Recently our joint ‘Integrated Reporting Customer Engagement Initiative’ with our partner IIRC (International Integrated Reporting Council) brought us to our customers in South Africa. South Africa is currently the only country in the world where Integrated Reporting is mandated for all companies listed at the stock exchange. We conducted 4 design-thinking workshops with Eskom, Exxaro, Transnet and Goldfields within a week and keynoted the Integrated Reporting conference organized by Ernst&Young in Johannesburg.
Picture 1 and 2: Design thinking at work (Exxaro and Transnet)
Quick intro in case you are not familiar with the topic of Integrated Reporting:
Integrated Reporting—the combination of financial and non-financial performance in a single report—is based on the principle that any organization can maximize value by serving the interest of all stakeholders and should not be limited to financial return only. Recent studies show that 80 percent of an organizations value is ‘hidden’ in non-financial assets not showing up in traditional financial reports.
Picture 3: The sinking iceberg of value [Source: Bob Willard – the Sustainability Advantage]
Integrated Reporting requires an integrated business strategy that creates value by balancing short-term gains with long-term strategy and investment.
SAP is an early IIRC pilot and published its second Integrated Report in spring 2014. We see ourselves among thought leaders in our role as practitioners, and also by providing solutions to our customers to enable Integrated Reporting. Hence we started a customer engagement initiative together with the IIRC.
My 4 main take-aways from our recent engagements are:
- Customers need and expect the same rigor for non-financial data as they have already for financial data; we clearly identified the need for more IT solutions supporting the acquisition and validation of non-financial data
- It’s a journey – some companies still issue 3 reports (financial, sustainability and integrated) for the moment, with clear goal to consolidate into one integrated report in the near future
- The momentum for Integrated Reporting is building, evidence is existing in form of
- New regulations and directives approved in a variety of countries
- Increasing pull from value and impact investors
- Market interest exists – Ernst&Young organized the event with 2 weeks notice and 100+ attendees came
- Launch of ‘Corporate Dialog’ initiative by IIRC helps to clear some of the confusion about synergies and overlap between initiatives
- Todays business landscape is changing and requires more integrated thinking; Integrated Reporting is not only seen as means towards compliance or new investor trends, but also as a catalyst towards integrated thinking within the organization
A rough estimate states that currently ~1000 companies worldwide generate Integrated Reports. But this will increase quickly. New regulations and directives in the European Union, Malaysia, India, Brazil, Japan and Singapore are already implemented and soon become law.
The new European Directive release in April 2014 requires all companies with more than 500 employees to disclose certain non-financial information in their management report in the future. The goal is to increase EU companies’ transparency and performance on environmental and social matters and, therefore, to contribute effectively to long-term economic growth and employment.
Other examples are Singapore, where the Singapore Accountancy Commission (SAC) is determined to transform the country into the hub of Integrated Reporting in South-East Asia, and Brazil, where the local stock exchange committee adopted a ‘report or explain‘ policy.
As for the US market, one could hope that the recent on-boarding of heavy-weights like Michael R. Bloomberg and former SEC chairman Ms. Mary Schapiro to the Sustainability Accounting Standards Board (SASB) will accelerate market adoption. The recent investor letter campaign directed to the International Organization of Securities Commissions (IOSCO), organized by the Principles for Responsible Investment (PRI), Ceres, and the UNEP-Finance Initiative (UNEP-FI), could be a first indication of that.
Future IT solution covering the finance value chain need to incorporate non-financial data in order to provide a comprehensive solution. The process optimization for efficient and collaborative relationships with the entire value chain (customers, suppliers, banks, investors and government authorities) requires financial and non-financial aspects, otherwise………
If you want to know more about our initiative or know somebody who is interested to join, feel free to send me an email.