By Dr Carol A Adams FCCA, 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 be 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 workforce 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. 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 execs. 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 14 March hosted by 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 ACCA’s second integrated report. A copy of
of my book Understanding Integrated Reporting: the concise guide to integrated thinking and the future of corporate reporting will also be given.