We're delighted to share this week's guest blog by Jonathan Labrey, Chief Strategy Officer at the International Integrated Reporting Council (IIRC), who explains why it's time to follow a new business model.
“It’s not woolly, it’s critical.” With these words Jacinda Ardern, New Zealand’s prime minister, announced that her country’s budget would no longer be set to meet short-term financial targets, but instead would seek to match the expectations of the population at large, who want finance to have a social purpose. New Zealand will be the first country in the world to draw on a multi-capital framework, setting measurable targets to promote broad-based wellbeing.
This approach is good economics, as the evidence shows that inclusive economies are more prosperous over time. But it’s also essential politics. With new research showing the interconnectedness between climate change and income inequality, governments are becoming more adaptable to these longer-term challenges. The near-universal adoption of the UN Sustainable Development Goals is just one indication that the world’s business model is changing – permanently and fast.
Business is not a spectator sport. Across 72 countries today, companies are aligning their own business models to these broader trends by adopting integrated reporting, applying a new materiality lens of value creation to understand and explain the interconnectedness between different ‘capitals’ and their effect on the business and the external environment. Integration – of thinking across the business to reduce silos, and of the reporting process to ensure conciseness – helps a company to spot risks and opportunities that might otherwise never materialise, critical for investor and stakeholder engagement in an era of enhanced stewardship.
This adjustment is happening across the economy. Thought-leaders such as the World Economic Forum are advocating for new tools to respond to this interconnected, multi-capital world. Institutional investors such as BlackRock are calling for the embedding of intangibles within the mainframe of corporate reporting. And the world’s global accounting firms are developing new assurance products to ensure the information communicated by companies is trusted, fair and balanced. It is not a coincidence that all these organisations were fundamental to the creation of the International Integrated Reporting Framework, and today they advance the adoption of integrated thinking and reporting around the world.
In a 1930 essay, the economist John Maynard Keynes wrote: “We are suffering, not from the rheumatics of old age, but from the growing pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.”
As we approach the end of the second decade of the 21st century, the world’s business model is changing at an ever more rapid pace. But the change for your business need not be painful, because the tools are there to support adaptation – proven, tested and evidence based. But it does require action. Are you ready?
Read more on the IIRC's thinking here.
The Luminous view
We wholeheartedly agree with Jonathan Labrey and the IIRC: long-term value creation is here to stay and an absolute business imperative for the world of today and the future. Integrated reporting should be a flagship tool in the armoury of a company, helping it to successfully navigate the unstable economic landscape with confidence and a long-term vision.