Ten Steps To Integrated Reporting

Carol Adams December 17, 2013

This article appeared on Towards Sustainable Business and is republished with permission. Carol Adams is a Director of Integrated Horizons.

The 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.

Over 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.