Local firms can attract more foreign capital through ‘IR’
It’s important for today’s businesses in Sri Lanka to take cognizance of Integrated Reporting (IR) that leads to more investors and bigger things. Here’s why. The slim focus of today’s financial reports snubs the size and speed of change taking place in our global economy, including the interrelated risks posed by financial instability and un- sustainability. Without a focus on the range of capitals, providers of financial capital etc. the investors simply do not have the information needed to allocate resources most effectively.
This is where IR comes in. IR has developed from the rising awareness that traditional financial reporting provides inadequate information for integrated thinking and investment decision- making. Integrated reporting entails thinking about value beyond financial terms – a long overdue development given that around 80 per cent of the value of company is in general in intangible assets.
Creating strong relationships with stakeholders, building a loyal customer base, developing intellectual capital and managing environmental risks, etc. is critical to long term success, says Richard Howitt, CEO of International Integrated Reporting Council ( IIRC) who spoke on 'Integrated Reporting as part of the next Generation of Corporate Reporting at the 12th CMA National Management Accounting Conference' on the theme “Digital Transformation – A New Strategic Imperative” recently.
In a separate interview with the Business Times, he said IR keeps the spotlight on long term strategy and integrated reports are futuristic documents containing strategy, the context in which it will be released and how the company has, and will, create value for providers of capital and others in the short, medium and long term,
The International ( IR) Framework recognises that long term success depends, amongst other things, on fit management, relationships, a content workforce and the accessibility of natural resources.
“Integrated reporting mirrors the wide and longer- term consequences of the decisions organisations make, rooted on a broad array of factors, in line to generate value,” Mr. Howitt said noting that IR shows a business’ relationship with six key forms of capital – financial, manufactured, intellectual, human, social and relationship, and natural capital – which results in an organisation being capable of communicating in a clear, crisp way how it is extracting all the resources and relationships it consumes to create value over the short, medium and long term. This, in turn, helps providers of financial capital and other stakeholders to handle risks and assign resources most effi- ciently.
IR fits companies of all sizes, he said noting that it’s an international benchmark for corporate reporting. Mr. Howitt explained that IR is a fast track for companies that are trying to export, etc. and also be global players. IR is a tool that gives purpose to businesses, according to him.
Mr. Howitt has had discussions with the Securities and Exchange Commission (SEC) recently on shifting towards including IR in their corporate governance code. “Sri Lanka is a hotspot for IR and at least 40 listed companies have adopted IR.” In terms of South Asia, Sri Lanka is leading in adopting IR, he said.
DIMO, Sunshine Holdings, People’s Leasing, Ceylinco Life, etc are some examples that have already adopted IR, he added.
The IIRC is a global, market led coalition that is responding to and catalysing further shifts in thinking and behaviour designed to reshape corporate reporting for the 21st century, he said noting that he’s had discussions with some local firms to become a part of IIRC.
“Integrated reporting mirrors the wide and longer-term consequences of the decisions organisations make, rooted on a broad array of factors, in line to generate value,”