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

written by Carol Adams

‘Connectivity of Information’ is one of six Guiding Principles in the Consultation Draft of the International <IR> Framework and the subject of a 23 page Connectivity Background Paper for <IR> released in July 2013.

Making connections across information sounds sensible enough.  And it seems logical to suggest that if an organisation is demonstrate how it creates value it needs to be able to communicate the inter-dependencies between key issues and components of its activities. In reality few organisations do it well.  This post considers why that is, what ‘Connectivity of Information’ means and how it can be achieved.

The definition of the Guiding Principle of Connectivity of Information in the International Integrated Reporting Council’s (IIRC) Consultation Draft of the International <IR> Framework is (page 18): “An integrated report should show…  the combination, inter-relatedness and dependencies between the components that are material to the organization’s ability to create value over time.”

What bits of information need to connect?

1. The various content sections of an integrated report

The IIRC refers to these as ‘Content Elements’ and has identified seven: organisational overview and external environment; governance; opportunities and risk; strategy and resource allocation; business model; performance; and, future outlook.

2. The relationship between past performance and future strategy

Given the respective roles of management and the Board with regard to performance and strategy, this in itself involves connecting:

  •  Management information, board information and information reported externally.

3. The six capitals

The point here is that organisations make trade-offs across the six capitals and might invest in one to create value for the organisation overall.  For example, a professional services firm investing in training (i.e. ‘human capital’) may create value by increasing employee satisfaction, enhancing reputation, improving quality and thereby increasing market share and revenues (‘financial capital’).

Reporting on changes and trade-offs across the six capitals thus involves connecting:

  •  financial and non-financial information
  • qualitative and quantitative information

4. The integrated report and other corporate reports

It is important that messages are consistent and avoid, for example, omitting mention of Environmental, Social and Governance (ESG) issues from discussion of strategy and risk (see analysis of HSBC reports here).

How is Connectivity of Information achieved?

Being able to connect information in this way requires integrated thinking. Particularly important to integrated thinking are a culture of collaboration and communication processes which cross functional silos.  This facilitates a fuller understanding of the organisation’s business model, that is, the process by which the organisation creates value.

The Connectivity Background Paper for <IR> explains how this is translating the theory of systems thinking into practice in the organisational context.  It also gives examples of the sorts of questions that need to be asked to ensure the ‘Connectivity of Information’ and provides some examples of disclosures which demonstrate it.

Why do few organisations do this well?

The Guiding Principle of Connectivity of Information sounds logical and simple, but in practice all organisations have gaps in information connectivity. Understanding why these occur of course is critical to overcoming them.  I would suggest that some of the key reasons are:

  •  A long held view that anything of value to business has to be measureable in monetary terms
  • Organisational structures which predate the complexity of the contemporary, complex and globalised business environment
  • Territorial and hierarchical (i.e. “masculine”) leadership styles
  • The predominance of leaders who lack a ‘moral compass’ and hence authenticity

The integrated reporting framework has the potential to disrupt this status quo.

Related articles on this website

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

Response to IIRC’s Consultation Draft of the International Integrated Reporting Framework

Understanding (how sustainability fits into) your business model

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

Integrated thinking and integrated reporting

Materiality: financial reporting, sustainability reporting and integrated reporting

Integrated reporting and directors’ responsibilities

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