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Contents lists available at ScienceDirect

Critical Perspectives on Accounting

journal homepage: www.elsevier.com/locate/cpa

The International Integrated Reporting Council: A call to action

Carol A. Adams *
Monash University, Monash Sustainability Institute and Faculty of Business and Economics, Melbourne, Victoria 3800, Australia

A R T I C L E I N F O

A B S T R A C T

Article history:
Received 30 April 2014
Received in revised form 7 May 2014
Accepted 2 July 2014
Available online xxx

This paper sets out the case for integrated reporting and its potential to change the
thinking of corporate actors leading to the further integration of sustainability actions and
impacts into corporate strategic planning and decision making. It calls for academics to
engage with the process and to contribute to the development of new forms of accountings
to help ensure this potential is reached. It suggests areas of further research to facilitate
this. The paper was written in response to John Flowers paper titled The International
Integrated Reporting Council: A story of failure.
2014 Elsevier Ltd. All rights reserved.

Keywords:
Accountability
Corporate reporting
Integrated reporting
Sustainability

1. Introduction
Implementing integrated reporting requires the development of new accountings and management processes. And at the
time of writing scarcely enough time has passed for the rst reports to be prepared which follow it. So whilst it may be of
interest to assess the content of the International <IR> Framework (IIRC, 2013a) released in December 2013 against
previously stated objectives, it is certainly much too early to assess its success or failure, however that might be measured.
Flowers focus in critiquing integrated reporting is on the extent to which it addresses sustainability. It is not the main
purpose of integrated reporting to do this. Rather, we are perhaps witnessing the early stages of widespread promulgation of
a different way of thinking about corporate success and reporting. What integrated reporting becomes as time passes is, to
some extent, dependent on (critical and sustainability) accounting academics as actors in a process that has the potential to
lead to profound change.
Adams and Whelan (2009) suggest that research concerned with corporate social disclosure should take as given that
changes in disclosure patterns are governed by a concern with prot maximisation. The paper suggests that the potential of
integrated reporting (or any other driver) to effect change depends on the extent to which it creates a source of dissonance
signicant enough to change the way managers think within the constraints imposed on managers to maximise prot.
Without idealism (something Flower, appears to be critical of) and worthy intentions integrated reporting would not
have got off the ground. Its attempt to encourage mainstream accountants to think longer term, consider what value means,
to whom and to acknowledge the role of staff, broader society and the environment in creating it, is bold and surely worthy.
There is a role for critical accounting researchers in providing a counter force to those who would try to ensure such efforts
result in nothing more than business as usual. Talking amongst ourselves will not do it, yet only a handful of academics
submitted responses to the IIRCs consultation draft.1

* Tel.: +61 417026263.

E-mail address: Carol.Adams@monash.edu
1
See http://www.theiirc.org/consultationdraft2013/ [accessed 20.03.14]. Academic respondents are few in number, but include John Flower and myself.
http://dx.doi.org/10.1016/j.cpa.2014.07.001
1045-2354/ 2014 Elsevier Ltd. All rights reserved.

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The extent of support of the professional accounting bodies for a form of reporting which considers value and the business
model in anything other than monetary terms is perhaps a little surprising, and itself worthy of further research. The ACCA,
CIMA and CPA Australia have already produced integrated reports and the ACCA and CIMA have announced that they are
including integrated reporting in their professional syllabi. Following the arguments of Adams and Whelan (2009) this
support of professional bodies in itself has the potential to change the way CFOs think, encouraged perhaps by a desire to be
respected professionals.
At the time that the IIRC was established, the governing bodies of the Global Reporting Initiative (GRI) did not include
investors who were rst allocated places on the Stakeholder Council in 2013.2 Whilst the GRI had made some progress in
encouraging companies to measure historical impacts on the environment, society and economies, it did not set out to
encourage businesses or investors to consider the value to business or its stakeholders, of doing so. Further, seventeen years
after the formation of the GRI, the integration of sustainability considerations into mainstream decision making, reporting
and performance management has arguably been limited or at best slow and patchy (Adams and Frost, 2006, 2008).
Corporate initiatives on sustainability were gaining limited traction at senior levels and there is a view, which I share, that
integrated reporting can help. For example, the United Nations Global Compact LEAD3 submission to the Consultation Draft
of the International Integrated Reporting <IR> Framework4 noted:
The business case for sustainability can often be difcult to measure and share. . . integrated reporting has the
potential to connect nancial disclosures with sustainability in a way that makes them more relevant for a broader
audience. . . and. . . this greater level of integration of reporting practices encourages and supports the integration of
sustainability in strategic planning, decision-making and operations.
To my mind it is the necessity of getting senior executives and Board members to think (long term) about their business
model, how they create value and to whom, material issues, risks and strategy together which gives integrated reporting the
potential to effect change.
Chief Financial Ofcers focussing on short term nancial gains and cost cutting, supported by accounting and reporting
requirements that privilege nancially quantied information, have been a stumbling block. They have tended to see social
and environmental sustainability initiatives as an unnecessary cost rather than as a moral obligation or a benet. Further,
they have ignored sustainability risks with (potentially) signicant (often long term) nancial consequences. At the same
time, nancial reporting has been capturing a decreasing proportion of what is of value. I recall a speech at a CIMA Global
Business Week conference in 2001 by Douglas Flint, then Chief Financial Ofcer (now Chairman) of HSBC where he
recognised the competitive advantage of First Direct, the bank without branches, was in its people, culture and relationships
and could not be copied by showing other bankers around their premises. What was of value was intangible. Indeed,
Standard and Poors stock market index of the top 500 US listed companies in the 1970s around 80% of a companys market
value could be traced through to the nancial statements whereas by 2010 only around 20% can be accounted for by its
nancial and physical assets (IIRC, 2011). Further KPMG (2012) have argued that there is a mismatch between what is being
reported and factors that inuence value.
It is in this context that the IIRC was formed.
Much has been written about the role of accountants in making things visible or not. Critical researchers and social and
environmental accountability researchers have argued that accounting can hide and reveal (see, for example, Cooper and
Puxty, 1996; Hines, 1991; Williams and Adams, 2013). Whilst accountants might not be willing or able to save the world
(Flower, page XX), if we (or those other accountants) are part of the problem, how will it be saved without our (or their)
involvement?
Whilst Flower criticises the composition of the IIRC, those involved believe it would be difcult to argue that they have
not run a transparent process.5 In addition to publishing submissions to the consultation draft on their website, the IIRC
published a summary of responses, discussed how they were dealt with and why in documents titled Basis for Conclusions
(IIRC, 2013b) and Summary of Signicant Issues (IIRC, 2013c). They have also published a series of Background Papers
developed by Technical Collaboration Teams6 guided by multi-stakeholder Steering Committees covering a range of topics
including the Capitals (IIRC, 2013d), the Business Model (IIRC, 2013e) and Value Creation (IIRC, 2013f). Flower (2014) has not
referred to any of these documents, yet they are important in understanding how different voices have contributed to the
process.
Flower links a declining focus on sustainability accounting and reporting in IIRC documents to the dominance of
accountants on the Council. This is plausible, but the role of the various other organisations concerned with aspects of
sustainability accounting and reporting is also worthy of consideration. It might be unwise to assume that accounting rms
and professional bodies are the only players acting out of self-interest and self-preservation.

2
3
4
5
6

Note: The author is a member of the GRI Stakeholder Council and was a member of the IIRCs Technical Collaboration Group.
See http://www.unglobalcompact.org/howtoparticipate/lead/index.html [accessed 31.03.14] for further information.
Available at http://www.theiirc.org/consultationdraft2013/ [accessed 31.03.14].
Conversation with Paul Druckman, CEO, IIRC.
This author was on the Technical Collaboration Team for the Capitals Background Paper (IIRC, 2013d).

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I am puzzled by Flowers claims that the IIRC has abandoned sustainability accounting and reporting. I do not see this as a
signicant component of the Discussion Paper (IIRC, 2011) and in any case I am unclear why the IIRC would have set, as its
core mission, tasks already undertaken by other organisations or why, assuming it did so, it would be criticised for avoiding
duplicating such tasks.
Having briey considered the link between integrated reporting and sustainability accounting and reporting (which
Flower argues the IIRC has abandoned), this paper goes on to consider further: the key features of integrated reporting which
have the potential (if critical voices engage in its further development) to shift corporate thinking; areas for further academic
research; and the role of academics in facilitating change (Adams and Larrinaga Gonzalez, 2007; Adams and Whelan, 2009;
Cooper, 2005).

2. The potential to shift corporate thinking

The features of integrated reporting which have the potential to shift the thinking of corporate actors to better align
notions of prot maximisation with the wellbeing of society and the environment (following Adams and Whelan, 2009)
are its emphasis on thinking long term and encouragement of broader thinking of what is value, the value creation
process and the business model. Whilst I would like to see this thinking go much further, it is already a long way from
traditional Anglo-American thinking of value as something which can be measured in monetary terms and the business
model in terms of money ows. Integrated reports published compulsorily in South Africa (although not yet following
the Framework) provide a more holistic way of thinking about the business, than an array of unconnected reports (see
EY, 2012).
Flower raises the issue of the integrated report not being the primary report or even necessarily a separate report. I would
think it quite possible that this may still be a long term aim of the IIRC, but the Summary of Signicant Issues (IIRC, 2013c)
points to there being different views amongst responses to the consultation draft (available at http://www.theiirc.org/
consultationdraft2013/ [accessed 31.03.14]).
2.1. The meaning of value and value to whom?
The meaning attributed to value and value to whom is critical in shifting the extent to which business, society and the
environment co-exist in a mutually benecial way. Flower is critical of the IIRCs concept of value because it is value for
investors and not value for society. Like Flower, I would also prefer it if business embraced the notion of value for society,
but this will not happen unless it is seen as being aligned to value for investors. The International <IR> Framework links the
two in paragraphs 2.42.7:
2.4 Value created by an organization over time manifests itself in increases, decreases and transformations of the
capitals caused by the organizations business activities and outputs. That value has two interrelated aspects value
created for: The organisation itself which enables nancial returns to the providers of capital; Others (i.e. stakeholders
and society at large).
2.5 Providers of nancial capital are. . . also interested in the value an organization creates for others when it affects the
ability of the organization to create value for itself. . .
2.6 The ability of an organization to create value for itself is linked to the value it creates for others. . .
2.7 . . .This includes taking account of the extent to which the effect on the capitals have been externalised. . .
The IIRCs Value Creation Background Paper (IIRC, 2013f) prepared by EY with guidance from a multi-stakeholder expert
steering committee reveals differences, tensions and contradictions in the meaning of value. A range of perspectives are
considered with the perspective of providers of nancial capital considered in noting (page 11):
Providers of nancial capital equate value creation with the potential for future cash ows and sustainable nancial
returns, but this also takes into account the importance and limitations of different forms of capital for value creation.
In the context of climate change it is surely clear that it would be unacceptable not to publicly report material emissions
(whether in an integrated report or elsewhere). Global failure to reduce emissions to a point which will avoid a situation
where the planet becomes uninhabitable to people, including providers of capital, would mean zero nancial returns. At
points in time prior to this the impact of climate change on nancial returns to providers of capital of any one particular
company might be very difcult to predict. It is reasonable to expect that strategies of corporations with material emissions
will increasingly be inuenced by the global necessity of reducing them.
Elsewhere the IIRCs Value Creation Background Paper states that an integrated report should explain the increases and
decreases in the pool of capitals and how and to what extent value has been created for others. Unfortunately this clarity is
not reected in the nal Framework, but opposition to such a requirement is hard to fend off given the underdevelopment of
accounting approaches.
The IIRCs Value Creation Background Paper (IIRC, 2013f) acknowledges that stakeholder concerns and actions can
inuence nancial returns and that the impacts may not be immediate or direct. The fact is that the impact of stakeholder
actions and concerns may not be measureable in nancial terms for a long time if at all. Nevertheless, countless examples

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have demonstrated that they present a considerable risk if not addressed. By requiring the disclosure (para 4.23) of risks
affecting the organisations ability to create value over the short, medium and long-term the Framework at least encourages
the consideration of such impacts and how they are dealt with.
The IIRCs Value Creation Background Paper (page 11) goes on to say: Integrated reports should enable providers of
nancial capital to assess whether, to what extent and how an organizations use of, and outcomes for, all of the capitals adds
to nancial value. This will be interpreted by some as meaning business as usual if you cant measure it in monetary terms,
its not important.
Perhaps rather than focussing on blaming the dominance of the accounting profession in the process, we should consider
our failure as accounting academics, critical of current accountings, to engage with organisations to help develop new
accountings (see Adams and Larrinaga Gonzalez, 2007; Adams and Whelan, 2009).
Unilever, an IIRC pilot company, is an example of a seemingly increasing number of companies acknowledging the need to
think differently about business success:
. . . the biggest challenge is the continuing threat to planetary boundaries; resulting in extreme weather patterns and
growing resource constraints. These have increasing impact on our business. . . We remain convinced that businesses
that both address the concerns of citizens and the needs of the environment will prosper over the long term. . . As. . .
[the Unilever Sustainable Living Plan] becomes embedded, there is growing evidence that it is also accelerating our
growth. Unilever, Annual report and accounts 2012, p. 4.
As I note in Adams (2013a, p. 52), in order to credibly articulate their value creation story, organisations should: disclose
how they dene value and the relevance of stakeholder views and the six capitals to their concept of value; disclose what
steps they have taken to maximise value creation according to their denition; seek external assurance to demonstrate that
they are working to create value as they dene it.
2.2. The role of the capitals
I share Flowers disappointment with the limited disclosure requirements concerning movements of the capitals in the
Framework (IIRC, 2013a), but it is difcult to see how it could have been achieved in a meaningful way given the current
underdevelopment of such accountings. The focus of integrated reporting is to consider how an organisation creates value
rather than on measuring impacts and accountants and sustainability practitioners and researchers have to date given little
attention to how this might be done under a multiple capital model. Part of the work of the IIRCs Capitals Technical
Collaboration group was to identify innovative examples of reporting on the capitals and it was clear that reporting was not
yet sufciently developed to be able to identify best practice. How would you put a value on, or disclose transformations of
say, social and relationship capital or natural capital? This might be something for researchers to consider. In the meantime,
the capitals are intended to broaden thinking about the value creation processes and risks. Measuring impacts of the
organisation on the capitals should be addressed in its sustainability report or online sustainability disclosures (GRI, 2013).
As to Flowers concern that integrated reporting is not sustainability reporting, the Capitals background paper (IIRC,
2013d) explains the difference between the two as follows (p. 17):
5.12 While experience in sustainability reporting may prove invaluable to some on their journey toward <IR>, there
are key differences between the two forms of reporting, particularly in the context of the capitals. It is worth noting
that sustainability reporting:
 targets a wider stakeholder audience than does <IR>, which focuses primarily on providers of nancial capital, particularly
those with a long term view
 focuses on impacts on the environment, society and the economy, rather than on the effects of the capitals on value
creation over time, as in <IR>.
As such, sustainability reporting is less likely to focus on the connectivity between various capitals or the strategic
relevance of the capitals to value creation, and is more likely to include many disclosures that would not be material for
inclusion in an integrated report.
3. Credibility of integrated reports and the role of assurance
An issue which does need to be addressed is the assurance of integrated reports. As Flower points out (referring to Adams,
2004 and Boiral, 2013), there is a degree of incompleteness with respect to material issues in sustainability reports,
something G4 (GRI, 2013) seeks to address. Without assurance standards which address materiality processes, this
incompleteness will occur in integrated reports too. For example, Sasols integrated report was ranked 5th in EYs Excellence
in Integrated Reporting Awards 2013 (EY, 2013) but, despite being in the extractive industry, there is no mention in its 2013
integrated report (Sasol, 2014) of contemporary concern about a carbon bubble the potential for devaluation of companies
due to being unable to extract carbon in the future. This raises questions about the credibility of Sasols apparently highly
regarded integrated report.

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4. Potential avenues for research

The decision to prepare a rst integrated report should lead to changes in: decision making processes; informal and
formal communication processes; materiality and risk identication processes amongst others. Understanding the extent of
these changes is important in considering the value of integrated reporting itself an important factor in determining future
guidance, policy and regulation. Understanding the factors which impact on the take up of integrated reporting is also
important. Further research (see also Adams, 2013b) might explore:













Process of determining materiality and identifying risks for integrated reports.

Internal communications/integrated thinking/breaking down silos.
Factors that determine uptake of <IR> including qualitative factors such as role of leadership/leadership style.
Changes to internal systems, processes and decision making on adoption of <IR>.
Accounting for transformations in the capitals.
The role of the multiple capitals concept in identifying risks and opportunities.
Implications of <IR> uptake for sustainability management and reporting practices.
Role and take up of <IR> in public and not-for-prot sectors.
The political landscape relationships with other frameworks, Stock Exchange requirements, national regulation.
The impact of <IR> on decision making and outcomes.
Analyst responses to integrated reports.
Approaches to assurance of integrated reports.

5. Summary
This paper has discussed some key distinctions between sustainability reporting/disclosure and integrated reporting. It
has outlined the case for integrated reporting and benets to organisations and other stakeholders of the integrated thinking
needed to develop an integrated report. It supports the current non-mandatory status of integrated reporting given that the
accountings involved are insufciently developed. It notes that Flowers concerns about regulation relate to material
sustainability impacts which are covered in a sustainability report, rather than an integrated report. This author agrees that
reporting on material sustainability impacts should be mandatory (see, for example, Adams, 2004).
Flower argues that the IIRCs proposals will have little impact on reporting practice, yet they already are having an impact.
Over a hundred businesses have paid to be involved in the pilot programme, many others are adopting elements of
integrated reporting (some of these, such as Fuji Xerox Australia and the Royal Bank of Scotland Group are doing this through
their sustainability reports) and internationally regulation is increasingly requiring disclosure of, for example, strategy, risks
and business model information in annual reports and Operating and Financial Reviews.
The ideas in integrated reporting will evolve. I believe that to a large extent, their impact on reporting practice
depends on those critical of the status quo both engaging with practice and ensuring their voices are raised and heard as
Flower is doing.
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