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Are You Ready For An Integrated Annual Report?

Are You Ready For An Integrated Annual Report?

Perhaps you are wondering if your company should transition to an integrated annual report (IAR) this year.

While an annual report typically focuses on financial and market data, risks, corporate structure and governance, the integrated report brings in other ‘value’ elements, such as environmental and social sustainability.

Until recently, these non-financial value creators were most often published in a separate ESG report. Sometimes, though, it makes sense to publish just one report. This is especially true if you wish to highlight your sustainability strategy with investors who may not make the effort to consult a separate report

Yet an IAR also requires more time, planning, and resources than a traditional annual report. If you choose to adopt this approach, here are some questions to ask first:

Does your organization have the resources, internal or external, to produce both financial and sustainability data on a tight deadline?

As a broader form of reporting, an IAR requires more time to gather the relevant information and to present it within a value proposition. The International Integrated Reporting Council (IIRC) has created the <IR> reporting framework for value creation that covers six capitals: manufactured, financial, intellectual, human, social and natural. Adopting this approach means breaking down “silos” of data–a time-consuming, collaborative effort. To manage resources efficiently, Orange, for its 2020 IAR, created a steering committee with representatives from the Shareholder Relations, CSR, Legal, Strategy, Brand and Risk Management Departments. This is a significant allocation of resources that not all companies can afford.

Do you have a true ESG roadmap with KPIs?

One company that got this right is ABN AMRO. In its 2020 Integrated Report, the bank used a detailed “value creation model” with clearly defined KPIs for the six <IR> capitals. This was split between “inputs”—or resources needed to operate the business, such as time, skills, and investor equity—and “outputs”—the loans and other outcomes of its activity. Three other sections completed the picture: “business activities,” or what the bank does with inputs to create shareholder value; “outcomes,” or the effect of outputs, such as investing in new technology; and “impacts,” or the consequences of its activities for shareholders. As a spokesperson for the bank put it: “We create value in various ways—not just as a bank, but also as an employer. By lending to business, we support economic growth and job creation. We also provide mortgages so that people can buy their own homes.”

Can you show how your ESG strategy combines with the corporate strategy to create value?

In its 2022 Integrated Report, the Bridgestone Group clearly detailed how placing sustainability at the core of its management and business was fueling the company’s transformation and helping it meet its environmental targets, including an expanded use of renewable energy and the development of green and smart manufacturing sites—all in pursuit of a carbon neutral mobility society. “As a global company, by responding to society’s expectations and fulfilling our social responsibilities through business and social contribution activities, we hope to foster trust from society and our stakeholders, and build foundations for further value creation,” Bridgestone CEO Shuichi Ishibashi explained.

Can you bring your corporate narrative to life with anecdotes?

British Land, the UK property company, in its 2020 report, did this nicely by presenting customer and community stories highlighting vertical urban farms, a new food market concept, low-cost workspaces for entrepreneurs and SMEs, and other local initiatives that backed its sustainability story. The stories were concrete evidence of British Land’s ESG claims.

There are many arguments in favor of an IAR: Investors today want more than a dry recital of results; your audience is larger than in the past—including new employee shareholders who track corporate developments; investors prefer to put their money into companies with sterling sustainability credentials.

Integrated reporting has the backing of more than 40 major stock exchanges and has been adopted by an estimated 2,500 companies in more than 70 countries, according to the IIRC, itself now part of the IFRS Foundation, which governs international accounting regulations. It may not be right for your company now, but at some point, you’ll probably want to make the switch. Answers to the questions above will help you prepare the ground, as can the helpful guides to “Integrated Thinking” prepared by the IFRS.

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