The banking sector and integrated reporting: focus on HSBC

written by Carol Adams

There are good reasons for banks to adopt integrated reporting and think beyond compliance requirements. With nine of ninety plus businesses in the International Integrated Reporting Council’s (IIRC) pilot, the sector is leading the way in integrated reporting.  The nine are: BBVA (Spain); BNDES and Itau Unibanco (Brazil); DBS Bank (Singapore); Deutsche Bank (Germany); HSBC (UK); Bankmecu and the National Australia Bank (NAB) (Australia) and Vancity (Canada).

HSBC 2In addition to this group, the Standard Bank Group’s (South Africa) integrated reporting has been highlighted by the IIRC here for its strategic orientation, future focus and connectivity of information.  The IIRC notes that it clearly outlines how the bank generates revenues, the key risks it faces in doing so and the likely impact of market forces.

HSBC’s chief accounting officer Russell Picot has spoken about the benefits of the integrated thinking required for integrated reporting highlighting the role of integrated reporting in focusing discussion on the business model and long term strategic direction.  He particularly stresses the benefits of being able to express the business model aims clearly and succinctly telling the Journal of Accountancy it gives employees “the essence of what they are trying to achieve.”

Elsewhere Picot has talked about the role of IR in forcing Boards to discuss risks and why they will be around in the long term.

The strategic direction of the NAB’s report is shaped by a cross functional committee of senior execs which has contributed to a better understanding of different perspectives on material issues to the business and its stakeholders. The NAB’s Lauren Owen notes (p 34) that the <IR> reporting exercise has increased understanding and discussion on the connectivity of information enabling ‘integration across silos’.

Damien Walsh, CEO of bankmecu, one of the smallest companies in the IIRC pilot told me that <IR> had enabled them to report against their strategic plan for the first time. The process had led to considerable collaboration between departments and integrated thinking on the business model and strategy of a customer owned bank.

Such collaboration has been much more challenging for HSBC, one of the world’s top three largest banks.  The extent of compliance reporting on financial and governance issue is clearly a factor and easy to get bogged down in with Picot referring to a checklist of checklists to ensure all the checklists are completed.

The importance of <IR> in steering the focus more broadly is apparent.

The IIRC’s pilot programme 2012 yearbook notes HSBC’s difficulty in demonstrating connectivity in creating value whilst only the Finance and Sustainability teams are involved in <IR>.  This indicates that there is a need for integrated thinking to involve a greater number of functional areas.

Nevertheless with HSBC’s finance function collecting and processing data identifying the financial implications of environmental, social and human capital issues should be easier and the review of the report by a senior management committee is an important step towards bringing together views from all major functions.

There is some concern at HSBC that integrated reporting will mean more work.  The annual report, which for 2012 was well over 500 pages in length, comprises almost exclusively financial and other compliance information making changing it difficult.  Hence HSBC are talking about the integrated report being prepared in addition to its annual report.

It seems likely that it will distil information from the annual and sustainability reports relevant to the IR with added information on the business model and long term strategy. It will include information of interest to investors which is absent from current reports – despite, as Picot notes, investors being frustrated about their length.

This may require more resources, but it will bring benefits in the way the bank thinks about its values, strategy, business model and the relationship between the capitals.

The work ahead for HSBC

A review of HSBC’s 2012 annual and sustainability reports reveals that there is much work to be done in terms of connectivity of information.  The reports portray an organisation where integrated thinking is in its infancy.

The ‘business model’ is discussed (pages 14 and 15 of its 2012 annual report) in narrow terms focussing on financial capital with a lack of reference to broader capitals.   It is not connected with the statement on ‘how we manage our business’ on page 5 of the sustainability report.

The lack of reference to human capital in the business model is particularly at odds with a service organisation.  Indeed, there is little qualitative information about human capital – under two pages (335-336) largely concerned with compliance issues in the annual report and three pages (24-26) in the sustainability report.

The discussion on strategic direction and risks in the annual report (pages 17-22) lacks analysis of Environment, Social and Governance (ESG) issues.  In its integrated report HSBC will need to present its strategy more broadly than in terms of financial and market issues and report against that strategy.  Breadth in relation to strategy and future orientated information is also lacking in its sustainability report.

On a positive note, a wide range of risks are noted in the annual report including reputational risk from activities that may be counter to societal standards, values and expectations and sustainability risk arising from the provision of financial services to companies or projects which run counter to the needs of sustainable development (annual report page 126, 278 and 280).

The impression given of an organisation new to integrated thinking and making connections may not be accurate, but the need for integrated reporting is evident.  In HSBC’s case joining things up, connecting them, should enhance the focus on ESG issues and raise the level at which sustainability reporting gets attention.  Reporting the processes of developing this integrated thinking and determining material issues across the range of impacts would lend credibility to what is reported.

Related articles on this website

Next steps in integrated reporting: bankmecu

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

Five essentials to embedding sustainability

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

Four Questions with Paul Monaghan

Integrated reporting and directors’ responsibilities

ESG issues and business responses: an interview with Ian Woods, AMP Capital

Further reading:

Williams S and Adams CA (2013) Moral accounting? Employee disclosures from a stakeholder accountability perspective Accounting, Auditing and Accountability Journal 26(3): 449–495.

Noted added 29 July 2013:

Comments made on this post on the CPA Australia LinkedIn group can be viewed here

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