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ANALYSIS: Beyond the integrated report

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An annual milestone publication, however well intentioned, is only part of the story and may even be an unfortunate and unintended detraction. By Lindie Engelbrecht CA(SA) and Carl Ballot CA(SA)

Informed business leaders generally agree that sustainability is one of the primary moral and economic imperatives for the 21st century and one of the single most important sources of both opportunities and risks for businesses. Nature, society and business are interconnected in complex ways that need to be rigorously understood by decision-makers and fully appreciated by all stakeholders.

Moving from a history of financial reporting alone, through the supplementary addition of the Sustainability Report, one of the key changes introduced in the South African governance landscape in 2010 was the concept of the ‘integrated report’. The guiding principle behind this change was for financial reporting and sustainability reporting to be integrated but in a synergistic way, where the end result would be very much more than simply a combination of the two reports. In short, it was intended that the integrated report would provide a robust description of the company’s impact – both positive and negative – enabling stakeholders to make an informed assessment of the ultimate economic value of the company.

Done properly, there are numerous benefits to integrating this reporting, including:

  • Assisting management to identify and understand the risks and financial costs associated with failing to operate in a socially and environmentally sustainable manner
  • Helping to identify cost savings by bringing together the analysis of financial and sustainability information
  • Increasing awareness of sustainability issues through adopting a connected reporting approach, both internally and at Board level, and externally with investors and customers
  • Driving increased collaboration between different parts of the business – in particular finance and sustainability teams
  • The use of a common language and demonstration of the relevance of sustainability to business performance leading to greater engagement and integration of sustainability issues into decisions, and
  • Pre-empting questions from investors and other stakeholders, reducing demands on management time for completion of questionnaires, surveys and other requests for information

Since 2010, the preparers of integrated reports have made significant strides in improving the quality of their reports – aiming for true excellence in reporting. Many companies have spent and are continuing to spend significant money and invest other resources in producing novel and innovative integrated reports. Companies have experimented with different structures and formats in an attempt to tell the story of their business in a manner that reflects their uniqueness as a company, compellingly and competitively.

Some companies have enlisted the assistance of design specialists and have employed teams within the business to find and structure the information for the integrated report. The use of interesting graphs and depictions of business models has become a feature of most integrated reports. It seems that the more colorful and intricate the end reports have become, the better! But is this actually true?

The risk is that companies spend more time designing better-looking graphs and pictures, reducing the size of the report, and not improving the information contained within. The even bigger risk is that companies believe that the annual integrated report can comfortably ‘check the box’ and feel satisfied that their integrated reporting for the year is over. Not so.

There are two distinct sides to integrated reporting, in other word the integrated report itself, as a milestone document, and then the more timeless concept of integrated reporting – an on-going process, integrated with strategy and offering continuous messages to the right stakeholders at the right times and in the right ways. Effectively, the integrated report is just a subset of the far more robust and essential integrated reporting process.

It is argued that the intention is the most powerful force in any communication. What is very evident is that the intention of integrating reporting was to bring the various elements together in a way that wasn’t simply a checkpoint milestone but rather a far more profound, stable and consistent approach to fully understanding the company in question, their role in society, their plans for a responsible and sustainable future and their profitability to achieve this.

George Bernard Shaw said: ‘The single biggest problem in communication is the illusion that it has taken place.’ At no time before has this been a more valid caution than it is today. And yet, astonishingly, this is often not recognised.

Content, timing and accessibility are fundamental to effective communication. While it is easy to be wooed by flash production and the latest and greatest fads, most often, the most effective communications are those that never lose sight of these basics. Said differently, it is relatively easy to have an integrated report that looks great but in fact says little.

The challenges threatening effective communication are typically manifested even before you’ve begun. There are numerous channels to use – no doubt each fit for a specific purpose but often misused through convenience, ego or even ignorance. What some find too long, others will yearn for more of and feel deprived by the relative brevity. While some will laud the innovative use of infographics, properly done, others will hanker after the more traditional tables, charts and narratives. Fewer and fewer people are finding the time – or savouring the inclination – to read too much. These are just some of the challenges. Anthony Robbins summed up this dilemma by saying that: ’To effectively communicate, we must realise that we are all different in the way we perceive the world and use this understanding as a guide to our communication with others.’

On the face of it, communication is simple. After all, in its simplest form, it’s only about actually getting the right message, to the right people, at the right time, with the required outcome and desired feeling (emotional response), that is fully aligned to your purpose, values, vision and strategy, clearly and consistently – and of course efficiently and cost-effectively. Simple? Hardly!

THE CHALLENGES

  • Integrated strategy: It is not possible to produce an integrated report for a strategy that is not integrated. It is more than incorporating sustainability into strategy; it is about transforming the business model, purpose, culture and values of the company to reflect the new business landscape. Often where sustainability reports and financial reports are merely combined, it leads to the disclosure of non-financial indicators that are removed from the actual business and have little or no impact on the company and its stakeholders. The disclosure is made only because the information is available, and we often see sustainability reports accounting for what is being done and not for what is being achieved.
  • One annual report: Where companies are focused on one annual report, it is increasingly difficult to include all the information and messages pertinent and relevant to all stakeholders in one annual integrated report. This also runs the risk of ‘information overload’ at a point in time, with a dearth of information for the rest of the reporting period.
  • Printed versus on-line content: One of the key decisions remains what information should be included in the report and what should be made available online, recognising that there isn’t a clear-cut ‘right and wrong’. In choosing the optimal mix of communication channels, it’s equally important to realise that key messages also need to be willfully repeated, with the same substance but said differently, at different times and in different ways ultimately reaching all, or at least nearly all, of your target stakeholder groupings in a way that works for them – not you.
  • Consistent messaging: There is an interesting parallel here – while this whole discussion is about the integrated report and reporting process itself, it is as important for all messaging in the company to be integrated. One of the greatest mishaps of communication is those isolated bursts of inspiration that end up having little substance at all because they are seen in isolation and therefore often not properly absorbed or understood.

THE INTEGRATED REPORT IS MERELY THE FIRST STEP

It is vital that companies and individuals understand the difference between the integrated report and integrated reporting. A subtle nuance often missed in King III, the integrated report is part of a broader process of integrated sustainability performance and integrated reporting. People often quite incorrectly refer to ‘integrating reporting’ referencing the report rather than the process.

The focus needs to shift as it was originally intended, from the integrated report to integrated thinking and integrated reporting. Application of the stakeholder-inclusive approach envisaged by King III will give rise to integrated thinking. Integrated reporting is the process that results in communication about value creation, whereas an integrated report is the product.

In looking at the broader citizenship agenda and specifically the thoughts around stakeholder engagement, it is vital to recognise the different stakeholder groupings – and to engage proactively with each in a way that works for them. This would cover, among others, on-line communities and employees. What is crucial in all instances is to ensure the authenticity and integrity of engagement, through deep and honest conversations. Ultimately the effectiveness of your communication will be based on the receiver’s experience and more specifically – how you made them feel.

Effective integrated reporting needs the following:

  • Leadership: Leaders should be visibly engaged in the continuous integrated reporting process and not just committed to producing an integrated report. Close involvement of CEOs and executive committees is needed to drive the implementation process and to keep this alive throughout the reporting period.
  • Management: Management ensures that all employees and teams have clear objectives and understand how and why they fit into the integrated reporting picture. The clearer the organisation’s sense of a higher purpose and values is, the easier it becomes to understand and implement this as everybody, throughout the organisation, embraces and delivers on the part that they play in achieving the purpose, consistent with the organisation’s values.
  • Knowledge: Successful integrated reporting requires integrated thinking and integrated management throughout the business, at all levels. This requires getting different disciplines in the organisation to work together with buy-in from all the key internal stakeholders. Existing systems have most often been designed to capture and maintain financial data only. Enterprise knowledge management and data collection systems should be able to provide integrated information metrics and performance data across the organisation, efficiently and effectively, and trusted.
  • Continuous process: Integrated reporting requires a shift in focus from preparing an annual integrated report to an enduring communication process within the business. This is a specialist skill demanding a very specific focus on direct accountability to the board of directors. The mere ability of someone to ‘string a sentence together’ or to ‘check a box’ that something – even something as big as the integrated report – has been done, by no means suggests that the communication process has been completed. In fact, in most instances, it has only just begun.

AUTHORS : Lindie Engelbrecht (CA)SA is an independent governance, risk and integrated reporting consultant and serves as non-executive director on the board and audit committee of a listed company. Carl Ballot CA(SA) is an independent strategy communications and citizenship consultant