Living your purpose: A roadmap to integrated thinking and reporting has been saved
Living your purpose: A roadmap to integrated thinking and reporting
No company is an island: New thinking for a new business environment
The foundations of business are changing rapidly, creating new risks and new opportunities for companies across the globe. The COVID-19 pandemic has laid bare fundamental truths: that human and natural systems are inextricable, interdependent, and increasingly fragile, and that risks can emerge rapidly and evolve dynamically. Within these systems, technology acts as both an accelerant and enabler—as well as a disrupter to business models. Environmental, social, and governance (ESG) concerns are now widely recognized as core risks to business resiliency, market stability, and global economic well-being (See figure below)[i].
Many companies, as a result, are at an inflection point. Their social license to operate can no longer be taken for granted but must be earned and maintained with every action, every day. Long-term resilience and the company’s ability to create enduring value is directly linked to how it aligns its purpose and values with the expectations of society. The purpose of business, in many respects, is being redefined as enterprises move to embrace stakeholder capitalism, acknowledging the importance of delivering value to all stakeholders—including employees, suppliers, communities, and the natural environment, along with shareholders[ii]. This is a chance to make responsible choices and build in principles of equity and sustainability into a new business-as-usual.
To help make sense of this new paradigm, we have unified some of the leading thinking on this topic into a framework that organizations can use to initiate a conversation with boards, strengthen existing approaches, and assess readiness for mandatory ESG reporting.
The core of this framework incorporates the four considerations identified by the World Economic Forum International Business Council’s (WEF-IBC) project on stakeholder capitalism: principles of governance, planet, people, and prosperity (the 4Ps).[iii]
- Principles of governance: As the foundation for driving performance and delivering long-term success, governance establishes oversight and the means for setting, executing, and monitoring a company’s purpose, values, strategies, and performance.
- Planet: Companies and the environment are mutually dependent. Companies rely on the environment for their operations, their supply chain, for healthy workforces, and beyond. But their actions can also deplete and damage the natural environment, sometimes catastrophically, ultimately threatening a company’s long-term value creation and commercial viability. Climate change is the most serious and pressing issue that poses an existential threat not only to corporations but to human civilization.
- People: People are the lifeblood of every business. People are crucial for the day-to-day functioning of an organization, as well as its long-term success and its opportunities to thrive and grow. Workplaces that foster diversity and inclusion create value that can enable superior performance, competitive advantage, and better risk management. Providing equitable opportunities to all through education, learning, and fair pay, while investing in the well-being of employees and creating healthy and safe work environments enhances resilience and long-term value creation.
- Prosperity: Businesses are uniquely positioned to create economic and social prosperity through employment, financial investment, product innovation, and tax contributions. They are agents of wealth creation for our society. But companies cannot succeed in a failing society. The prosperity of society at large is a prerequisite for the success of a company.
These considerations help enable sustainable value creation when they are infused into the core of the business. This is achieved through integrated thinking, which requires a holistic and cohesive approach to address each part of the enterprise, overseen by the board. It helps companies understand value creation through a new lens that balances short- and long-term outcomes and acknowledges the diverse range of resources—natural, human, social, and financial—on which enterprises rely. It aims to enhance decision-making by taking a holistic view of the factors that can create or erode value.
- Improved engagement with stakeholders: Enhanced understanding of the needs and expectations of stakeholders, shaping strategic choices to create value for the company’s stakeholders while enhancing its own performance and prospects
- A better internal understanding of value creation: Helping companies to understand better how they create or erode value, improving understanding of connections and dependencies
- Enhanced governance and oversight: Facilitating board engagement with and more comprehensive oversight of the relevant factors affecting value creation, supporting enhanced tone and leadership at the top, and authentic corporate reporting
- Improved decision-making: Helping to break down organizational silos and the quality of information on risks and opportunities that contribute to the value creation process
The roadmap to integrated thinking
Integrated thinking is a journey, not a destination. It is a dynamic, iterative process that requires continuous learning and improvement. Embedding integrated thinking often demands organizational change, business model transformation, and a cultural shift to reflect purpose-driven values—a multi-year program to build capacity, codify new organizational KPIs to measure what matters, and foster organizational transparency and accountability through authentic corporate reporting.
Consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), we believe that the core of a business and how it operates is framed by four thematic areas (or pillars): governance, strategy, risk management, and metrics and targets (figure 2)[iv]. Successfully applying integrated thinking involves taking the considerations of planet, people, and prosperity and embedding them into a company’s governance, strategy, risk management, and metrics and targets.
Embedding considerations of planet, people, and prosperity into a company’s governance, strategy, risk management, and metrics and targets is not sufficient on its own. A critical part of this journey is integrated reporting, which includes transparently reporting across the 4Ps. Reporting that reflects integrated thinking and is authentic to how the business is run—including shortfalls and continued challenges—can inspire trust and enhance enterprise value.[v] Stakeholders want to understand an organization’s commitments to achieve positive impact, how the company plans to meet these commitments, and how progress is measured.
Given the level of organizational transformation required, creating the necessary reporting capacity will take time. Companies should begin to shift their thinking and reporting now and in tandem. While ESG reporting is largely voluntary today, there are already significant requirements in particular jurisdictions. The IFRS Foundation is also committed to a path to establish global sustainability standards that can be made mandatory at the jurisdiction level.[vi] Reporting against the 4Ps provides a robust and resilient framework today that is standards-agnostic but flexible enough to help build readiness for mandatory ESG reporting as it emerges (including through standard-setting at the jurisdictional level).
To embed purpose and start reporting against the 4Ps requires a planned and staged approach. In the next section, we set out key steps and insights to accelerate progress, helping companies to identify how sustainability factors support enterprise value in the company and to be proactive in embracing integrated thinking and reporting.
- CDP (formerly the Carbon Disclosure Project) runs a disclosure system on environmental impacts that can be aggregated for use in data analytics.
- The Climate Disclosure Standards Board (CDSB) offers a framework for reporting environmental information with the same rigor as financial information.
- The Global Reporting Initiative (GRI) develops standards that relate to companies’ impacts on people, the environment, and the economy.
- The Task Force on Climate-related Financial Disclosures (TCFD), set up by the Financial Stability Board, provides a framework for companies to report on the effects of climate change on their business.
- The Value Reporting Foundation brings together the Integrated Reporting Framework, which sets out principles for communication on how value is created over time, and the Sustainability Accounting Standards Board (SASB) Standards, which offer sustainability metrics on enterprise value creation by sector and industry.
A roadmap to integrated thinking and reporting
Every journey needs a map. To that end, we have set out a roadmap that highlights both integrated thinking (embedding considerations of planet, people, and prosperity into a company’s governance, strategy, risk management, and metrics and targets) and integrated reporting (a journey to authentic reporting on purpose and the 4Ps) . Our roadmap reflects that the reporting journey is an iterative process, requiring a multi-year approach, regular evaluation, and modifications to enhance both thinking and reporting.
Conclusion: A way forward
We have provided a roadmap for embedding considerations of planet, people, and prosperity into the core of the company, setting out a journey toward integrated thinking and integrated reporting. The time to act is now. Communities, employees, customers, regulators, and investors increasingly expect and demand that companies align their purpose and values with the expectations of society—and reward those making authentic, transparent commitments and delivering on those promises. While we are on a path toward mandatory ESG reporting, this should not be seen as just a compliance exercise. It’s about changing the way a company earns its social license to operate and authentically reporting on that; a transformative journey that demands transparency and accountability. Making a commitment to embark on the journey is a critical first step.
[i] World Economic Forum Global Risks Report 2021: Global Risks Report 2021 - Reports - World Economic Forum (weforum.org)
[ii] Business Roundtable, “One Year Later: Purpose of a Corporation,” accessed August 3, 2021.
[iii] World Economic Forum (prepared in collaboration with Deloitte, EY, KPMG, and PwC), Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, September 2020.
[iv] Task Force on Climate-related Financial Disclosures, “TCFD Recommendations,” accessed August 3, 2021.
[v] Jeff Weirens, et al., “Building credible climate commitments,” Deloitte Insights, June 14, 2021.
[vi] International Financial Reporting Standards Foundation, “IFRS Foundation Trustees announce working group to accelerate convergence in global sustainability reporting standards focused on enterprise value,” press release, March 22, 2021.