Recently, I had a great conversation with two people in the corporate sustainability office of a NY-based company. They have been on a journey toward changing their actions and their communications to become more sustainable from an environmental and social perspective. They were talking to me because they wanted to extend their practices to not just think about externalities but also what they called “internalities,” things like processes, change management and lean thinking. They saw this as an important advance in their sustainability thinking from primary focus outside their organization to an “internal sustainability” focus. They also said that one of their challenges continues to be that, as much as they focus on nonfinancial results, “financial will always trump how we make decisions.”
For me, this is the essence of the challenge that integrated reporting addresses: Until there is a reliable information set that is as trusted and consistent as the financials, the financial results remain the ultimate metric of success even though everyone agrees that financials fail to capture a lot of the critical drivers of profits and corporate value.
Many in the market still consider integrated reporting to be the marriage of the financial and the external sustainability perspectives. But this combination doesn’t give the full picture. To understand the full picture and have a truly integrated perspective, we need a view to both short-term financial and long-term sustainability (both external and internal). The <IR> framework provides a sound theoretical connection between the capitals and value creation. But it’s hard to see in practice.
For me, the starting point for application of these ideas has to be a model of a company’s specific drivers of financial and corporate value. This is one of the reasons that I continue to advocate for the use of a canvas-style format approach to mapping value creation. The approach that I’ve been using is the Value Creation Worksheet. I made a version of it available as an open tool on my website awhile back. Please check it out, contribute to its improvement and/or let me know if you have other suggestions on how to move this idea forward.