Luminous recently attended, sponsored and facilitated a workshop at the International Integrated Reporting Council’s (IIRC) global conference, ‘Inspiring global alignment through value creation’. We sponsored the conference as we wanted the opportunity to participate in the discussions, share our experiences as a strategic communications agency with practitioners in the field and be part of the growing movement that is seeing integrated reporting go from strength to strength.
The two-day conference brought together more than 250 delegates, including corporates (i.e. current and potential integrated reporting practitioners), accountants, academics, consultants and NGOs, to discuss, collaborate and share practical examples of how integrated reporting is at the heart of long-term value creation for stakeholders.
Below are some of the key takeaways from the conference:
We know the price of everything, but not always its value
- Not all value created by a business is for shareholders.
- Thinking of the multiple capital model that is at the centre of integrated reporting, natural capital or nature provides so much value that society takes for granted and is not truly accounted for.
- Perhaps this is one reason why humans are driving the natural world to the brink, given the rate of extinction and carbon emissions in recent years.
- In relation to the S&P 500 index, 84% of the value on those corporates’ balance sheets is intangible value – so that’s 84% of value that is not audited or assured but is critical for stakeholders to better understand.
- Will we see the mainstream adoption of the moniker of Chief Value Officer replacing the Chief Financial Officer as integrated reporting becomes more commonplace? Will we see a paradigm shift from a focus on financial capital to long-term value creation?
- As one panellist commented, “the time for rhetoric has passed, and organisational ego needs to be set aside and progress needs to be made”
Climate change requires a response
- The concentration of carbon dioxide in the atmosphere eclipsed 415 parts per million for the first time in human history in May, so it was no surprise to hear that there is considerable pressure on corporates to disclose a carbon reduction strategy in line with the required trajectory to arrest carbon emissions to now accepted 1.5oC temperature rise, according to the Intergovernmental Panel on Climate Change (IPCC) – the 2oC target, set as part of the UN Paris Climate Agreement in 2015, is no longer sufficient.
- There is an increasing trend to see a Task Force on Climate-related Financial Disclosures (TCFD) statement published by a corporate – it’s a powerful disclosure because climate value at risk information is forward-looking in contrast to reporting a carbon footprint, which is backward-looking – the emissions have already happened.
- Within the financial sector, it’s only a matter of time until a TCFD statement becomes a mandatory requirement as part of the reporting process.
- Climate risk needs to be embedded within an organisation’s strategy and processes for it to properly succeed.
Simplifying reporting frameworks
- Preparers of annual reports relayed that, increasingly, ‘reporting fatigue’ was turning into ‘reporting paralysis’, such is the burden to keep up with addressing new rules, regulations and changes to reporting frameworks.
- There was a clear message that further alignment between standards is imperative. Step forward the Corporate Reporting Dialogue (CRD) working group, which is tasked with trying to create convergence of the disparate standards, and reduce confusion and complexity amongst the ‘big six’ standards that are well established and adopted in the sustainability reporting space. These are as follows:
- The Global Reporting Initiative
- Integrated Reporting
- The Sustainability Accounting Standards Board
- The Climate Disclosure Standards Board
- The CRD’s work is taking place against the backdrop of c.1,500 frameworks and reporting standards in the marketplace. So, it’s not only a crowded market, but also a minefield when trying to choose which one or two to follow – but delegates learned that “it has to be a case of collaboration, not competition between reporting standards”.
The investor viewpoint
- EY has found that 94% of over 200 respondents to its institutional investor survey view integrated reports as essential or important.
- The links between environmental, social and governance (ESG) data and financial performance and strategy need to be strengthened.
- Investors want to see a greater breadth of meaningful non-financial information (NFI) and metrics as part of the suite of KPIs an organisation communicates, but data quality remains an issue and needs to be improved – there is too much meaningless ESG data created, with too little explanation or narrative to accompany it.
- When done well, good-quality NFI can provide insight into long-term value creation.
- Institutional investors are probably the stakeholder group that creates the greatest pressure on listed companies, partly attributable to asset managers being evaluated (and awarded additional remuneration) on an annual basis which prioritises short-term returns – anathema to long-term value creation.
The members of the audience were asked to sum up their key takeaways during the conference using one- or two-word answers only – here’s what resonated the most:
- Integrated thinking
- Harmonisation needed (of the various reporting standards)
In his closing address at the conference, Professor Mervyn King, Chair Emeritus at the IIRC, noted that “integrated thinking is at the heart of conscious responsible corporate activity” and that “organisations have a responsibility to achieve value creation in a sustainable manner”.
The Luminous view
Reporting doesn’t stand still. At Luminous we welcome the greater take-up of integrated reporting across multiple jurisdictions, including here in the UK. But we think that the standardisation, harmonisation and simplification of reporting frameworks is essential.
Embedding integrated thinking is the central starting point for an organisation to achieve a good integrated report – the methodology helps to break down silos in an organisation, create greater collaboration and ultimately makes for a better narrative.
Integrated reporting is helping businesses to think holistically about their strategy and plans, make better, informed decisions, and manage key risks to build investor confidence and improve future performance, all of which contribute to long-term value creation.
We launched our latest thought-leadership publication, Sustainability Matters, at the conference. It combines opinion articles, interviews and case studies united by the theme of trust. As we outline in Sustainability Matters, a new bond of trust is forming that, allied to purpose and reinforced by reputation, may just pave the way to business longevity.
If you would like to know more about how your organisation can best present how it takes an integrated thinking approach to your reporting and disclosure, please get in touch.
Our next #illumination event will explore more about integrating sustainability within your organisation and will include sharing some practical examples. If you would like to attend, please see our events page.