Non-financial reporting – International Integrated Reporting Framework
The International Integrated Reporting Council (IIRC) launched the first version of the Integrated Reporting (IR) Framework in December 2013. The IICR unites representatives from all major international standards setting bodies and regulators with company representatives, investors and other key representatives to develop an internationally recognised framework. The IR Framework identifies investors and capital providers as the primary addressees for an integrated report.
The Framework is intended to show how companies create long-term value by incorporating information on the environment, strategy, governance, performance and outlook. Investors should be informed about how a company’s strategy can create value in the long term as well as where a company actually stands regarding the achievement of its goals as defined in the strategy.
The Framework focuses on different types of capital, which are created and used by an entity. Based on the respective business model, the different types of capital (e.g. financial, produced, intellectual, human, social and natural capital) are used to create value (also a type of capital). These types of capital are said to have ‘connectivity’. Such connectivity can be illustrated particularly well in the case of pharmaceutical companies in the field of intellectual capital, the investments it makes in potential products and the sales that are subsequently generated.
It can also be demonstrated in other areas, such as human capital, for example: investing in the development of employees’ competencies has an influence on resource management and, ultimately, on the financial performance of a company. Non-financial objectives can also lead to the achievement of financial objectives.
Importance and implementation in practice
Within the Framework of the IIRC Pilot Program Business Network, more than 100 companies from 25 countries have implemented the principles of the Framework. However, apart from companies listed in South Africa (where IR is mandatory), almost no companies apply the entire Framework at present, although most of them intend to continue to work towards it.
The same dynamic is visible in Switzerland. To date, no single company has applied the Framework as such. However, more and more Swiss companies are moving towards adopting the Framework, as the implementation of individual elements from the IR concept is becoming evident. Most of the companies are developing the concept by integrating elements of the Framework in their annual reports. Some companies publish a short report (‘review report’), in addition to their annual report, using the Framework as a base. Detailed information on sustainability is generally published in a separate and distinct ‘sustainability report’.
Non-financial reporting – SIX Directive on Sustainability Reports
In July 2017, SIX issued new regulations regarding sustainability reporting by amending the Directive on Information relating to Corporate Governance (DCG). Issuers have the opportunity to inform SIX that they issue a sustainability report in accordance with an internationally recognised standard (art. 9 DCG in conjunction with art. 9 para. 2.03 DRRO). SIX will make public the names of those companies that decide to publish sustainability information (‘opting in’) on their websites.
If an issuer decides to opt in, the sustainability report has be produced in accordance with an internationally recognised standard as published by the SIX:
- Global Reporting Initiative (GRI)
- Sustainability Accounting Standards Board Standard (SASB Standard)
United Nations Global Compact (UNGC)
- European Public Real Estate Association Best Practices Recommendations on Sustainability Reporting (EPRA Sustainability BPR)
The sustainability report must be published on the issuer’s website within eight months of the balance sheet date for the annual financial statements. It must subsequently remain available in electronic form on the issuer’s website for five years from the date of publication.
Companies remain free to issue and publish a sustainability report in line with an internationally recognised standard without reporting this to SIX. It is also permissible to include certain sustainability topics in their annual report.
More and more stock exchanges (about one-third worldwide) provide guidelines for disclosing information on the environment, social and governance (ESG) matters. The UN Sustainable Stock Exchanges Initiative (SSE) recommends exchanges provide companies with principles-based guidelines, whilst the World Federation of Exchanges (WEF) proposes that stock exchanges provide companies with specific ESG indicators. This has already been done by a number of stock exchanges, in particular in emerging economies such as Brazil, South Africa, Singapore and Taiwan. ESG indicators are provided, which are to be reported either on a voluntary or binding basis and which can often be derogated in justified cases (‘report or explain’).
In contrast to this, SIX requires only those companies that opt in on a voluntary basis to adopt an internationally recognised standard.
Non-financial reporting – EU Directive on the disclosure of non-financial and diversity information
EU Directive on the disclosure of non-financial and diversity information
The purpose of the EU Directive as regards the disclosure of non-financial and diversity information is that companies of public interest with more than 500 employees (in particular, listed companies) provide information on environmental, social and workers’ rights topics, respect for human rights and the fight against corruption as well as its strategy, results, risks and business model. If the undertaking does not pursue a strategy on one or more of those topics, this has to be explained (‘report or explain’).
In addition, listed and certain other capital-market-oriented companies must describe their diversity policy with regard to management and control bodies in the corporate governance report. This disclosure should also include information on age, gender, educational background and the objectives of this policy and its implementation and results.
Member States were obliged to transpose the directive into national law by 6 December 2016. The directive applies to financial years beginning after 1 January 2017.
This EU Directive is also relevant to Swiss companies whose subsidiaries are active in the EU and which are regarded as companies with a public interest (such as banks and insurance companies).
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