Towards integrated thinking at Unilever

Paul Polman, Unilever’s CEO, has made a clear connection between long term business success and tackling social and environmental issues:

“… the biggest challenge is the continuing threat to ‘planetary boundaries’; resulting in extreme weather patterns and growing resource constraints. These have increasing impact on our business… We remain convinced that businesses that both address the concerns of citizens and the needs of the environment will prosper over the long term… As… [the Unilever Sustainable Living Plan] becomes embedded, there is growing evidence that it is also accelerating our growth.” Annual report and accounts 2012 p 4

There are a number of things in Unilever’s annual reports that make the company stand out as a leader in connecting business success and value for investors with value for society.  The 2013 annual report succinctly captures the moral and business imperative for integrated thinking: “Business needs to be a regenerative force in the system that gives it life” (page 8).  And Unilever’s vision is to double the size of its business while reducing its environmental footprint and increasing its positive social impact.

Its annual reports set out, up front, financial performance and growth measures alongside key social and environmental measures.

Unilever's business model sourced from the Unilever website

Unilever’s business model sourced from the Unilever website

The simple pictorial representation of its business model puts its Sustainable Living Plan (which quantifies 2020 environmental footprint targets) right at the centre of everything it does.

The 2013 annual report provides a comprehensive analysis of key risks to value creation using a multiple capital approach – that is, it considers risks associated with society, relationships, the environment, intellectual capital and its people.  This demonstrates that risk identification processes involve a broad analysis of contextual factors.

Included amongst the various governance committee reports is one from the Corporate Responsibility Committee, rarely included in an annual report.

Critical to integrating sustainability into strategy, planning and decision making is incorporating it into remuneration and performance management.  Unilever’s annual reports demonstrate real leadership here in stating that social responsibility and performance against the Unilever Sustainable Living Plan is considered in determining rewards.

Unilever’s 2013 annual report makes a link between its customer base being predominantly female and its work on equal opportunities (page 16).  Female consumers have an interest in how women are treated at work. At 40% (page 6) the proportion of female non-executive directors is well above average. And 42% of Unilever’s managers are women (page 3).

There is room for improvement of course, but not the purpose of this article to set out where.  But I will mention a comment that particularly jarred – reference to the Dove brand “promoting self-esteem among young girls and women” (page 7).  There’s a bit more to it than this Unilever, particularly in your markets where violence against women and unequal opportunities are rife.

The International <IR> Framework has been criticised by some for focussing on value to investors, rather than value for society or stakeholders.  Unilever believes that the two are connected and has taken more steps than most to integrate social responsibility and environmental sustainability into the way it does business.

The links between value for investors and value for others are made in the International <IR> Framework in paragraphs 2.4 – 2.7:

“2.4 Value created by an organization over time manifests itself in increases, decreases and transformations of the capitals caused by the organization’s business activities and outputs. That value has two interrelated aspects – value created for: The organisation itself which enables financial returns to the providers of capital; Others (i.e. stakeholders and society at large).

2.5   Providers of financial capital are… also interested in the value an organization creates for others when it affects the ability of the organization to create value for itself…

2.6   The ability of an organization to create value for itself is linked to the value it creates for others…

2.7   …This includes taking account of the extent to which the effect on the capitals have been externalised…”

Too few companies explicitly recognise or acknowledge this. Unilever is a leader.

Contact Integrated Horizons if you would like to discuss integrated reporting.

Related articles on this website:

A global approach to sustainability: an interview with Ray Bremner, President & CEO Unilever Japan

Ten steps to integrated reporting

Five essentials to embedding sustainability

Integrated reporting – what it is – and is not: an interview with Paul Druckman

What is integrated reporting? And how do you do it?

accaThis article was first published by the ACCA here and was written by Dr Carol A Adams FCCA and member of ACCA’s Global Forum on Sustainability

If you are confused about what integrated reporting is, rest assured you are not the only one.

A lot of people think it’s about putting together your financial and sustainability reports.  Wrong.  It is much more than that – and much less.  It will not replace either a financial or sustainability report – both must be in place for integrated reporting.  But starting to think about the connections between the financials, the relationships your organisation has with its key stakeholders and how it makes use of natural resources, for a start, is a step in the right direction.

Integrated reporting requires thinking about value beyond financial terms – a long overdue development given that around 80% of the value of company is typically in intangible assets.

Building strong relationships with stakeholders, building a loyal customer base, developing intellectual capital and managing environmental risks, etc, tend to fall off the radar when corporate execs think short term.  But they are critical to long term success.  Integrated reporting keeps the focus on long term strategy and integrated reports are forward looking documents covering strategy, the context in which it will delivered  and how the company has, and will, create value for providers of capital and others in the short, medium and long term.  The International <IR> Framework recognises that long term success depends, amongst other things, on sound management, relationships, a satisfied work force and the availability of natural resources.

Much of the information companies are providing to investors is not in their annual review or financial statements – further evidence of the need for change.  An integrated report fills some of the gap and allows an organisation to tell providers of capital, and others, how it creates value for them.

If you asked your colleagues how they would describe your business model would they have the same view as you?  Probably not.  Many corporate execs think about their business model in narrow financial terms or from the perspective about the bit of the business they are responsible for. But if the senior exec work together in conceptualising the business model and start to think about inputs and outcomes in broader terms a different picture about what needs to be managed and what adds value emerges.

The six capitals concept is intended to facilitate this broader thinking about value and the business model.  The ACCA has been at the forefront of its development coordinating the work of the IIRC’s Technical Collaboration Group on the Capitals and funding my involvement.

Some companies are taking a first step towards integrated reporting by getting their financial and sustainability people working together.  This is advantageous in that accountants could better understand social and environmental risks and their impact on reputation and the bottom line whilst sustainability teams need to develop skills in making a business case for their work.  But the integrated thinking that goes behind integrated reporting needs to involve all the senior exec.  And the Board.

If you would like to know more about integrated reporting, see some examples of good reporting practice and speak with some peers about the challenges and benefits, register for the Master Class in London on March 14th hosted by the ACCA.  You will  hear from Eileen Rae, Director-Finance, ACCA and Jonathan Labrey, Communications Director at the International Integrated Reporting Council (IIRC).  Eileen will discuss the preparation of the ACCA’s second integrated report.   A copy of Understanding Integrated Reporting: the concise guide to integrated thinking and the future of corporate reporting will also be given to participants.

You can read more about the Master Class here.  

DōWebinar on Integrated Reporting now available here

If you missed my DōWebinar on integrated reporting you can see the presentation and listen to it here.

If you have any questions contact me directly or use the comment box below.

You can read about my Dō Master Class on integrated reporting with Eileen Rae, Director-Finance with the ACCA and Jonathon Labrey, Communications Director at the IIRC here.  The Master Class is hosted by the ACCA.

carol_bookAnd you can read about my book “Understanding Integrated Reporting: the concise guide to integrated thinking and the future of corporate reporting” here.

Do_Button_Teal_HR

Masterclass: Preparing for Integrated Reporting – London, 14th March

Integrated Horizons-d81Preparing for Integrated Reporting

A Master Class with Dr Carol Adams, Integrated Horizons

14th March 2014 * ACCA 29 Lincoln’s Inn Fields, London * WC2A 3EE

£360 + VAT (£432 incl VAT)

Do_Button_Teal_HRBook here

Discounts are available for organisations who register more than one person.

Integrated reporting will bring radical change to the way organisations report and think about their business.

This Master Class will help you understand what integrated reporting is and how to do it.  You will have the opportunity to discuss challenges and benefits with your peers, consider examples of reporting and learn from experts and those who have done it.

Master Class Schedule

9:15 am: Tea & Coffee & Pastries

9:30 am: SECTION 

Introduction to <IR>: why it’s important for sustainability, what it is (and isn’t), why it developed and how it links with other corporate reports.

Jonathan Labrey, Communications Director and Kate Turner, Communications Manager at the International Integrated Reporting Council will join us for this session

11:00 am: Tea & Coffee

Created with Nokia Smart Cam

11:15 am: SECTION 2

The fundamental concepts, principles and content elements of <IR>

12:45 pm: Lunch

1:15 pm: SECTION 3

How to do it: Things to consider and do before you report; the reporting process.

Eileen Rae, Director-Finance at the ACCA will discuss the preparation of the ACCA’s second integrated report

2:30 pm: Tea & Coffee Break

2:45 pm: SECTION 4

Reflections on the difference <IR> will make and examples from some recent integrated reports.

4pm: End

Attendees will receive a free copy of Carol’s book:

Understanding Integrated Reporting: The Concise Guide to Integrated Thinking and the Future of Corporate Reporting

accaPart of the DōShorts Sustainable Business Collection

Event organised in partnership with the ACCA.

Getting on Board: materiality and stakeholder engagement processes for integrated reporting

This article was first published on CSRWire on 30th December 2013 CSRwire logo

Many years ago a group of accountants, sustainability leaders, advisors and activists and big accounting firms got together to develop a principles-based process framework to support organizational learning and “social and ethical, environmental and economic” performance. They drew on tried and tested accounting principles, adapting and applying them for “a path of sustainable development.”

From the AA1000 Framework to the International <IR> Framework

The AA1000 Framework was published in 1999, building on the work of many other organizations developing process or performance standards on single or multiple issues. The collaboration was an early example of “integrated thinking.”

The stated benefits of the 1999 approach included, amongst other things:

  • An understanding of what matters about performance informed by stakeholders
  • Better risk management
  • Satisfying the demands for information from investors, including assessing the quality of management
  • Facilitating the alignment of values, strategy, activities and outcomes

These ideas resonate in the language of the International <IR> Framework:

  • Value creation for the organization and for others
  • Identification of risk and opportunities
  • Information for providers of capital
  • Future oriented information and connectivity

Few Accountants get the message

By speaking to CFOs and corporate boards in a language they understand, the International <IR> Framework will, I hope, profoundly change business behavior. Accountants are the creators and keepers of knowledge about organizational performance and what they chose to measure and make visible gets managed and influences decisions.

The ideas in <IR> are not all new, but few accountants have got the message. (An exception is Mark Joiner former CFO of a top 40 bank.)

International Accounting Standard 8 defines material issues as those that influence the economic decisions of users, taken on the basis of the financial statements. Up until now, accountants have largely failed to capture issues that are not easily quantifiable in monetary terms, despite their likely materiality to economic, let alone social and environmental, decisions. This definition of materiality itself is arguably inappropriate in the context of worldwide social and environmental crises.

The issue is perhaps one of aptitude and timing.

And the timing is already too late for some.  Accountants are only just beginning to understand the dependency of business success and the impact of business on nature. For example, the Puma Environmental Profit and Loss account attempts to put a price on Puma’s environmental impacts.

Will <IR>, by recognizing the importance of value creation for the organization and for others in long term business success, address this failure of accounting?

The Materiality Report as guide

Over the last few years, corporate processes for determining materiality for sustainability reporting have encompassed an increasingly broad range of issues not linked to sustainable development.

The Materiality Report (Forstater et al, 2006) demonstrates the benefits of linking the materiality process with strategy development, performance management and creating value.

Its Materiality Framework defines material issues as those that could make a major difference to an organization’s performance. Quotes in the Materiality Report from executives indicate that organizations were at that time already integrating materiality in annual and sustainability reporting processes.

Fuji Xerox Australia and the Royal Bank of Scotland Group

Fuji Xerox Australia and the Royal Bank of Scotland Group offer examples of sustainability reports that identify material contextual issues on a whole of business basis.

The Fuji Xerox Australia Sustainability Report 2013 includes “responding to digitization through innovation” and “being customer centric” in the top ten material issues. Fuji Xerox Australia’s provider of capital, parent company Fuji Xerox Co Ltd, is included in the list of stakeholders and the company took steps in 2013 to involve staff in the final prioritization of material issues. They plan to develop this process linking it to risk and strategy.

The RBS Group’s 2012 Sustainability Report identifies customer trust and business lending as its top two “stakeholder issues.” The report’s list of top 14 stakeholder issues does not distinguish “sustainability” issues from others.

More collaboration

These examples show that processes for determining materiality for integrated reports already exist. But they need to be refined.

At an international level these processes have evolved through a collaboration between accounting and sustainability professionals. Such collaboration needs to develop at an organizational level and extend beyond the finance and sustainability teams to senior managers from all key functional areas.

About the Author:

Dr Carol Adams @ProfCarolAdams is a Director at Integrated Horizons consultancy. Understanding Integrated Reporting: The Concise Guide to Integrated Thinking & the Future of Corporate Reporting (Foreword by Paul Druckman) published by Dō Sustainability can be ordered here using code CSR15, for 15% off .

Related articles on this website:

Ten steps to integrated reporting

The role of the (bank) CFO in value creation: an interview with Mark Joiner, NAB

Integrated Reporting and the Six Capitals: What does it all mean?

Tensions around the meaning of ‘value’ and value to whom in integrated reporting

Integrated Reporting: the Guiding Principle of ‘Connectivity of Information’ made simple

Integrated thinking and integrated reporting

Materiality: financial reporting, sustainability reporting and integrated reporting

Understanding (how sustainability fits into) your business model

The banking sector and integrated reporting: focus on HSBC

Next steps in integrated reporting: bankmecu

This article was first published on CSRwire Talkback.  The original article can be viewed here

Ten steps to integrated reporting

imageThe launch of the integrated reporting framework is set to herald a new era in the relationship between business, society and the environment and elevate sustainability thinking to the board room catching the eye of the CFO and C-suite.  Oversight from the top is a critical factor in integrating sustainability – getting it reflected in vision and strategy and seen as creating value, rather than as a cost drain.

Adams_LROver the last four decades financial statements have captured an ever decreasing proportion of business value as relationships, people, public trust, intellectual capital, sound environmental stewardship and other intangibles become increasingly important for long term success.

Sustainability, stakeholder engagement and CSR practices help identify or mitigate reputation and financial risk.  They reflect sound management.   This is the information providers of capital look for.

After much analysis, experimentation and consultation, the International <IR> Framework is out.  But many are wondering how to implement it.  How do you prepare an integrated report?

There are a number of important steps that fall into three broad categories:

  • preparation for <IR>
  • getting buy in, and
  • developing integrated thinking.

Preparation for <IR>

1. Develop sustainability reporting.  If you are not already preparing a sustainability report, or collecting and disclosing material social, environmental and economic information, do this before you prepare an integrated report.

2. Assess the adequacy of the stakeholder engagement processes.  Your sustainability report is a communication of material issues from a broad stakeholder perspective – critical for accountability, reputation and identifying risk.  The stakeholder engagement and materiality processes for sustainability reporting are an important building block for determining materiality for an integrated report. But you will also need to involve your senior team and look at a wider range of issues.

Getting buy in

3. Get senior management buy in.  The CEO may already be concerned that financial statements do not give a full picture of value. The Chief Sustainability Officer/Head of Sustainability may have already started to think about sustainability in terms of value creation.  Others on the Board or senior exec may help to get broader senior management buy in.

4. Get Board buy in. Board buy-in is important not just of credibility, but also because of the forward looking nature of an integrated report and the requirement to identify  which governance body is responsible for its content.

 5. Get agreement on your reporting package.  You don’t have to adopt the framework in full right away.  You could start by including elements of integrated reporting at the front of your annual review or in your sustainability report. Perhaps it’s time to remove some non-material information from your hard copy reports and put it online?

Developing integrated thinking

6. Determine material issues. Determining material issues for <IR> involves both engaging with stakeholders and engaging your senior management team.

7. Get agreement on your business model.  When you start discussing your business model with your senior team, you may well find that that there are as many different views about key aspects of it as there are people in the room.  It should encompass all material capitals.  Some will need to be encouraged to think more broadly than flows of money.

 8. Develop your value creation story. Your value creation story should be expressed in terms of all six capitals and should connect with your business model.

 9. Articulate your strategy.  Strategy should be articulated in a way that connects with your value creation story.

 10. Check for connectivity of information. Connectivity of information both within your Integrated Report and across your reports and other communications is critical to sending a strong, credible message.

Developing integrated thinking is a bit of an iterative process.  You won’t get it right first time and once you start reporting you will identify gaps in your thinking.  And it is not until you report that some gaps will be noticed. Fixing the gaps (which you should expect to do only do temporarily because it is a continual challenge) requires understanding why they occur. Likely reasons include:

  • A belief that anything of value to business has to be measureable in monetary terms.  This can be hard to shake and the education and training of accountants tends not to challenge it. The good news is that research shows that younger people are seeking to work for organisations that are socially responsible, practice sustainability and are ethical.  Those whose responsibilities involve creating value through non-financial means need to clearly articulate the value created to the organisation and its stakeholders by their initiatives.
  • Organisational structures which predate the complexity of the contemporary, complex and globalised business environment. If organisations are to thrive they need to get better at working across silos by developing formal and informal communication channels and networks.
  • Territorial and hierarchical leadership styles.  Looking for different leadership styles when recruiting new managers can shift the culture – as can increasing diversity.
  • The predominance of leaders who lack a ‘moral compass’ and hence authenticity.  If this applies you may well have bigger issues to deal with than fixing gaps in integrated thinking.

Further reading 

Understanding Integrated Reporting: The Concise Guide to Integrated Thinking & the Future of Corporate Reporting published by Dō Sustainability which can be ordered here  or by clicking on the image above. It is available as an e book for immediate use or in hard copy.

A version of this article first appeared in the Guardian Sustainable Business on 9th December 2013. image

 

 

Understanding Integrated Reporting: The Concise Guide to Integrated Thinking and the Future of Corporate Reporting

Adams_LRIntegrated Reporting <IR> is the big new development in corporate reporting that everyone is talking about. Why? Quite simply, <IR> marks a paradigm shift in the way companies and other organisations think about business models and the creation of value.

 <IR> promotes long term thinking about value-creation and stewardship across a broad base of interdependent capitals – financial, manufactured, human, intellectual, natural, and social and relationship.

Understanding Integrated Reporting: The Concise Guide to Integrated Thinking and the Future of Corporate Reporting provides a practical and expert distillation of <IR> for professionals. Carol Adams explains in simple terms what <IR> is and how to do it; how it links with other reporting frameworks and what it means in terms of thinking and processes. You’ll also get a clear business case for <IR> and insights and best practice examples from leading integrated reporters.

The book can be purchased here  or by clicking on the image to the right.  It is available as an e book for immediate use or in hard copy.

Endorsement

In his Foreword to Understanding Integrated Reporting: The Concise Guide to Integrated Thinking and the Future of Corporate Reporting the CEO of the International Integrated Reporting Council, Paul Druckman writes:

“This book is a significant contribution and a good source of learning about Integrated Reporting … I particularly appreciate the “Before you report – things to consider” chapter. This is a quick guide to report preparers grappling with the first steps that are important to have in place prior to the preparation of an integrated report; “Preparation”, “Getting buy-in” and “Developing integrated thinking”. I believe that integrated thinking is at the core of Integrated Reporting – without an understanding of this concept we will not be able to achieve real integration in corporate reporting. This book takes a profound step in connecting this critical concept and its application to Integrated Reporting. The section dealing with “fixing gaps in your integrated thinking” demonstrates that this concept challenges the current paradigm of business and poses some compelling reasons why companies may have identified these gaps through their reporting process.”

<IR> is not just for companies. The book demonstrates how integrated thinking and <IR> can benefit many other organisations whose success and influence depends on relationships and partnerships.

The book can be purchased here 

Read an extract

Contents

Why I wrote “Understanding Integrated Reporting: The concise guide to integrated thinking and the future of corporate reporting”

Who this book is for (Preview here)

Foreword by Paul Druckman (Preview here)

Chapter 1. Overview: what <IR> is – and what it is not

Who are integrated reports for?

Who should prepare an integrated report?

Links to other reporting frameworks

Chapter 2. The benefits of preparing an integrated report

Chapter 3. The essential ingredients of <IR>

Chapter 4. The fundamental concepts

The value creation process

The capitals

Value creation for the organisation and others

Chapter 5. The guiding principles

Chapter 6. Before you report – things to consider/do

Ten steps to <IR>

Fixing gaps in your integrated thinking

What is your value creation story?

Thinking about your business model more broadly

Determining material issues

Chapter 7. How to report

What your report needs to include – the content elements

An additional report or an amended annual/sustainability report?

Achieving connectivity of information

Where reporting needs to go

Chapter 8. A word on assurance of integrated reports

If you have any questions about planning for integrated reporting or preparing an integrated report, contact Dr Carol Adams at Integrated Horizons.

Related articles on this website:

What is integrated reporting? And how do you do it?

Ten steps to integrated reporting

Integrated Reporting and the Six Capitals: What does it all mean?

Tensions around the meaning of ‘value’ and value to whom in integrated reporting

Integrated Reporting: the Guiding Principle of ‘Connectivity of Information’ made simple

Integrated thinking and integrated reporting

Materiality: financial reporting, sustainability reporting and integrated reporting

Understanding (how sustainability fits into) your business model

The banking sector and integrated reporting: focus on HSBC

Integrated reporting – what it is and is not: an interview with Paul Druckman

The role of the (bank) CFO in value creation: an interview with Mark Joiner, NAB

Mark Joiner, outgoing CFO of one of the world’s top 40 banks discusses the need to redefine value and rethink business models in this interview with Carol Adams.

Mark has held Chief Financial Officer (CFO) positions at the National Australia Bank (NAB) and Citigroup Inc, prior to which he spent 16 years with the Boston Consulting Group reaching the position of Senior Vice President of Corporate Development. He is a Chartered Accountant and holds an MBA.  He has served as a Director of Clydesdale Bank Plc and Standard and Poors and is currently chairman of the Board of JBWere.

What role do you think business should play in addressing the key social, environmental and economic issues of our times?

A dinosaur business has the view that the job is to maximise profit even to the point of bending the rules. I think companies that stay in that mode will struggle.

There is a paradigm shift between the way my generation thought about business and the new generation coming through.  They think more carefully about who they work for.  They don’t want to work for companies that do good things, they want to work for companies that do good.

The emergence of social enterprise is changing business models.  It is attractive to talent and customers.  You can no longer think about returns to financial capital.

How can CFOs and the accounting/finance function assist a business in broad based value creation?

CFOs have more of the means of production.  The CFO needs to put a company on a path to sustainable performance.  The CFO should not look short term by e.g. not investing in IT, talent etc.  The modern CFO needs to think about performance over 10 years about the robustness of the business model to support long term value creation.  This is not just about capex, it is more and more about reputation, attracting talent etc.  The CFO needs to enable adaption of the business model to changes in attitude, regulation, availability of resources, etc.

If you can’t express known truths in a computational way people don’t know how to weigh them.  They don’t know how to incorporate them into internal rate of return calculations.

I was struck by a quote in an article in The Best Australian Business Writing 2012 edited by Andrew Cornell.  In the article titled ‘Bobby Kennedy and the wealth of nations and corporations’, Jane Gleeson-White quotes Robert F Kennedy as saying: “Gross National Product… measures everything… except that which makes life worthwhile.”  Later in the article there is a suggestion that accountants are the one last hope for life on earth.  We need hard data.  If you fail to quantify you allow poor decision making.

There is a great opportunity for the profession to step up.

Jochen Zeitz founder of the B Team with Richard Branson wants an analysis of the sustainability impact of every product transparently placed on it. That would change consumer behaviour.

To what extent do other CFOs share your views? 

I’m not aware of any progressive CFOs in Australia.  If there are any, they are not a force externally, outside their organisations, even if they are internally.  I don’t see others I speak with getting fired up by these issues. If there are any, I would like to meet them to discuss ways in which we can spark change in the dominant status quo.

What should the accounting profession do to prepare the next generation of CFOs? What else can be done to encourage CFOs to lead change?

The accounting profession could help CFOs to lift their game through education and role models.  A values approach should be part of the way a CFO sees her/himself.  The focus of a CFO has changed from getting the numbers right to influencing big decisions then to leading strategy.  The next step should be to get them to think about a business model that will be robust over a decade.

We need widely accepted standards that integrate other considerations rather than consultants using different methodologies.  The International <IR> Framework is a good start.

What do you see as the key social and environmental issues impacting on the banking sector in particular?  How should the sector prepare for this?

Bio diversity – it is the canary in the coal mine.  Without bio diversity the system is out of kilter, less robust. There is nothing to replace something that is wiped out if you don’t have biodiversity.  Carbon and water management are also important.

At NAB we are grappling with the concept of Natural Value.  Can we express a value that the natural world brings into our business decisions and our customers’ business decisions?  We need to understand the risks we are taking on.  Our agri-bankers have embraced this, particularly those in the biodiversity hot spots in Australia.  Our work on natural value is about risk awareness, risk management and customer service all bundled together.  Over fishing, impact on seawater through pollution, etc all bring risks.

Banks need to be at the front and centre of social issues.  It’s key to staff engagement and customer commitment.  But there needs to be some filters: What can we do that reflects our values?  What would people reasonably expect us to do?  What can we do that links to the bank’s core business?  So, for example in 2003, we began trying to understand the consequences of being left out of mainstream banking and working to develop microfinance products.

Our staff like to do the right thing, they like to help people and they like the bank to do so too.

When we stopped charging dishonour fees for bounced cheques we didn’t know what impact it would have on business, but we felt it was the right thing to do and aligned with our values.  We lost $250m in revenue through dishonour fees, but the retail bank has grown and we are gaining more customers.

We are helping the financial education and empowerment of women. Women drive 90% of big decisions in families. If we are seen to support women, it will impact their future decisions.  But even if it does not, it will make our female staff feel that this is the place to work.

Isn’t there a contradiction with your earlier comment that you need to be able to measure things to get them incorporated into decision making?

Sometimes you can’t quantify things and have to take a leap of faith.  We are a values led organisation so we are passed having to quantify everything.  Quantifying is for those starting out where the values are not in place.

What role will integrated reporting have in change?

Integrated reporting is a public expression that all the things that make up an organisation are equally important.  An integrated report leads with the idea that performance on all fronts leads to an enduring business model and performance.

Adams_LRHow are your Board responding to it? Are they concerned about liability for disclosing strategy that isn’t then met?

Our board are taking it in their stride.  It reflects how we see ourselves.   If we say one thing but behave in a different way internally our staff will tell the world within a few hours.

The ability to execute strategy depends on an external environment which to some extent is beyond our control.  I think it would be extremely hard to prove that directors are at fault.

Related articles on this website:

What is a ‘sustainable’ bank? An interview with David Korslund, Global Alliance for Banking on Values

Next steps in integrated reporting: bankmecu

The banking sector and integrated reporting: focus on HSBC

Developing integrated thinking: an interview with bankmecu’s CEO Damien Walsh

Four Questions with Paul Monaghan

Resources for integrated report preparers and topics for researchers

Asian Pacific Conference logo

This article identifies some resources for preparers of integrated reports seeking to lead best practice and also for researchers. It identifies some of the many avenues for researchers seeking to contribute to the development of a new form of corporate reporting.

I put them together for the opening plenary of the 25th Asian Pacific Conference on International Accounting Issues held in Bali, Indonesia, 10th-13th November 2013.  The conference  had integrated reporting and sustainability reporting as its theme – a sign of changed times that this should be the theme for an international accounting conference.  The first conference in 1989 was initiated by the The Sid Craig School of Business, California State University.   Almost 300 people attended the Bali conference which was organised and sponsored by Universitas Indonesia.

After describing some of the features of integrated reporting and considering why it was important, my presentation focused on: resources for researchers; potential research topics; and, journal special issues.

Resources: Examples and analysis of Integrated Reports

Integrated reporting has been required by the Johannesburg Stock Exchange (JSE) in South Africa since 2010 and, whilst the requirements in the forthcoming International <IR> Framework will be somewhat different, South African integrated reports nevertheless provide some innovative examples and demonstrate that integrated reporting is a big step in the right direction.  The following analyses of integrated reports on the JSE have been compiled by big four firms:

The following sources identify reports from around the world:
  • The IIRC’s Emerging Integrated Reporting Database The database allows identification of examples of reporting by content element, sector and geographic region. Over 100 companies around the world are now taking part in the IIRC’s pilot study.
  • The CorporateRegister.com online database of company reports. The Corporate Register Reporting Awards now include a category for Integrated Reports.

Resources: the processes of developing the International <IR> Framework

Researchers interested in examining the processes of developing the International <IR> Framework may wish to consider:

  • Individual responses to the IIRC’s consultation.
  • The IIRC’s Technical Agenda Papers include:
    • summaries of responses to the IIRC consultation
    • potential technical projects.
  • Commentaries in the press, blogs, etc.
  • Statements by professional bodies, global intra-governmental bodies, guidelines/framework developers about (links with) <IR>.

Potential avenues for research – analysis of integrated reports

Analysis of integrated reports will contribute to the development of good practice.  There is a need for analysis of:

  • Quality of reporting on content elements especially: external environment; opportunities and risks; strategy and resource allocation; business model; future outlook.
  • The concept of value and how organisations are defining value.
  • Process of engaging stakeholders and identification of their interest.
  • Process for determining materiality.
  • Extent of ‘connectivity’ with the integrated report and across other communications.
  • Media used for integrated reporting.
  • Sector approaches to <IR> issues.

Potential avenues for research – case studies/surveys on processes of integrated reporting

The decision to prepare a first integrated report should lead to changes in: decision making processes; informal and formal communication processes; materiality and risk identification processes amongst others. Understanding the extent of these changes is important in considering the value of integrated reporting – itself an important factor in determining future guidance, policy and regulation.  Understanding the factors which impact on the take up of integrated reporting is also important.  Qualitative research approaches might be used in exploring:

  • Process of determining materiality and identifying risks.
  • Internal communications/ “integrated thinking”/ breaking down silos.
  • Factors that determine uptake of <IR> including qualitative factors such as role of leadership/ leadership style.
  • Changes to internal systems and processes on adoption of <IR>.

 Other potential avenues for research

Other potential avenues for research include:

  • Implications of <IR> uptake for sustainability management and reporting practices.
  • Role and take up of <IR> in public and not-for-profit sectors.
  • The political landscape – relationships with other frameworks, Stock Exchange requirements, national regulation.
  • The impact of <IR> on decision making and outcomes.
  • Analyst responses to integrated reports.
  • Approaches to assurance of integrated reports.

Journal special issues

  • Exploring capital and the notion of multiple capitals.  Sustainability Accounting, Management and Policy Journal.  Submissions close March 2014.
  • Integrated reporting. Accounting, Auditing and Accountability Journal.  Submissions closed.
  • Subject to be determined. Journal of Financial Management and Accounting.  Call not yet published.
Improving sustainability performance and reporting in Indonesia
Following my presentation Professor Keitha Dunstan of Bond University, Australia chaired a panel discussion on sustainability practice and reporting.  The contributors, who were all concerned with raising the level of sustainability reporting and stakeholder engagement in Indonesia were:IMG_0454
This is where I’m heading now the work is done.
IMG_0456IMG_0458

Integrated reporting – what it is – and is not: an interview with Paul Druckman

Paul Druckman, CEO of the International Integrated Reporting Council (IIRC) addresses some of the misconceptions about what integrated reporting is – and is not – providing insights into how it will develop in this interview with Carol Adams. He also spoke about the link between sustainability reporting and integrated reporting.

Prior to taking up his role with the IIRC, Paul chaired the Executive Board of the Prince’s Accounting for Sustainability (A4S) project and the FEE Sustainability Group.  Amongst many other senior executive and non-executive roles, he was also Director of the UK Financial Reporting Council and President of the Institute of Chartered Accountants in England and Wales (ICAEW).

There have been a number of comments in the press and professional journals on the merits or otherwise of integrated reporting from people who appear not to have read the IIRC’s Consultation Draft of the International Integrated Reporting Framework.    Can you briefly explain in lay terms what integrated reporting is?

Integrated reporting is where an organisation explains how it is going to create value.  It is a concise communication of value.  It explains how a company will be a viable thriving entity in the short, medium and long term.  It is not just about financial profit. Companies cannot think of themselves as apart from society – they are part of it.  And that needs to come through in their communication on value.

Would you like to add anything about what it is NOT?

There are three common misunderstandings about integrated reporting which I’d like to address.

  1. It is not another report, rather an evolution in corporate reporting.
  2. It is not sustainability reporting. We are not creating sustainability indicators.
  3. Whilst the consultation process for the IIRC framework has been multi-stakeholder, the emphasis in the reporting process is not multi-stakeholder. Rather, it is on integrated thinking.

On the second point, I should add that integrated reporting will help to bring sustainability reporting into the mainstream corporate reporting cycle.  Sustainability reporting has been one of the great reporting innovations over the last twenty years – at its best it shows the essential relationship between a business, society, the economy and environment.  It contains value-relevant information, yet is often disconnected from the financials.

Integrated Reporting – embedding that concept of integration into business thinking and reporting processes – is essential for ensuring corporate reporting remains relevant to investors and plays a central role in their financial capital allocation decisions.

Adams_LRBased on the “integrated reports” you have seen to date what are the top three things you would like to see improved in integrated reporting practice?

It is important to recognise that we are in the innovation phase of this market-led development in reporting.  We are enabling a process of peer-to-peer learning and best practice, most notably through our Pilot Programme of over 130 businesses and investors in 25 countries.  We are now seeing real movement and we estimate that around 1,000 businesses globally adopt at least some <IR> principles in their reporting practice.  In terms of improvements, I would highlight the following areas where I think we need to see more progress:

  1. A better articulation of strategy and ensuring that this is reflected throughout the reporting process, not just in one place in the report.
  2. A bringing to life of the concept of “connectivity” – the recognition of all the interconnected pieces across the business – which is such an essential part of Integrated Reporting.
  3. A real focus on conciseness – currently, many businesses are working on bringing together information.  A reduction in volume should flow from the application of Integrated Reporting principles.

The process of developing the Framework has involved extensive consultation and feedback and will continue to evolve. What are the key areas of differences in views? Which aspects do you think will continue to evolve in particular as practice develops?

There was overwhelming support for the approach to the capitals and the definition of the business model, particularly the idea of outcomes rather than outputs.  Thinking about outcomes rather than outputs helps to connect the business to the real world and the value it might bring to the broader economy, to people or how its activities impact on the environment.

There was some diversity of views around:

  • Inclusion of forward looking information.  Some think it means giving away secrets.  I think this is nonsense.  As Professor Mervyn King, chair of the IIRC Board put it there’s a difference between transparency and nakedness.
  • The audience for the reports.  There was a lot of emphasis in the consultation draft on providers of financial capital.  The next version will better communicate that, whilst the primary purpose of integrated reporting is providing information for providers of capital, the readership will be much broader. An integrated report will be of interest to a broad range of corporate stakeholders.
  • Materiality.  The word means different things in different contexts and we need to do more to provide certainty around its meaning in the context of Integrated Reporting..
  • Value.  There are different views about what ‘value’ means.  We need to do more with businesses and investors to develop this concept.
  • Assurance.  This was an area of huge diversity where thinking and practice will evolve over time.

Some other areas we will be clarifying are:

  • The difference between integrated reporting and an integrated report.  This is the piece around integrated thinking which really adds value through improved decision making.
  • The link between an integrated report and other reports.

How would you like to see corporate reporting of global MNCs in particular being different from today in ten years’ time?

I would like to see corporate reports being more about a true communication about the story of a business – rather than just compliance disclosures.  This story should be more accessible to different stakeholders – that is, they can find what they want more easily.  PDF reports can be difficult to navigate.

Which of the IIRC’s achievements or milestones are you most proud of? 

I am most proud of the global reach our work has had.  That has come as a surprise.

On a personal level, what has been the most rewarding aspect of your role as CEO of the IIRC?  

I think my key contribution has been through keeping an eye on the big picture – not coming at it from the point of view of pushing a particular approach or getting bogged down in technical detail.

Being more flippant – having an electronic tablet has made travelling and keeping up with written material possible.

Paul Druckman’s Foreword to Understanding Integrated Reporting: the concise guide to integrated thinking and the future of corporate reporting can be viewed here

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