'Encouraging' new EU guidelines for integrated reporting by European businesses
The European Union's Non-Financial Reporting Directive will see at least 6,000 companies across Europe change their reporting during the next 12 months.
As a former Member of the European Parliament, I was deeply proud to have helped steer agreement of the Directive.
Now, as the CEO of the International Integrated Reporting Council, I am equally proud to be working so that companies can effectively implement it.
The European Commission's guidelines on implementing the new rules - published recently - maintain the principles-based approach, which reflect the spirit in which the Directive was agreed.
This initiative should not be seen as adding to reporting burden for companies, but of encouraging them to adapt their existing reporting to reflect the broader, long-term vision for their company and the resources and relationships they use in the world.
It is the integrated thinking which is as important as the integrated reporting.
But it is about money too.
As the parallel work being conducted by the EU Expert Group on Sustainable Finance is proving, the EU may have traditionally used the term 'non-financial reporting' to ascribe value to what are sometimes called intangibles, sometimes externalities. But the conception of integrated reporting is that these can be intensely financial - but sometimes only in the longer term.
A Eurosif survey found that 83 of 90 European institutional investors asked, said they both supported the Directive and believe it should lead to integration with financial information.
As I said at a 200-strong conference in Brussels last week to discuss the new guidelines, organised in conjunction with ACCA, Aviva Global Investors and Barclays Bank, it is still possible to comply with the Directive by sticking to the old 'tick box' mentality.
But that would be a huge mistake.
My appeal is for companies themselves to uphold the spirit behind the Directive, which offers a unique opportunity for European businesses to genuinely integrate financial and non-financial information in their reporting.
That's not just about combining the two, but of genuinely integrating them.
The new European guidelines themselves reflect the principles of integrated reporting, recognising our key concept of connectivity, “the importance of linkages and inter-relations of information (connectivity), whether it is between different aspects of non-financial information or between financial and non-financial information.”
To underline that this should not be about more reporting but better reporting, the guidelines also reflect the key objectives of integrated reporting for conciseness and materiality. They state, “The non-financial statement is also expected to be concise, and avoid immaterial information… Generic or boilerplate information that is not material should be avoided.”
I am delighted that many of the other aspects of the new guidelines similarly reflect principles of the International Framework.
This ranges from the information provided being forward-looking, addressing risk and describing the business model.
Above all, the Commission underlines the potential to make this an integrated part of the management report.
However, I am clear that the European Commission is right not to say any one framework on its own is preferred to implement the Directive. As the convenor of the global Corporate Reporting Dialogue, we both ask companies to move towards integrated reporting, but also are driving the process with our partners for today's different voluntary frameworks for corporate reporting to align - to make it easier and clearer for businesses to embrace a new approach to non-financial information.
With the European Directive successfully transposed in the vast majority of EU member states, companies right now are collecting information for their first reports which will start to be published this time next year.
Just last month, Italian insurance company Unipol released its first integrated report. Interestingly, to my knowledge, it is the first company report anywhere in Europe to say that the report already complies with the EU's Non-Financial Reporting Directive.
Already too, 1,500 global companies adopt integrated reporting. That includes 36 top companies in Spain, a third of all listed companies in Netherlands, with all of the CAC40 top listed companies in France on target to be adopt integrated reporting within three years.
And this is a global movement. It is already the leading practice in Japan, mandatory in South Africa, endorsed by the Chinese Ministry of Finance, recommended for the top 500 listed companies by India's securities regulator, part of stock exchange listing rules in Brazil.
But the opportunity of the EU Directive is that those 6,000 European companies are changing their reporting this year and next year.
They are thinking about it and it is a huge moment to say that this thinking should be integrated thinking.
And that Non-Financial Reporting should become integrated reporting.
Through our Business Networks, our training programmes, and our champions in every market in Europe, the IIRC will work - with our partners - to support this.
I am clear that this an encouragement for business to introduce integrated reporting, not a requirement. But it is a clear encouragement.
In the German Parliament, the Bundestag, there was a specific debate about whether Integrated Reporting complied with the Directive, and an actual change to the transposition of the text in Germany to underline that it does.
That applies across Europe, without any change to the wording.
The European Commission's official commentary to the Directive cites the "great interest" in integrated reporting and the new guidelines specifically cite the International Framework.
The European Commission specifically described integrated reporting as a "step ahead".
My message to European companies considering how you implement the Non-Financial Reporting Directive is: "Take that step."
Richard Howitt is Chief Executive Officer of the International Integrated Reporting Council (IIRC).
UK office space slashed as hybrid working looks set to stay
With hybrid predicted to be the working model of the future, and businesses both large and small announcing that WFH will continue for employees into the future, the traditional office space is being re-thought.
Businesses are both questioning how much space they need for a hybrid working future, especially if it means they can potentially save money, and what form that space should take.
UK firms slashing office space
Back as early as February, HSBC – whose real estate footprint currently stretches to around 112 football pitches worldwide – said it would be cutting its post-COVID office space by half globally and by 40% in London over the next few years, as it looks to implementation of a hybrid working model in light of the pandemic.
Lloyds Bank followed suit. Following an internal survey where 77% of employees said they wanted to continue to work for 3+ days a week post-pandemic, the bank announced it was also moving to a hybrid model, and so looking to cut its office space by 20% over the next two years.
In fact, the latest research from consulting firm PwC reveals that a third of organisations surveyed (258 of the UK’s largest companies) believe they will reduce their office footprint by more than 30%.
The findings of PwC’s Occupier Survey indicate there is likely to be a sizeable fall in occupied office space with half of executives surveyed saying that despite taking into account mass vaccinations, employees will continue to work virtually 2-3 days a week.
And companies continue to announce the hybrid working model for their employees. Accountancy firm EY has just announced that its 17,000 employees are moving to a hybrid way of working, WFH for at least two days a week. This follows PwC which in March said workers could stay at home for half the time and KPMG which this month said it would expect employees to only work two days in the office every week.
More collaborative work spaces
However, what’s also clear from PwC’s research is that the role of the office is not going to disappear completely, but instead adapt to a new way of working, with half of all organisations with more than 100 employees saying they have a real estate and workplace strategy that considers the long-term impact of COVID-19.
“We may see an increased demand for flexible space as many businesses operating models may well need that option if holding dead space is to be avoided,” says Angus Johnson, UK Real Estate Leader at PwC UK.
According to the survey, more than three quarters of respondents said they are likely to reconfigure existing office with 43% of financial services firms stating that they are extremely likely to do so as a result of the pandemic.
“It’s also clear that the nature and purpose of office space is going to change. As occupiers seek new, different space to meet their accommodation needs, environmental aspects will be increasingly important. If the real estate sector is to truly succeed as a more dynamic, greener industry it’s imperative that creative thinking comes to the fore.”
And companies are already thinking creatively how they can utilise office space in a hybrid future. So while HSBC is cutting a significant amount of office space, it is not downsizing its prestigious Canary Wharf headquarters, and instead reimagining the space. In April, CEO Noel Quinn announced the firm was embracing an open plan floor, with no designated desks or private offices, and instead using hot-desks in line with the future hybrid working style. “My leadership team and I have moved to a fully open-plan floor of the building in east London with no designated desks,” he said on LinkedIn.
Lloyds also reported it was adapting its office space, so that rather than individual offices, it will have a more collaborative workspace. And just last month, KPMG announced it too was ditching desks and individual offices, and replacing them with meeting rooms and conference halls for a more collaborative workspace.