By Carol A Adams
Cbus superannuation fund (known as a pension fund in some countries) has just released its Annual Integrated Report 2016. The report is Cbus’s second attempt at integrated reporting and the first in which it has referred to the report as an ‘integrated report’.
The 2016 report provides a clearer articulation of how Cbus creates value and of its business model and it demonstrates greater connectivity (discussed below). The use of non-financial indicators has increased. The report demonstrates greater integration of Environmental, Social and Governance (ESG) issues into the investment discussion than portrayed in previous reports. The pictures used in the report better reflect the diversity of the Cbus’ employee and member community.
The report provides links to information in its online Global Reporting Initiative (GRI) G4 report and other parts of its website where appropriate. The Cbus reporting framework (see page 2) identifies six Sustainable Development Goals (SDGs) to which Cbus contributes.
Value creation and the business model
The value creation statement and the business model diagram on pages 4 and 5 were the starting point for the development of this report. They are an evolution, building on the fund’s prior experience with integrated reporting and demonstrating greater confidence and shared understanding of how Cbus’s work is represented through integrated reporting. Their development drew on the Cbus strategy and formal and informal conversations with Cbus staff, the CEO and Fund Chair. The project manager, Rod Masson, discussed drafts with meetings of the senior executive, governance staff and the reporting team. Careful consideration was given to who are the primary audience for the report (members) and the main activities and processes through which value is created for them.
“Cbus creates value for members through investing superannuation contributions, returning all profits to members and providing solutions to help them achieve a dignified retirement.” (page 4)
The key ways in which value creation, according to its definition, is achieved are identified through seven dot points (page 4). Importantly, given the long term nature of pension fund investments, this includes acknowledging that achieving strong returns depends on contributing to environmental stewardship and social, environmental and economic sustainability. Each of the key ways in which Cbus creates value is elaborated in later sections of the report.
The business model diagram (page 5) identifies material inputs, outputs and outcomes. The outcomes are linked to the six capitals (much more so than in the previous report) through the use of symbols (see page 2).
“We set ourselves three years to fully develop our integrated reporting framework and we have made some great strides forward this year and in more than just the report itself. Apart from the report drawing together the strategic threads that make up the Cbus narrative, we are beginning to shift our thinking, planning and performance measures to more closely align with the framework.” David Atkin, CEO
External environment and strategy
Four key issues in the external environment (ageing population and increasing longevity; global megatrends impacting investment returns and choices; increasing competition; and regulatory changes) were identified as impacting on value creation from internal discussions and industry reports. The report discusses how each of these issues influence strategy. Strategy is also discussed in relation to each of the seven key ways of creating value (page 4).
A diagram is used (page 10) to illustrate the importance of different stakeholders to Cbus’ ability to create value. The report outlines the issues that these stakeholders identify which are material to value creation. The G4 materiality process provided input into this, but the focus and definitions of materiality are different.
Connectivity has improved significantly from the previous year’s report.
The sections dealing with the key ways in which Cbus creates value link back to the value creation statement (on page 4). Each of these sections uses symbols to identify the capitals which are transformed in the processes discussed. These sections also use specific SDG symbols to indicate where Cbus makes a contribution.
Four key elements of the external environment influencing the business model are identified on the business model diagram. The issues are elaborated on in pages 11 -13 together with a discussion of how each is being dealt with.
The strategy scorecard on pages 14 to 17 discusses achievements and strategy for each of the seven ways (see page 4) in which Cbus creates value.
“The biggest lesson drawn from the process of developing this year’s integrated report was the importance of concisely articulating how we create value, the business model and strategy we deploy to do it. Not only did that require bringing together many pre-existing frameworks, it meant getting buy-in and ownership across the organisation. We still have a way to go in that process, but it certainly added enormously to the strategic consistency of the report.” Rod Masson
Areas to work on
Aligning communication and action around the agreed value creation statement will help develop integrated thinking.
A common challenge faced by integrated reporters is aligning approach to strategy with the reporting framework. Strategies tend not to systematically identify the key elements of value creation, key external environmental factors or the capitals transformed. Approaching strategy this way, can help to identify gaps. Cbus has made progress on this by considering its strategy in relation to each of the capitals.
Many of the strategic goals are expressed in qualitative terms. Some more quantified targets would be useful when it comes to assessing performance.
And, typical of many integrated reports, consideration needs to be given to means of enhancing the credibility of reporting.
Disclosure: Carol Adams provided advisory services to Cbus with respect to integrated reporting during the development of this report. This did not include assurance services.