1. Plenary Panel: The Role of Reporting in the
Transition to a Sustainable Economy
Prof. Ian Ball CEO, International Federation of Accountants
Jane Diplock Director, Singapore Exchange; Former Chair of the New Zealand
Securities Commission; Former Chair of the Executive Committee,
International Organisation of Securities Commissions
Damien Walsh Managing Director, bankmecu
Simon Longstaff Executive Director, St James Ethic Centre

2. INTEGRATED REPORTING AND CHALLENGES
GRI CONFERENCE
Melbourne March 2012
Ladies and Gentlemen
Before I start I would like to acknowledge the Wurunderjeri (Wa-run-
jeri) people of the Kulin nation, the traditional owners of this land
and pay my respects to their elders past and present.
Please let me say how delighted I am to be here this morning and
to join such illustrious speakers on the panels at this Conference. I
believe we are at a crucial moment in the history of Integrated
Reporting and would like to suggest some strategies for the next
critical steps in the journey to the vision of global integrated
reporting standards universally implemented.
If you ask any thoughtful 20 plus year old what we in our generation
need to answer for, they could say we stood by while one cohort of
managers of financial institutions, stole or lost their pension funds
and therefore their futures, They would probably say we have
stuffed the planet and stuffed the global financial system. Both need
to be fixed. It is my view that these two issues are closely
interrelated.

3. I would just like to take a few moments to recap on the wonderful
success that the Integrated Reporting movement has achieved.
From being a glint in the eyes of a number of great thought leaders,
HRH The Prince of Wales in his wonderful elegant and thoughtful
publication Harmony, the legendary work of the truly amazing
Mervyn King whose Report King 3, transformed reporting in one of
the most rapidly growing new economies in the world, South Africa,
and has had great influence world wide, profound academic
thinking led by Bob Eccles and Michael Krzus in their landmark One
Report, in a period of less than 5 years ,combined with the work of
the International Integrated Reporting Committee now Council, a
stellar collection of influential people and its extremely able CEO
Paul Druckman with his very able staff huge progress has been
made!
Other stakeholders such as GRI and civil society have contributed
hugely. Activities are happening all around the world. Recently a
coalition of investors NGOs and universities urged the Bank of
England to investigate how exposures to polluting and
environmentally damaging investments might pose a systemic risk
to the UK financial system and long term growth.
The investor community has also demonstrated increasing interest,
and activity by investors, has increased markedly the signatories to
the UN Principles of Responsible Investment. Since the global

4. financial crisis these principles have being increasingly embraced
until entities holding many trillion assets under management are
signed up, approximately 20% of the worlds capital.
Companies are also on board. Last December I heard a fascinating
and revealing presentation given by the Chairman of Puma on the
work they are doing as a member of the very exciting pilot program
engaging numerous companies around the world. The list of
companies engaged is very impressive.
Therefore you could say the right players are engaged and active
and scanning through the responses to the recent IIRC Discussion
Paper there is a growing and impressive consensus building. But it
is my contention this morning that there is more to be done.
We need to engage the worlds political decision makers and to
demonstrate that the economic well being of the global financial
system and their countries is dependent on this initiative going
forward.
It is my experience that global standards rarely gain solid global
traction without strong political will. The IOSCO experience is
instructive. A set of global standards was agreed in 2000. They
were voluntary and adoption was piecemeal around the world until
the corporate scandals of Enron and Worldcom plus the horrors of

5. 9/11 convinced many policy makers that the seamless exchange of
information between regulators was vital and so the first compulsory
adoption framework was formed with the development of the
Multilateral Memorandum of Understanding. Eventually by 2010
every jurisdiction had signed or committed to doing so.
However it was not until the Global Financial Crisis of 2008 that the
realisation dawned that financial stability of the worlds economies
did not rely merely on good prudential regulation of banks, but that
good regulation of capital markets was also important. Only then did
the political will emerged to ensure the full implementation of global
security market standards. This view of the "virtuous twins" of
financial stability was essential to the focus of the Financial Stability
Board and its masters the G20, mandating global compliance with
the IOSCO standards.
Underpinning the adoption lay academic work on the network
theory of markets by such thinkers as Andrew Haldane, Deputy
governor of the Bank of England, but unfortunately it took the near
death experience of the global financial system to gain the G20
attention in this way as many of the prevailing theoreticians still
endorsed unbridled freedom of markets and the full belief in the
efficient market hypothesis.

6. Part of the problem for capital market regulation lay in the bright line
between the regulated and unregulated markets. Banks were
largely regulated unless they had an investment banking arm, off
balance sheet vehicles or securitisation products, which along with
their valuation mechanism, credit rating agencies, were
unregulated. The unregulated shadow banking system was so large
that Clara Furse then CEO of the London stock exchange said she
felt like she was holding a torchlight in a darkened football field
when the real game went on around her. This was a perimeter or
boundary problem. Despite all the talk of Principals based
regulation, a bright line was there and actively gamed by the
finance profession.
I believe we have a similar perimeter problem in corporate
reporting. Investors are left like Clara Furse shining their torchlights
on the rear view mirror of one year in the annual report or 3 months
in the quarterly report, while the real game of environmental, social
and governance risks the corporation, public sector entity or even
sovereign, faces is playing out in the darkness around them.
It is my proposition that this has very distorting effect on market
behavior and leads to short term investment decisions which add to
volatility and fragility in the global capital markets. It undermines
financial stability in a critical way.

7. Could it be financial stability is in fact a three legged stool with
integrated reporting as a third leg supporting and balancing the
other two? Our global markets are based on the concept of full
disclosure and information symmetry. How can that be achieved in
both the prudentially regulated context or the capital markets
sphere without global implementation of integrated reporting? I will
come back to these questions, but first let's look at short termism.
Short termism is of concern to to many trying to build the business
case for sustainable investment. Al Gore and David Blood have
recently suggested that the short term perspective is "driving our
economies and our planet into liquidation". If this is so, why is it
happening? Is short termism greater now than it used to be?
A fascinating article by Andrew Haldane Deputy Governor of the
Bank of England ( Short Termism: An Impatient Market is not a
Happy market 3rd Sept 2010) sheds light on this.
He points out that markets are about matching saving to investment
while realising the benefits of patience and the growth associated
with this. He points out that investors tend to excessively discount
future outcomes. He quote Pigou's "defective telescope facility"
which shows that discounting is not only myopic but increases
through time, leading to hyperbolic discounting.

8. Peoples preferences alter as distant outcomes become closer to
the present, the long term investor can become the short term
speculator if assets can be cashed. In the 1940s he points out the
mean duration of US equity holders was around 7 years. For the
next 30 years up until 1970 little changed .
But in the subsequent 35 years the average holding has fallen
spectacularly. By the 1987 crash the holding period had fallen to
under 2 years and by the turn of this century it had fallen to below a
year and by 2007 it was 7 months. Impatience is mounting.
Trends internationally are much the same. Why is this so? Some
structural factors have assisted this. Some of them are positive.
Transaction costs in equities have fallen, other trends such as high
frequency trading may have directed the mean duration the other
way.
Future cash flows are also undervalued by investors. According to
Haldane cash flows for 4 years ahead are discounted at rates more
appropriate for 6 to 10 years ahead. Future cash flows according to
Haldane are severely undervalued by investors and this trend
seems to have grown in the 20th century.
As Andrew Haldane points out excess volatility in markets is a
distorting tax on long duration instruments and policy measures

9. may be needed to offset this distortion. In other words we need to
mandate some way of addressing this. He suggests providing
incentives for long duration asset holdings, or disincentives for short
term behavior eg holding period levies on financial instruments, or
to use governance measures ,voting rights or appointment of board
members linked to duration of equity holdings. All of these may be
useful to limit short termism.
However today I would like to venture into an area Andrew Haldane
probably wisely doesn't develop. What has actually caused the
retreat to short termism he so lucidly outlines?
Is this discounting merely the reduction of friction of transaction
costs lowering or could it also be the short term focus encouraged
by the current reporting regulatory frame work? What influence has
the introduction of quarterly reporting had ? In a world of increasing
information accessibility, has the reporting and assurance
framework fallen far behind?
Has the investing community found the limited risk framework
available to them under the current mandated reporting under IFRS
and US GAAP inadequate to accurately assess the value of those
cash flows going forward and have therefore chosen to heavily
discount the future cash flows of an enterprise because the

10. information they have access to, while voluminous, is manifestly
inadequate to assess the future risk profile adequately?
The answer may be to provide a much more holistic information
offering to investors to enable them to make more realistic
assessments of those future cash flows through Integrated
Reporting. Andrew Haldane suggests that it is important finance
sticks to the patient evolutionary path. To do so, he says the fidgety
fingers of the invisible hand may need a steadying arm.
What better steadying arm than the greater transparency of
integrated reporting?
Strategically what should we do from here? How can we "up the
ante" or raise the consciousness of those we hope will assist in the
global standards adoption process? Perhaps our strategies should
be both top down and bottom up.
I consider we need a narrative which clearly articulates the urgency
and importance of the issue of integrated reporting to the global
economy and to financial stability, outlined in the language and
arguments central bankers will find compelling and persuasive.
We need a call to action which will pull this issue onto the agenda
of the G20 and the Financial Stability Board. Such action would
then gain the attention and priority setting of the international

11. standard setters who have long list of strategic projects before them
and may quite reasonably resist the imposition of yet another call to
their time and energies.
I have a couple of suggestions to assist this process. Firstly the
construction of the narrative itself is very important to ensure it is
compelling and I do believe that is part way there, but the
relationship to short termism,volatility,future valuation and financial
stability issues needs to be further developed. Perhaps we could
approach some thoughtful academics to do further work on this. We
could then approach the FSB with a well argued proposition for
action.
At the same time, refinement of a set of draft standards, tested by
the current pilot process, and formulated by the very able
supporters of Integrated Reporting who have standard setting
experience could assist international standard setters. This would
hopefully shorten the process of developing global standards
implementable world wide.
Secondly I wonder whether we could use social networking to
encourage those thoughtful 20 year olds I mentioned earlier to be
come engaged in this movement and to militate for the changes we
all consider so important. Here too we need a narrative which they
will understand and relate to and advocacy which will galvanize

12. them to call for change. The recent social network activity world
wide and its results in the Arab Spring, the use of crowd sourcing
and the changing way political communication is occurring
reinforces our need to embrace this phenomena which is clearly
the way of the future.
Recently I went to a presentation where we were exhorted to
"unleash the inner Lady Gaga in all of us". I am not sure whether
Lady Gaga is the right person to relay an Integrated Reporting
message but many of her 47 million followers would agree and
understand that the fixing of the planet and the global financial
system are vital to their future prosperity.