measures.
• How to guarantee the numbers that firms are reporting? A couple of people shared examples where data coming out of some countries seemed questionable compared to US firms with similar scopes. If numbers don’t have assurances behind them, what do the data really mean? Workplace safety is another example--until you can come up with definitions and measures that everybody is using in the same way, the numbers are not necessarily that meaningful.
• Potential for diminished integrated thinking. IR’s emphasis on connectivity provides a systemic perspective that may get lost by prioritizing quantitative measures.
• Concern that a standards-based approach does not capture the circular nature of resources flows, such as IR’s octopus model that depicts how a firm’s resource outputs can cycle back to become new inputs through strategic business model design.
• Potential for greater disconnect between reporting, strategy, and business model design. Ideally, reporting should be a tool that is equally useful to managers looking to innovate and create more effective practices for value creation. Instead, management often sees non-financial reporting as an added burden. How to structure reporting so that it insightfully informs management decision making rather than being seen as an non-value adding task?
• Need to generate common understanding of materiality. The IFRS consultation paper has a section on materiality and a view that we need to convert the definition for both parties. The idea here is the first two words of the definition are, ”if omitted.” Think about it, so if omitted, would that make a difference? That's kind of an interesting way put-- It's a way to keep people, to warn them that if omitted, consequences ensue.
• Devil is in the details. How does the meter move as a result of the merger?
• There was also a question, where does this leave GRI in the model?
• A standards-based approach may erode innovation. Many of the companies featured in the IIRC-US webinars take very different approaches, using more of a principles-based approach that gives them room to apply the principles in ways that make sense for their context and goals. That could get lost if reporting standards are imposed.
• IR does a good job capturing internalities, how the capitals are put to work internally to create value creation capacity. Standards-based approaches seem to overlook this internal dimension of value production.

Opportunities

• How to align global coverage? IIRC has big following in Asia, Africa, and Europe. SASB has made larger inroads in the North American market.
• Harmonizing terms, definitions, and frameworks is critical to create consistency. GRI has three dimensions, SASB has five, IR has six capitals, and TCFD has four pillars. World Economic Forum (WEF) has new metrics. How can these various dimensions map together? How do we erase the barriers to be able to utilize these in a more harmonized way?
• What is the funding going to be and how do you ensure that it’s the right mix? How do you align  jurisdictions, e.g., IFRS with US GAAP SEC into global reporting?
• How to bring companies along? They can’t become victims who are prescriptively told what to report. It must be useful to them. They must be brought in to help inform a unified reporting model. You can't tell the assurers what to do at the end of the day.
• IIRC is a framework without detailed standards and the SASB has detailed standards without a cohesive overall framework. How to align these?

2. In response to the second question, has the IIRC-US community outlived its usefulness? Did we do our job? Is there a role for us? What should the community do in the face of this change?

• 63% of participants today said, "There is a role for our community going forward”.
• Remaining participants were unsure what community should be doing. The operating committee* has been grappling with this question as well.
• No participants thought the community should disband.

Question: Do we need to remain as a distinct group, or just be part of the processes that are going on in the new organization and other initiatives?

Potential Roles

• SASB philosophy: the more information, the better. They have an open culture, are welcoming of other viewpoints. Our community members could weigh in with them individually. But it's probably more effective to engage as an organized constituency.
• SASB standard-setting board agenda is on the website, showing what it’s working on, including some revisions to standards and some new standards. A portion of each board meeting is public, you're able to listen in. Would be good to keep attuned to that and weigh in.
• Important to have a voice and keep the unification dialogue moving.
• Need to remain active to ensure that intellectual and human capital dimensions don’t fall by the wayside.

o  Could align with SASB’s human capital working group to forge together a

stronger human capital component in the new model.

o   When US SEC issued their change, many companies said, "What does this mean to me? What might I report?" Look at that interim paper as a guide.

o   Many of the individual SASB standards across the different industries relate to human capital. So using human capital as an aligning approach could be a good focus. At the standard-setting board level, people absolutely believe in the importance of human capital and its essential role in creating value, or destroying it if you don't do it right.

• With the IFRS initiative, it would be very good to have knowledgeable, engaged people, particularly those with sustainability interest and expertise.
• Keep momentum of group going. Any time you have a group of dedicated, interested people on a subject, there is value. Perhaps assist going forward in the merger for issues that might need input and dialogue, like a focus group or some sort of vetting of ideas.
• Continue at least for another year to ensure that connectivity and integrative thinking don’t get lost. IR provides a systematic framework to help people make sense of how strategy, business models, internal assets/processes, and reporting connect.
• Keep the companies at the forefront. How can we be of service to them in this transition? They're the ones struggling with all this. We can find ways to help them cope with the changes we're talking about.
• Engage college, community, college and graduate schools.                                      o   This foundation is very important for college students graduating in these different times. Integrative approach helps them to be and become the leaders the world needs. 
•   The integrated model can be a theoretical foundation that helps explain how all the non-financial and financial, internal, and external pieces fit together.

Next Steps

• Summarize and share today’s points with community members.  Video recording of meeting is available at https://youtu.be/BE86cdKWHFg
• Regroup with IIRC-US operating committee.
• For those interested in helping to organize a program or get us connected with somebody that is using integrated thinking or reporting, it would be great to hear from you. Please reach out to Mary at adams@smarter-companies.com.

* Operating committee members include Mary Adams (Smarter-Companies), Elizabeth Castillo (Arizona State University), Lisa French (IIRC), Maureen Kline (Pirelli Tire LLC), Bob Laux (SEC Institute), Brad Monterio (CalCPA and IMA), Niki Shah (Columbia University), Paul Thompson (European Federation of Accountants and Auditors for SMEs), and Kenneth Witt (Association of Certified Professional Accountants).