Integrated Thinking and the new IR framework

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This week we participated in one of the round tables that is part of the 90 day consultation period of the revision of the Integrated Reporting Framework. The proposed revisions are grouped into 3 main topics: 1) responsibility for an integrated report, 2) business model considerations and 3) charting a path forward. In this blog we highlight the changes which will, to our opinion, contribute to enhancing the level of integrated thinking within organisations.  

Purpose is explicitly added to the value creation model to clarify its coverage of longer-term impacts on society and nature, under its existing ‘outcomes’ definition. The Framework needs to be seen to incorporate all aspects of value creation representing factors that materially affect future cash flows and therefore market and intrinsic value. It should also incorporate positive and negative impacts on society and the environment that are not expected to impact financial performance in the short term, but are relevant to a broader corporate purpose, reputation and license to operate.  

Regarding the business model more clarity on the distinction between  outputs (concrete products and services, like cars or ICT services) and outcomes (the effects of the products/services and activities of the company) on stakeholders and society (like the opportunity to drive from one place to the other) could bring more focus on thinking about outcomes for all stakeholders and capitals and also measuring them. In addition more evidence based reporting on outcomes is stimulated in the new framework, advancing high quality reporting. 

Also, it is evident that more balance is needed between the preservation of value (like safeguarding assets), the erosion of value (for example erosion of natural capital by CO2 intensive production processes) and the creation of value (like wellbeing effects of having a job). Currently there is a tendency to focus on positive impacts. We can only deliver on the targets set by the Sustainable Development Goals if we pay attention to all effects on value creation, including negative effects. 

Also integrated thinking involves thinking about outcomes in the short, as well as the medium and long term. While thinking about how to cope with Covid-19 in the short term, companies should not forget to keep an eye on development that will influence their ability to create value in the medium and long term too. Firing employees because of current economic conditions could be devastating for your ability to compete on the medium and long term.  

And last but not least, the time that companies were deemed only responsible for the direct impacts of their activities, has past. Companies should also have a look at the indirect effects of their activities and products; i.e. impacts they have via their relationships like those of their main customers or suppliers.  

In the consultation document, question 13 reads:” Should the IIRC address the concept of integrated thinking more deeply?” Our answer will be a resolute ‘yes’. The reason for this is that this is what it’s all about; the integrated thinking will lead to integrated steering and better decision making which in the end, if we do this collectively at all levels, will help us succeed in preserving and creating value for all! 

If you are interested in the consultation process and dive deeper into the proposed changes or participate in the consultation, please click the link below: 

https://integratedreporting.org/2020revision/ 

 

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