I’m happy to be speaking on a panel Thursday at Skytop Strategies’ Symposium on Integrated Thinking. The panel is called Drivers of Integrated Thinking: What’s Missing from the Existing Guidance.
Sounds pretty esoteric right? Well it’s actually a hugely relevant conversation. Today, every company in the U.S. produces financial statements. And many produce some kind of sustainability statements (for the largest 250 companies in the world, the figure is over 95%). A lot of money and thought is invested in these two perspectives. But they are isolated in their own ghettos and most people have a hard time reconciling the two.
You'll see this in action if you go to a public company’s website. There is a section for investor relations where you can find the traditional financial reporting. There is usually a completely separate section for sustainability reporting (often harder to find). And there are rarely cross-links to take you, for example, from the financial to the sustainability reporting.It’s almost like alternate realities for the same company. Which makes sense on one level—the two kinds of reporting serve different purposes and have different stakeholders. But it begs the question for many—why are these two separate? And, at a deeper level, why is the thinking behind these two perspectives separate? And how can they be connected? This is the goal of integrated thinking. And for the companies taking on this challenge, it's the goal of integrated reporting.
Here’s the key point I want to bring to the discussion:
Traditional + Sustainability ≠ Integrated Reporting/Thinking
What do I mean by this? Traditional reporting/thinking is basically focused on how a company created (or not) shareholder value in past periods. Sustainability reporting/thinking is how the company created (or not) stakeholder value in past periods. But to be truly integrated, we need to ensure that a company ensures its own survival—creates corporate value—while meeting the needs of its shareholders and stakeholders. I’ve increasingly been using the phrase “sustainable value creation” to describe this, which is defined as:
Using the capitals (tangible, intangible and natural) available to a company in a way that creates value for shareholders and stakeholders today…and that also preserves/enhances the company’s ability to create value in the future.
In light of this definition, what’s missing from the various forms of guidance influencing integrated thinking? In my view, we’re missing a way for companies to take responsibility to their capitals, for building and maintaining an infrastructure that gets better every year. In our industrial past, explaining this was the job of the balance sheet. In fact, the tangible capitals on the balance sheet explained over 80% of corporate value. Today, they only explain 16%.
It’s like the instruction we receive on a plane: put your own oxygen mask on before you help others. Companies have to create value for shareholders and stakeholders in a sustainable way. And by the way, (with the exception of short-term traders) shareholders and stakeholders want that to happen too.
I look forward to discussing how to accomplish this at the Symposium!