Integrated Reporting: a driver for Integrated Thinking
Integrated Reporting is making a great impact. In a relatively short timeframe it has significantly changed the corporate reporting landscape. And because Integrated Reporting requires companies and their stakeholders to get a better insight into value creation, its impact is not just limited to the reporting landscape.
In an integrated report companies are asked to put forward an integrated view on how their company creates value now and in the future - taking into account multiple financial and non-financial capitals. As such it is felt that Integrated Reporting (<IR>) stimulates Integrated Thinking and vice versa, ultimately resulting in more holistic business decisions that will drive better business performance. Considering the potential impact of <IR> it is worthwhile to assess how mature Dutch companies are when it comes to <IR> and to identify positive reinforcements of the added value the <IR> framework is able to offer.
The Integrated Report research
Deloitte Netherlands has set up an annual <IR> Maturity research to that end, at 30, predominantly AEX listed, companies. Based on publicly available reports, companies are scored on the Guiding Principles and the Content Elements of the <IR> framework. The model contains four stages of maturity. Companies scoring lowest on the maturity model are Starting, followed by Progressing, Leading and Innovating. Deloitte partnered with CSR the Netherlands (MVO Nederland) this year, in order to broaden the scope of the research. Several companies were interviewed and desk research was used to dig deeper into the global uptake of <IR>; the <IR> drivers; the relationship between <IR> and business performance; and recent developments on assurance.
Finding ways to work with the Integrated Report framework
We witnessed that more and more companies are finding ways to work with (elements of) the <IR> framework. As a result, companies’ <IR> maturity is progressing. Five of the companies researched are classified as Innovators. They are KPN, Heineken, NS, BAM and Aegon. Companies generally find it easier to apply the Guiding Principles. They mainly struggle with some Content Elements:
- the Business Model; how value is created, which inputs, outputs and capitals are used;
- the Strategy & Resource Allocation; where the organization wants to go, to what extent strategic objectives are met and how resources are used to realize this strategy;
- the Performance; an overview of financial and non-financial results and how they compare to targets identified and results of previous years;
- the Outlook; the challenges and uncertainties organizations are likely to encounter, and what implications they will have for future value creation possibilities and subsequently a company’s business model.
Key findings of the Deloitte <IR> maturity research are:
- The number of integrated reports published is increasing;
- Scoring high on <IR> principles is possible even without having an integrated report;
- Overall companies are showing progress in implementing the <IR> principles;
- Guiding Principles of <IR> are developing well, some Content Elements, related to Integrated Thinking, remain a challenge;
- Companies struggle with the timely collection of non-financial data;
- Both scope and type of assurance varied in the reports studied.
Right now, many reports still need to underpin their strategy with concrete objectives and allocate financial and non-financial capitals. By defining KPIs for the relevant capitals and by managing them in the regular Planning & Control cycle, organizations will have a better integrated performance management system and their reporting will be more concise and relevant. This will ultimately drive business performance. What’s more, there are many external drivers for <IR>, and regulation is one of them. The uptake of <IR> tends to be higher in countries where sustainability is regulated to a certain extent.
Sustainability and business performance
Companies that seriously define their purpose and strategy and implement innovative technology, innovate in culture, processes and systems in order to develop integrated performance management systems, are well prepared for the future. Although many indirect business performance drivers are identified, a direct link between <IR> and business performance has not been established to date. The relationship between sustainability reporting and business performance has shown to be positive, so we expect it to be a matter of time before a direct link between <IR> and performance will be established. Assurance of <IR> could help to set up the proper systems for performance management and data collection. We believe this will ultimately lead to better business performance over time.
Do you want to know more on Integrated Report? Please contact Annemieke Huibrechtse-Truijens at +31 (0)88 288 8731.