Integrated Reporting: A Tool for Sustainable Development in China

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1 Integrated Reporting: A Tool for Sustainable Development in China China Enterprise Confederation Conference August 22, 2015 Robert G. Eccles Harvard Business School

2 Sustainable Development and Integrated Reporting Premier Li Keqiang stated that pollution has become a blight on people s quality of life and a trouble that weighs on their hearts. (March 5, 2015) On July 15, 2014, President Xi Jinping gave a speech at the Sixth BRICS Summit called New Start, New Prospect and New Impetus, which called for the unswerving promotion of sustainable economic growth. Integrated reporting can play an essential role in supporting the government s policies for sustainable development. It will also enable companies to develop sustainable strategies that will enable them to prosper over the short, medium, and long term.

3 Integrated Reporting An integrated report is a concise communication about how an organization s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term Source: Integrated Reporting <IR>

4 Integrated Reporting: Value Creation Process

5 Emphasis on Non-Financial Data Reporting Typology by Data Type High Low Sustainability Reporting Integrated Reporting Minimalist Reporting Financial Reporting Low High Emphasis on Financial Data

6 Society s Issue Significance Significant Not Significant Integrated Reporting Firm s Issue Materiality Threshold Societal Significant Report : Sustainability Reporting, CSR Reporting Audience : Public Stakeholders Society s Issue Significance Boundary Material Societal Report: Integrated Reporting Audience : Shareholders and other Significant Audiences Potential/Developing Report : Ideally, None Audience: None Material Report : Integrated Reporting Audience: Shareholders Not Significant Significant Firm s Issue Materiality

7 Sustainable Value Matrix : Pharmaceuticals Example

8 SAP : Large German Technology Company Puts Integrated Report in Action Has one of the most sophisticated approaches to integrated reporting Most interesting and useful is its website (also publishes PDF) Explicitly shows causal relationships between financial and nonfinancial performance in a bubble diagram (website) Tracks what users find most interesting

9 Building a Strategy from the Integrated Report The board uses findings from Integrated Report for long-term strategic planning Sets strategy goals for upcoming financial year based on IR

10 Benefits of Integrated Reporting <IR> Fosters integrated thinking Resource allocation decisions which take account of all six capitals and their effects on each other Greater collaboration throughout the company More effective engagement with significant audiences A better managed company More relevant and reliable data Better decisions Long-term sustainable value Demonstrates to investors the company s ability to create value over the long term Makes clear how the company is supporting the government s policies for sustainable development

11 Challenges to Integrated Reporting Strategic Understanding how <IR> can support the company s strategy Being willing to be one of the first Seeking competitive advantage rather than waiting for external validation Recognizing that integrated reporting is a journey, not an outcome Tactical Inadequate IT and internal management and control systems A new reporting process needs to be created Lack of standards for nonfinancial information Overcoming these challenges CEO support is essential Board support is helpful Being clear about the role of the company in society

12 World Integrated Reporting Movement Approximately 500 companies in a broad range of Industries in Europe, Canada, and Brazil Mandatory for all companies listed (about 450) on the South African stock exchange (JSE) US lags behind because of perceived litigation risk and a very rule-based (as opposed to principles-based) approach to corporate reporting Legal opinions supporting IR from top law firms in all G20 countries soon to be published on the American Bar Association website In Asia : 16 companies in Korea, 138 companies in Japan More companies coming on line every day First China Leadership Program in Integrated Reporting online as of July 2015

13 China Leadership Program in Integrated Reporting A collaboration of the China Business Council on Sustainable Development (CBCSD), De Tao Sustainable Strategies Company (DSSC), and PricewaterhouseCoopers (PwC) Will work with a select number of Chinese companies to publish the first integrated reports in China for the 2016 fiscal year These companies will be featured at a major conference on integrated reporting hosted by the CBCSD and sponsored by DSSC and PwC These companies will get great global visibility in a variety of media outlets and speeches by experts on integrated reporting Companies to be selected by mid-october, Kick off meetings will be held the first two weeks of November

14 Steps for Preparing an Integrated Report 1. Internal readiness assessment 2. Materiality determination 3. Identify relationships between financial and nonfinancial performance in the company 4. Create integrated report 5. Create integrated reporting website

15 China Leadership Program in Integrated Reporting The China Leadership Program in Integrated Reporting will work with a select number of Chinese companies to publish the first integrated reports in China for the 2016 fiscal year The pilot program still has several places left for program. Contact 冯乐然 (Allegra) at DSSC ( 德稻可持续战略公司 )to inquire : 冯乐然 : allegra@detaoma.com