Driving value by combining financial and non-financial information into a single, investor-grade document

Transcription

1 5Insights for executives Driving value by combining financial and non-financial information into a single, investor-grade document Of special interest to: Chief risk officers Chief executive officers Chief financial officers Audit committee members In a attening world, integrated reporting is gaining ground and identifying opportunities for value creation While globalization, advanced communications and interdependencies have shrunk the globe, they have also increased the complexities of business in the 21st century. Combined with pressing environmental and social challenges, businesses face profound big-picture pressures not least of which are increased investor and stakeholder expectations surrounding the reporting of non- nancial and nancial information, both needed to understand an organization s true value. In a rush to satisfy and comply, many companies have reacted with more is more reporting strategies to provide this information, creating reporting fatigue. Enter integrated reporting Integrated reporting provides context to nancial and non- nancial information and goals. It connects strategies with the organization s commitment to the long-term stewardship of material environmental, social and economic issues.

2 1 Leading companies have turned to integrated reporting to manage, measure and clarify material nancial and non- nancial value drivers. What s the issue? Over the last 20 years, investor and stakeholder reporting expectations have evolved. In addition to traditional nancial performance measurements, companies are asked for more complete non- nancial performance metrics and measurements. This change re ects a paradigm shift in market evaluation, where for many companies their intangible value now constitutes the major part of their market value. Leading businesses have responded by publishing sustainability reports, which include environmental, social and governance data in addition to nancial disclosures. However, investors and other stakeholders need reports that do more than merge best practices from nancial (management and measurement) reporting and non- nancial (operational, structural and risk management information) reporting. They need clarifying information. Leading companies have turned to integrated reporting to illuminate a company s material nancial and non- nancial value drivers. This has two bene ts: 1. A holistic view of a company s short-, medium- and long-term value. By aligning business practices, tangible and intangible assets, and material nancial and non- nancial capital risks with a company s strategic focus, sustainability agendas and future goals, the integrated report can provide a comprehensive picture of short-, medium- and long-term company value. 2. Improvements in brand value and viability, company policy and bottom line. During the process of combining information for an integrated report, a company must collect material information across business departments, which are often in silos. This requires thorough connectivity across every level of the business and provides a foundation to embed sustainable business practices. This integrated thinking has the potential to provide lasting bene ts through increased ef ciencies and collaboration that improves brand value and viability, company policy and the bottom line. 2 ey.com/5

3 2 Why now? Pressures are mounting to increase the quantity and quality of nancial and non- nancial disclosure. At the same time, emerging social and environmental risks require companies to develop initiatives that transform these challenges into opportunities and sustained value drivers. This signals a larger shift in the marketplace in how investors and other stakeholders weigh components of a company s market value. This shift in asset valuation, increasingly felt by company leadership, is already seen on various exchanges, nance terminals, independent sustainability reports and other reporting channels where non- nancial information readily is available. Integrated reporting represents an excellent opportunity to meet these increased demands for transparency of non- nancial information and their calls for both quantitative and qualitative improvements in all reporting. Creating uni ed integrated reporting standards Leading companies seeking to capitalize on integrated reporting s potential have begun to work on a globally recognized integrated reporting framework and integrated reporting standards with groups such as the International Integrated Reporting Council, The Prince s Accounting for Sustainability Project, the Global Reporting Initiative, the American Institute of CPAs and the International Federation of Accountants. Uni ed integrated reporting standards could allow companies to: De ne emerging risks Communicate new value drivers Satisfy transparency demands from investors and other stakeholders Ensure consistency of reported information Present a complete picture of organization value 3

4 3 How Integrated reporting requires companywide integrated thinking and strategy. does it affect you? By connecting material nancial and non- nancial information, business model, governance, strategy, and opportunities and risks, integrated reporting uni es a company s: Business practices Tangible and intangible assets Financial and non- nancial capital risks Environmental, social and economic information Through coherent and concise communication, an integrated report can highlight the information that is most pertinent to the direct creation and preservation of value. This can help a company distinguish itself to investors and other stakeholders, directly enhancing short-, medium- and long-term value. Integrated reporting should do more than window dress. The integrated thinking required by this approach also creates a strong network of communication, collaboration and process ef ciencies. These bene ts can drive and sustain added value across the organization: Better nancial and non- nancial linkage across business silos including improved cross-functional alignment More sophisticated company governance and strategic oversight including collective empowerment on key organizational issues Enhanced understanding of convergent nancial and non- nancial risks and opportunities that directly affect capital Re ned strategic environmental, social and nancial objective integration Additional opportunity for innovation of new revenue streams Increased investor and stakeholder interaction 4 ey.com/5

5 Integrated reporting: connecting nancial and non- nancial information to your overall business model Investors and other stakeholders Board of directors C-suite and safety Environment, health Human resources Sustainability Sustainability reporting Management reporting Operations Integrated report Public relations Financial reporting Internal audit Governance and legal Finance C-suite Board of directors Investors and other stakeholders 5

6 4 What s the x? There are four initial steps toward implementing integrated reporting: 1 De ne your desired state. Determine what integrated reporting means to your company. Frame your business goals, vision, and environmental and social objectives with capital opportunities and risks. 2 Assess material issues. Complete a thorough materiality analysis to determine what integrated reporting risks and opportunities are important to company leadership, investors and stakeholders. Prioritize their responses to determine the material issues and related business strategies. 3 Compare current state against integrated reporting de nitions. Evaluate integrated reporting practices, and select the methods that best t your organization. Mirror the quality, processes and controls of these leading companies and organizations. 4 Create a road map. Prioritize reporting on the environmental, social and scal activities and projects that further an organization s ability to create and preserve value. Design and implement robust processes and controls that support credible, high-quality reporting. Further, engage leadership, investors and stakeholders to prioritize projects that best ensure ROI and communicate successes with an external audience. Implement integrated reporting Leverage existing reporting processes by integrating nancial and non- nancial material into a single, integrated report that connects: Sustainable business practices Tangible and intangible assets Material nancial and non- nancial capital risks and opportunities Short-, medium- and long-term value creation and preservation 6 ey.com/5

7 5 What s the bottom line? Integrated reporting is more than the merging of nancial and non- nancial reporting information it can focus and help develop company strategies to manage both nancial and non- nancial capital. Integrated reporting can help prepare a company to meet 21st-century business challenges by: Refocusing and rede ning nancial and non- nancial goals Building integrated communication, processes and ef ciencies throughout the company Driving short-, medium- and long-term nancial and non- nancial value Engaging investors and other stakeholders Integrated reporting is more than the merging of nancial and non- nancial reporting information it can focus and help develop company strategies to manage both nancial and non- nancial capital. 7

8 Want to learn more? Visit ey.com/5 or contact Ann Brockett Canadian Leader, Cathy Cobey Canadian Assurance Market Leader, Thibaut Millet Canadian Advisory and Eastern Market Leader, Susan McGeachie Central Market Leader, Meghan Harris Western Market Leader, Nicole Poirier BC Market Leader, For more information about Ernst & Young s Climate Change and Sustainability Services, please visit ey.com/climatechange We want to hear from you! Please let us know if there are subjects you would like 5 Insights for executives to cover. You can contact us at: fiveseries.team@ey.com Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients. 8 ey.com/5 About Ernst & Young s Climate change and sustainability continue to rise on the agendas of governments and organizations around the world with rapidly evolving drivers and expectations. Your business faces regulatory requirements and the need to meet stakeholder expectations as well as respond to the opportunities presented for revenue generation and cost reduction. This means a fundamental and complex transformation for many organizations and the embedding of climate change and sustainability into core business activities to achieve short term objectives and create long-term shareholder value. The industry and countries in which you operate as well as your extended business relationships introduce additional complexity, challenges, responsibilities and opportunities. Our global, multidisciplinary team combines our core experience in assurance, tax, transactions and advisory with climate change and sustainability skills and deep industry knowledge. You ll receive a tailored service supported by global methodologies to address issues relating to your specific needs. Wherever you are in the world, Ernst & Young can provide the right professionals to support you in achieving your potential. It s how we make a difference Ernst & Young LLP. All Rights Reserved. EYG no. FQ ED None