If you haven't seen it already, Novo Nordisk just released their 2018 integrated annual report.  Read the full report here (English version).

This is a link to a piece written by Professor Robert Eccles who many of you may know, and Graham Macmillan, that talks about a range of issues related to investor information needs through the lens of SDGs and sustainable investing.  Integrated reporting is referenced in the article as well.  Read the full article here.

This article, "Counting What Counts: Why Social Accounting Matters," was published online today by Nonprofit Quarterly and talks about what it calls an emerging field of "social accounting."  The article goes on to reference both GRI and the IIRC frameworks, and discusses the "octopus" diagram from the IIRC framework guidance materials.  It also has a section on how integrated reporting can help your organization.  The full text can be read here: https://nonprofitquarterly.org/2019/02/11/counting-what-counts-why-social-accounting-matters/.

This is just an FYI as it relates to regulatory oversight of Diversity & Inclusion in the US - both components of human capital (and perhaps social/relationship capital) and potential drivers of intellectual capital and financial capital - by the US SEC. 

On February 6, 2019, the SEC's Corp Fin area released new Compliance & Disclosure Interpretation (CDI) from the SEC under Reg S-K that relates to diversity disclosures among directors etc. 

The new CDI updates apply to both Item 401— Directors, Executive Officers, Promoters and Control Persons and Item 407—Corporate Governance.  Interesting development from a regulator.

Updated SEC Interpretations of Specific Sections in Reg S-K shows up in 2 sections, 116 and 133, as highlighted below.  The interpretation is the same for both questions, and it shows perhaps some new or expanded thinking on the topic.  However, the interpretations both seem to focus only on the tangible, more visible characteristics of diversity (e.g., gender, race,) and does not reference something more inclusive such as diversity of thought (I would not expect the SEC to do so at this time either).

Nevertheless, I thought this was an interesting development.  It may not move mountains, but it gets diversity (and hopefully inclusion more explicitly) onto radar screens of issuers in the US.  The state of California already mandated recently that women must be on board of directors, which paved the way for considerations at the federal level.  This past week, legislation was also introduced in both houses of Congress on similar diversity topics.  Diversity and Inclusion, both contributors to human capital and others potentially, are not coming off the back burner and to the forefront increasingly.  This is a good indicator of what may come.  More importantly, I am thinking ahead to what may become best practice and the 'right thing to do' among corporates, regardless of the existence of regulatory mandates or laws.

Here are the details below from the SEC interpretations:

Section 116. Item 401 — Directors, Executive Officers, Promoters and Control Persons

Question 116.11

Question: In connection with preparing Item 401 disclosure relating to director qualifications, certain board members or nominees have provided for inclusion in the company's disclosure certain self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background. What disclosure of self-identified diversity characteristics is required under Item 401 or, with respect to nominees, under Item 407?

Answer: Item 401(e) requires a brief discussion of the specific experience, qualifications, attributes, or skills that led to the conclusion that a person should serve as a director. Item 407(c)(2)(vi) requires a description of how a board implements any policies it follows with regard to the consideration of diversity in identifying director nominees. To the extent a board or nominating committee in determining the specific experience, qualifications, attributes, or skills of an individual for board membership has considered the self-identified diversity characteristics referred to above (e.g., race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background) of an individual who has consented to the company's disclosure of those characteristics, we would expect that the company's discussion required by Item 401 would include, but not necessarily be limited to, identifying those characteristics and how they were considered.Similarly, in these circumstances, we would expect any description of diversity policies followed by the company under Item 407 would include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics. [February 6, 2019]

Section 133. Item 407 — Corporate Governance

Question 133.13

Question: In connection with preparing Item 401 disclosure relating to director qualifications, certain board members or nominees have provided for inclusion in the company's disclosure certain self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background. What disclosure of self-identified diversity characteristics is required under Item 401 or, with respect to nominees, under Item 407?

Answer: Item 401(e) requires a brief discussion of the specific experience, qualifications, attributes, or skills that led to the conclusion that a person should serve as a director. Item 407(c)(2)(vi) requires a description of how a board implements any policies it follows with regard to the consideration of diversity in identifying director nominees. To the extent a board or nominating committee in determining the specific experience, qualifications, attributes, or skills of an individual for board membership has considered the self-identified diversity characteristics referred to above (e.g., race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background) of an individual who has consented to the company's disclosure of those characteristics, we would expect that the company's discussion required by Item 401 would include, but not necessarily be limited to, identifying those characteristics and how they were considered. Similarly, in these circumstances, we would expect any description of diversity policies followed by the company under Item 407 would include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics. [February 6, 2019]

On January 18, 2019, IOSCO (International Organization of Securities Commissions), which is a quasi global standard setter for the world's capital markets (it counts among its members the US SEC and its equivalents from around the world), issued a statement on disclosure of ESG matters.  Although not a statement about integrated reporting per se, it does suggest that issuers voluntarily disclose material ESG disclosures.  They reference a number of frameworks and standards that issuers can follow as a guide for these material disclosures, including the IIRC, as well as TCFD, GRI and CDP, among others.

You can read the online statement on IOSCO's web site here: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD619.pdf

This is a very thoughtful piece by Keith Ambachtsheer that suggests a way to test whether the news about ESG integration is real or hype: 

I am proposing a simple test to answer this important question: carefully study how asset owners tell their value-creating stories to their stakeholders. Unless these stories are clearly credible, the ‘shift to ESG investing’ is just another case of investment-industry hype triumphing over reality.

Why focus on the behaviour of asset owners? Because regardless of whether they are pension, endowment, or sovereign wealth funds, asset owners have a fiduciary duty to create value for their stakeholders. Collectively, they sit on top of the financial food chain and where they go, others follow.

He cites the IIRC Framework as an important tool in telling this story. 

Read the full article

IIRC Lead Bob Laux published a piece on the council's website about the need for and efforts underway to support longer-term thinking in U.S. corporations. The full piece is worth reading. It includes this call to the SEC:

We at the IIRC believe the SEC should consider a project to reexamine their guidance on Management’s Discussion and Analysis. It has been 15 years since the last time the SEC issued a significant Financial Reporting Release reexamining their guidance on Management’s Discussion and Analysis. We can all agree there have been significant changes since 2003 and many believe a multi-capital approach to Management’s Discussion and Analysis could go a long way in serving the long-term interests of Main Street investors.

Read the full article

Bhakti Mirchandani has some specific suggestions on Mainstreaming Sustainability: What Banks And Business Schools Should Do Next: 

Assets globally that are invested in line with environmental, social and governance (ESG) principles, or sustainable investments, have been growing 17% per year and now stand at $23 trillion according to McKinsey. The growth of US ESG assets in particular is up over 200% from the past decade according to JPMorgan. As institutional investor demand for ESG products mounts due to robust ESG performance and stakeholder pressure to address global challenges, banks and business schools alike should offer mandatory sustainable investing training to meet the demand for financial services professionals who understand sustainability.

Read her suggestions

This article covered a speech by Jan Herringer, partner at BDO USA and president of the New York State Society of CPAs at a meeting of the Accountants Club of America.  In her remarks, she encouraged her colleagues to learn about integrated reporting:

The profession is mobilizing to meet the challenges of the 21^st century, to close the link between value creation and the ability of an entity to sustain operations into the future … As the conscience of the profession, learn more about integrated reporting, discuss [it], and provide opportunities for our clients to understand the impact.”

Read the full article

The Corporate Reporting Dialogue, which includes the IIRC, SASB, GRI, and the Carbon Disclosure Project, have announced plans to align their standards and frameworks within two years at the World Congress of Accountants in Sydney, Australia.

The article explains the goal of the project:

Under the new project, the various participants plan to map out their own sustainability standards and frameworks to identify the common traits and differences, while jointly refining and continuously enhancing the overlapping disclosures and data points to achieve better alignment. They will be taking into account the various focuses, audiences and governance procedures of the different organizations. Participants will identify how non-financial metrics relate to financial outcomes and how this can be integrated in mainstream reports.

More information about the project can be found on the Corporate Reporting Dialogue website. 

Read the Accounting Today article