15 July 2013

EuropeanIssuers: AFEP position on Integrated Reporting

Companies consider the Integrated Reporting Consultation as an interesting contribution to the reflection regarding non-financial information and the process that the management may implement internally to take into account the company’s relationships with stakeholders.

French companies build on a decade long experience of including items of non-financial information into their management reports, as legally required in France.

However while acknowledging that non-financial information enriches the analysis by investors and other stakeholders, companies consider that the mandatory financial reports they publish provide most of the non-financial information that can be reasonably disclosed without impairing the quality and reliability of the information provided.

An introductory narrative summary at the beginning of mandatory financial reports or of sustainability reports would be sufficient to meet supplementary needs for concise and material information and would thus not require to determine new forms of verification or control (such as a specific assurance on non-financial information). Also, as there are many uncertainties attached to the non-financial information that would be included in an integrated report, an external assurance would be costly and would not be sufficient to make this information reliable.

Companies strongly believe that the concept of integrated reporting cannot be promoted at international or European level as a mandatory public information framework. Further integration of non-financial information and financial information, as proposed, would not be possible and would be a source of confusion for investors. In particular, the proposed principles would not enable to reliably solve major problems that have not been settled for financial information:

• the objective of describing how value is created based on 6 capitals is clearly out of reach: it is extremely complex, if not impossible, to reliably measure other than financial capital (intangible, human, natural...), of which the company is not necessarily the sole owner, and, therefore, to measure the value creation;
• there are numerous difficulties linked to the forecasting exercise and to any mandatory public disclosure of prospective information;
• the proposed framework would lead to the disclosure of commercially sensitive information (strategies and value drivers; opportunities; resource allocation; intentions; data relating to research and development...)...
• it is not possible to aggregate or synthesise all the risks of a company/group. Indeed, quantitative thresholds or risk profiles can be established and followed for certain risks only (e.g. market risks); risks - and the measures taken to control them - are changing regularly and interact, thereby rapidly rendering irrelevant and obsolete any attempt to conduct an overall measurement and ranking of risks.

These views are based in particular on the following:

• non-financial information is not comprehensive and often qualitative, and cannot reflect a non-financial performance;
• the principles applicable to non-financial information request only rarely specific quantitative data or indicators, even more exceptionally monetised indicators;
• unlike financial reporting standards, they generally do not include recognition, measurement and presentation principles in relation to these data or indicators. This is in particular because the indicators (social, environmental…) often are not consistent and comparable (e.g. they can vary from one country to another);
• the limits between the reporting entity and its external environment would be blurred and different from those used in the reporting of financial information (“financial reporting entity”). Conceptually, this would affect the process aimed at measuring value creation. In addition, if a statement from the body charged with governance were to be published, problems of liability could arise when the company expresses itself on behalf of other stakeholders, external to the company;
• the principles applicable to non-financial information are closely linked to industries and not readily comparable;
• the level of reliability of non-financial information is still much lower than that of financial information;
• thus generally cannot be consolidated at group level.

Press release

Position paper

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