For Jason Voss, content director at the CFA Institute and former portfolio manager with Davis Selected Advisers, investors have two primary responsibilities: to see the world for what it is, not what they would like it to be, and then to be decisive. In a regulated industry like financial services, two rules for investors seems straightforward and simple. The reality, of course, is anything but.

According to Jason, that’s partly because most investors don’t have the information they need to see the world for what it is and then act on it. Traditional financial statements, he says, are really a list of a company’s stakeholders – from shareholders to employees to governments – but they don’t tell the full story. Integrated reporting, through its focus on capitals, enables companies and their investors to have a much broader discussion about value.        

Intellectual capital is one of the most recognized forms of capital that is left off balance sheets. But for some companies and industries, it’s integral to the proper valuation of an organization. Jason also cited the grocery industry as an example of when accounting statements fail to provide a clear view of financial health. Considering how labor intensive the industry is, investors need more human capital data – like employee turnover rates and cost of training -- to make a sound decision about its value.

But integrated reporting isn’t just a better tool for valuation; it moves companies toward a systems-thinking approach that impacts the management of the organization. To do that right, Jason says, requires change beyond the report preparer level. He points to five ways we can collectively catalyze this evolution:

• Superstar reporters: A major company with a lot of influence in the market supporting integrated reporting could go a long way in shaping investors’ and other reporters’ attitudes toward IR as the preferred framework.
  
• Active managers: Despite recent trends toward passive investing, active managers continue to influence companies and can create a “pull” demand for more integrated reporting.
  
• Accounting standard setters: Voluntary reporting is a real trend that has an impact on investing, but to change the system, the capitals need to be included in financial statements.
  
• Integrated reporting guidance: Reporters are still learning and testing the IR framework; guidance on how to do it right will ease the transition.
  
• Superstar advocates: Powerful investors – think public pension and sovereign wealth funds – have a history of influencing corporate behavior and could accelerate the adoption of the IR framework through shareholder engagement.
  

This was a powerful conversation about how to move forward as a community. Join us to continue the conversation at our next Integrated Reporting conversation with Jones Lang Lasalle on February 7 at 3 pm EST.      

Post authored by Rachel Riccardella of Kite Global Advisors, a thought leadership advisory firm helping clients shape the debate on the issues that matter most to them.

Purpose is a concept increasingly used by companies to convey a sense of meaning to their work beyond short-term profit. But few companies today have a purpose that dates back 140 years like Prudential Financial. Believing that financial security should be within everyone’s reach, Prudential Financial links its purpose to its sustainability commitments, reinforcing the inherently long-term nature of its business: retirement savings and insurance.

Suzanne Klatt, Director of Environment and Sustainability at Prudential Financial, provided an inside look at how purpose fuels the company’s sustainability commitments and reporting at a recent <IR> US Community spotlight series, available here:

In its long-form sustainability report, Prudential Financial uses the IIRC framework and the six capitals as a guide in building its content. The capitals underpin the four pillars of its sustainability governance and reporting: customer focus, responsible impact, talent focus and financial strength. Suzanne shared that these pillars – and the capitals – serve as a means of connecting the content within the sustainability report as well as the Chairman and CEO’s letters in the company’s annual report and proxy statement. Rather than reporting on all of the company’s sustainability performance, the team chooses the stories that best support the pillars, trying every year to trim the report for greater readability.

That means developing a greater understanding of what audiences want to know and organizing the report to make it easily available to them. Suzanne explained that Prudential has had to increase its disclosure comfort level gradually but that starting small can lead over time to robust reporting processes and structures. In its 2016 report for instance, the company included “Prudential By the Numbers,” an at-a-glance performance scorecard highlighting data like employee diversity, product performance and women in management positions.      

Performance is only a part of the Prudential Financial sustainability reporting story, though. Employees are a key audience for the report, and the pillars help provide a narrative around the company’s purpose – to power the ambitions of people, organizations and communities – they can relate to and connect with in their jobs. The report also serves to unite employees across the firm’s many, and quite distinct, business units by revealing how they each contribute to the same purpose and the impact it has on customers and communities.      

The <IR> U.S. Community will turn from reporters to audiences with its next series on Wednesday, January 10 at 2 pm EST to hear the investors’ view on sustainability performance data and reporting.

Post authored by Rachel Riccardella of Kite Global Advisors, a thought leadership advisory firm helping clients shape the debate on the issues that matter most to them.

This week, the <IR> US Community kicked off its Integrated Reporting spotlight series with a tour of American Electric Power’s (AEP) Accountability Report and candid conversation with Sandy Nessing, Managing Director, Corporate Sustainability, AEP.  Attendees included US-based sustainability reporters who have already embarked on integrated reporting or are transitioning from traditional corporate responsibility reporting, investors, accountants, consultants and key professional associations. The goal of the series is to bring experienced and novice reporters together to share best practices and cultivate a safe space for addressing the barriers—internal and external—to integrated reporting in the US.

The program kicked off with a virtual tour of the AEP Accountability report, available in this video:

AEP has nearly a decade of integrated reporting experience, and Nessing asserted that the company’s report is always evolving and she looks to other reporting leaders to learn about new approaches. But integrated reporting has clearly caught on at AEP, where one executive referred to its Accountability Report as the “AEP bible”.

The virtual tour was followed by an open discussion with attendees. Successful reporting is often the result of dedicated managers pushing internally for deeper and more thorough disclosure – and that’s true for AEP, too. But Nessing shared several insights from her experience with integrated reporting that can apply to companies in any industry and at different stages of the IR journey.

1. Make data points work for you. Stakeholders expect to see some data behind your performance year over year, but companies shouldn’t be afraid to continue to improve and adapt them. Nessing said measures around carbon emissions, for instance, may stay the same, but metrics related to continuous improvement in employee decision-making, and diversity and inclusion have changed over the years.
   
2. Use transparency to your advantage. The shift in the energy industry away from fossil fuels has bottom line impacts – both positive and negative. AEP’s sustainability team turned increased interest from investors on environment-related strategy into an opportunity to push integrated reported with senior leadership and the board of directors.  
   
3. Put the IR in <IR>. Nessing encouraged reporters to begin their integrated reporting journey at the Investor Relations (IR) department. AEP’s sustainability and IR teams work side-by-side developing the annual Accountability Report and in ongoing conversations with investors. For integrated reporting to have an impact, both teams need to be well versed in how to speak to investors about the financial impacts of environmental and social performance.
   
4. Quantify impact with investors. Sustainability reporters often know they have a financial impact on the company but struggle with delivering the proof points. Nessing said she calculated the ownership of investors she was in conversations with to show how her team’s work contributed to hundreds of millions in share value.
   
5. Go where the analysts go. Analysts and investors will continue to get data about companies from multiple sources – no matter how good your integrated report is. Nessing recommends talking to your investors and finding out where they get their data so you’re best prepared for conversations with them.
   

Next month, the <IR> Spotlight will feature Prudential Financial on Wednesday, December 13 at 2 pm EST to explore the opportunities and challenges of integrated reporting in the financial services industry.

Post authored by Rachel Riccardella of Kite Global Advisors, a thought leadership advisory firm helping clients shape the debate on the issues that matter most to them.