Forbes – In November last year, Richard Howitt took over the role of CEO of the International Integrated Reporting Council (IIRC) from Paul Druckman. A Member of the European Parliament for over 20 years, Howitt is an architect of the EU’s non-financial information directive, one of the biggest transformations in corporate disclosure anywhere in the world. He has been a rapporteur on corporate reporting-related issues, including social responsibility, for many years. An early advocate of integrated reporting, he now swaps the role of Ambassador of IIRC to being its CEO.
I recently sat down with him to discuss the work of the IIRC, the challenges and opportunities of the new role, and the future of integrated reporting.
Professor Bob Eccles: Richard, tell me about the role you have taken on at the International Integrated Reporting Council.
Richard Howitt: Well, Brussels has been my platform for influencing major international initiatives and processes for more than 20 years, bringing me into contact with businesses, investors, policymakers and other stakeholders. In recent years, increasingly I have been representing Europe in global initiatives and at IIRC I am moving to be able to do this at a genuinely global level.
I think my new role is a culmination of two decade’s worth of advocacy for higher levels of corporate transparency, governance and reporting to deliver a new bargain between business, capital markets and society. In that time, I have witnessed an increased recognition of the value of integrated reporting, and strongly believe that we have an opportunity now to really scale this up.
Eccles: How far do you think the integrated movement has come?
Howitt: There has been huge progress on a global scale in recent years, and we are seeing major breakthroughs across a range of sectors and markets. We are starting to see leading international companies in over thirty countries across the world coming out to embrace integrated reporting, and we need to now do everything we can to ensure that this becomes the global norm across markets.
Eccles: Should integrated reporting be legislated?
Howitt: Integrated reporting must be about good business strategy and long-term value creation. And our position at the IIRC is that this must be a market-led initiative; it is our job to steward this along and to encourage. We need to make the case to businesses on why they should adopt integrated reporting. That doesn’t mean there isn’t a role for governments and regulators to play – I believe it is important that they are actively removing any potential barriers to this market-led adoption and playing a positive role in encouraging and signposting towards this new approach to reporting.
Eccles: Is there a cohesive global strategy on integrated reporting, would you say?
Howitt: The IIRC has just developed the next phase of our global strategy for advancing the adoption of integrated reporting. The great thing about the IIRC is that we are a global coalition of likeminded organizations and individuals, so through the insights and knowledge of our council members we have now got a strategy that I believe will see us change the way the corporate reporting system is perceived globally.
For too long reporting has been thought of in siloes —with financial reporting standards developed over hundreds of years and sustainability reporting standards springing up separately in the last few decades. Now is the time to think about how the reporting system works together — to ensure all of the different players are providing clarity to the market on how standards and frameworks can be used together. I think Integrated Reporting has an important role to play here, as the umbrella for reporting practices, and we will be working with our partners globally to make this a reality.
We are also seeing a lot of localized and sector based initiatives working to advance the practice of integrated reporting. Many of these have been prompted by calls for change in corporate governance, such as is the case in Japan and South Africa where Integrated Reporting is now mainstream. There are also some major advances led by corporates themselves, such as GE (which last year issued its first integrated report), that are sending strong signals across international markets. In the U.S. in particular, there has been great progress in the past year or so, with many technology companies now declaring their support of the IIRC. If we can win the battle in Silicon Valley, with the technological ability and innovation that resides there to make integrated reporting easy for all businesses to embrace, then that will go a long way.
Eccles: Why did you take on the job?
Howitt: I think quite simply, it was because of the extent to which I believe in the power and potential of integrated reporting. Paul Druckman achieved a great deal in his time at the helm of the IIRC, and I think it is vitally important that we build upon his legacy. I have a very special opportunity to advance the great work that Paul achieved. That is, to increase awareness and understanding of integrated reporting, and to shift it into mainstream business, for it to become the global norm. I want to play a part in furthering the movement.
Eccles: What are the biggest challenges right now, as you see them, to integrated reporting?
Howitt: There has been a debate that has taken place for some time now about long-term investment, long-term vision, and long-term value creation for companies. There are many companies, CEO’s, boards, and investors, who ‘get it’. But there are also many obstacles in the marketplace. Too many businesses continue to operate in the short-term; too many remain in thrall to shareholders and value short-term performance over the long-term.
It is, thankfully, a changing picture. More and more corporates understand that the short term approach is not sustainable. And I truly believe we are now at a tipping point, with understanding of the value of integrated reporting increasing all the time. Of course, there are significant challenges, but as businesses increasingly have to justify their social license to operate, it is clear that momentum is on our side. Our collective response must be to move towards a more inclusive form of capitalism.
Howitt: I think we have underestimated just how much investors are changing with their approach to the long-term and sustainability. Key institutional investors and asset owners are now at the table, and all the evidence suggests that they want to get on board with integrated reporting. They can see that many businesses are moving towards a new approach, and one which provides a better assessment of long-term risk. There is a marked change in the debate, and a clear shift in investors’ attitudes. Their influence in the integrated reporting movement is huge.
Eccles: What ultimately is more important, integrated reporting or integrated thinking?
Howitt: It is the ‘chicken and egg’ question. Both, really, go together. Integrated thinking within business ultimately is what we should be aiming for — that is how real change occurs. But it is also important to publish an integrated report and there are powerful reasons to do so, such as influencing better capital allocation decisions and addressing the demands and needs of stakeholders in an age of transparency. When integrated thinking is applied, the integrated report becomes more than the output of a process, but a critical milestone in the continuous journey of improvement in decision-making, accountability and communication. It can be tempting to champion integrated thinking and play down reporting, especially if the latter is seen as a compliance requirement, but to do so would be to misread the purpose and benefits of Integrated Reporting.
It’s still a long journey ahead, but I am more confident than ever before that our work is moving into the mainstream. A new way of reporting on, and doing, business.