Integrated Reporting for SMEs: Implementation Guidance

Preface Richard Howitt Chief Executive Officer International Integrated Reporting Council Small and medium-sized companies represent the beating heart of the global economy. When I think of an SME, I think of their entrepreneurship, their talent, their innovation - and their potential. A thriving economy must nurture SMEs and encourage their innate ability to create value. We must also strive to remove barriers so that they can achieve their potential. SMEs are the most trusted type of business, often family-owned and they are close to the communities they serve. SMEs are an integral part of the global value chain and can become trusted partners of larger companies or academic institutions where they offer a route to the commercialization of intellectual capital. For SMEs, high quality relationships with customers, suppliers, employees and the local community underpin their value. So it is no surprise to see such powerful and practical SME case studies in this guidance. Novamont: using integrated reporting to demonstrate its commitment to sustainable development. Showa Denki: illustrating its value creation process in a concise 20-page integrated report, highlighting the cultural openness of the business. Dellas: setting out its corporate reporting evolution roadmap over three or four years. Because we know integrated reporting demonstrates a commitment from the company’s management, but it is also an investment in the future. It is an investment in the quality of engagement with stakeholders, and a strong signal that purpose, governance, business model and strategy matter - whatever the size of the company. And providers of financial capital need the security of knowing that risks and opportunities are being identified and managed, wherever they exist in the business. Integrated reporting is emerging as the global transparency tool for connecting resource management to the business model and strategy, helping businesses of all sizes to explain how they create value and how they are preparing for the future. The evidence shows that companies that break down internal silos, instill a culture of integrated thinking and make linkages between different drivers of value creation are better prepared for the future; they are more resilient in the face of short-term challenges and more flexible because they are managing risks in real time. It transpires that non-financial reporting is no longer peripheral, but instead is a valuable predictor of long-term financial performance. I would like to thank the Network Italiano for Business Reporting (NIBR) for their strong commitment to working with companies, guiding them to adopting integrated reporting by providing practical support, knowledge and best practice. We are also indebted to Stefano Zambon personally, as Secretary General of NIBR and Chair of the World Intellectual Capital Initiative (WICI) Global Network. Stefano’s energy to bring about change, not just to corporate reporting, but by creating the conditions for more sustainable business models is evident throughout this guidance. I commend it without hesitation to SMEs. They have everything to gain from adopting integrated reporting and this guidance shows that its benefits can be released quickly and it can be adopted with ease. Presentation Prof. Stefano Zambon (PhD, London) Secretary General, Italian Network for Business Reporting (NIBR), WICI Chair, and University of Ferrara It is not without a touch of pride that I am presenting to international readers and stakeholders this NIBR-WICI Global Network Implementation Guidance to the Integrated Reporting of SMEs realized in collaboration with the International Integrated Reporting Council (IIRC). Indeed, for many countries, SMEs represent the backbone of the economic system. In 2017, only Europe counted around twentythree million SMEs, around 99% of the overall companies, with a level of employment in the private sector that represented two thirds of jobs and more than 50% of the value added generated in the EU. Compared to them, the share of large companies was and still is marginal. In addition to this large presence, SMEs have inherent characteristics that can allow them to move more easily towards the implementation of integrated reporting. Owing to their very nature, they are rooted in the territory of origin, sharing values and culture with the local communities and stakeholders. They also tend to pay attention to details, thanks to their smaller size, which generally grants a less complex and more agile structure. The frequent presence of the entrepreneur and his/her family in company operations and governance roles may assure a relatively “natural” application of an integrated thinking in the running of the organization. Relational and organizational intangibles as well as human qualities and skills are basic resources for the vitality and longterm survival of SMEs. In terms of benefits that SMEs can reach in implementing integrated reporting, this may represent not only an advanced accountability device, but also a management tool that gives entrepreneurs and managers a more complete view of the company. Thus, it can help demonstrate where and to what extent the company creates value. SMEs interact with various public and private entities, and the adoption of an integrated report can become the main instrument that shows how important these are and how the company communicates with them, possibly achieving a better image and reputation. Banks and more generally all financial institutions are the most traditional stakeholders for SMEs: integrated reporting meets their information needs on the past, but also on the future of the company in a strategic perspective. The holistic view of the organization rendered by an integrated report facilitates the comprehensive recognition and appreciation of company issues, while driving and reinforcing integrated thinking. In view of the above reasons, with this Implementation Guidance the Italian Network for Business Reporting (NIBR) has aimed to read the International Framework from a specific angle designed to ‘translate’ its principles and contents into a language understandable by small businesses. To put it differently, it has reinterpreted the Framework ‘through the eyes’ of SMEs. In this respect, not only the Fundamental Concepts, Guiding Principles and Content Elements have been here illustrated and explained using this particular viewpoint, but also a roadmap for their adoption by an SME has been illustrated by recurring also to five case studies out of those Italian SMEs that are currently going through their ‘integrated reporting journey’. I would like to warmly thank the IIRC in the persons of Richard Howitt, Lisa French and Laura Girella, the Japanese Cabinet Office, and Paul Thompson of the EFAA (European Federation of Accountants and Auditors for SMEs) for the precious support and collaboration, as well as the members of our Working Group at NIBR for the hard, long and patient work.