The International Integrated Reporting Council has signed a memorandum of understanding with the World Intellectual Capital Initiative to ensure that "intellectual capital" is reflected as a crucial and essential source of an organization's value creation within integrated reporting.

The IIRC released released its draft framework for integrated reporting in April, with the goal of enabling a business to communicate how it creates value over time in terms of financial capital, intellectual capital, and other areas such as the environment, corporate governance and social responsibility (see IIRC Releases Draft Framework for Integrated Reporting and Integrated Reporting Makes Its Debut).

It noted that intellectual capital includes intangibles such as intellectual property, tacit knowledge, systems, procedures, and intangibles associated with the brand and reputation.

“Communicating how an organization develops and exploits intellectual capital and deploys innovation is key to understanding value creation,” said IIRC CEO Paul Druckman in a statement. “We look forward to deepening our collaboration with WICI in this important area.”

He noted that Standard & Poor’s published research demonstrating that in the 1970′s 80 percent of a company’s market value could be traced through to its financial statements. But today, only about 20 percent of a company’s market value can be accounted for by its financial and physical assets.

“Corporate reporting needs to evolve in order to reflect this change,” said Driuckman. “ provides the framework to do so, and our collaboration with WICI gives the whole initiative further energy.”

WICI is recognized for the work it does in the area of intellectual capital, improving the reporting of intellectual assets and capital and key performance indicators that are of interest to providers of financial capital and other stakeholders.

“The essence of a business is to create value over the long, as well as the short and medium term, by utilizing its strengths supported by the range of capitals available to it,” said WICI Global chairman Takayuki Sumita, who signed the agreement with Druckman. “Therefore, the most important part of corporate reporting is for a business to tell its individual value creation story, providing evidence of how the organization has created value in the past and its plans for creating value in the future. The collaboration between WICI and IIRC will help further the evolution of corporate reporting. Creating a new corporate reporting language will enable organizations to communicate their own value creation story more effectively with investors which will facilitate better decision making and, in turn, contribute to a more sustainable global economy.”

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