Making the business case for integrated thinking
The imperative to adopt an integrated thinking approach in business is gaining momentum, but does your company really know what that means? The concept of integrated thinking is poorly understood – the terminology alone can be confusing – and many companies imagine that integrated reporting equates to IT, which is not the case.
On 22 April 2021, responsible business consultancy Trialogue and the Chartered Governance Institute of Southern Africa held a webinar that explored unlocking the potential of integrated thinking, going beyond compliance, and applying IT holistically within an organisation.
The panellists were Warren Maroun (judge of the CGISA Integrated Reporting Awards and professor at the Wits School of Accountancy), Nicole Martens (Head of Africa & Middle East at Principles for Responsible Investment) and Donald Kau (Head of Communications at the V&A Waterfront). The session was facilitated by Trialogue MD Nick Rockey.
Integrated thinking is seldom applied holistically
Businesses adopting an integrated thinking framework are more resilient to systemic shocks, according to Martens: “There is increasing evidence that companies effectively managing Environmental, Social and Governance (ESG) issues outperform companies that don’t.” However, with some notable exceptions, corporate leadership in South Africa has not seen the wisdom of embedding IT within corporate strategy.
Three polls conducted at the start of the webinar indicated that, in the experience of attendees, IT is applied in some areas of businesses but not holistically – and 60% believe holistic adoption does not take place as there is a lack of sufficient guidance on IT and adoption methods. In addition, boards and CEOs are not fully and proactively engaged in the Integrated Annual Report (IAR) process and the adoption of relevant standards.
Businesses may view policy and regulatory pressure to adopt responsible business principles as a way of enforcing compliance, which is missing the point – but National Treasury’s draft technical paper ‘Financing a Sustainable Economy’ has laid the groundwork for mandatory reporting requirements around climate-related financial disclosures, so change is coming, whether companies are ready or not.
The challenge for companies is to understand the “evolution of thinking” that has taken ESG issues from niche to mainstream, seek advice on how to implement integrated thinking holistically, and communicate their journey to stakeholders.
A good example of a company doing just this is the 30-year-old V&A Waterfront, which is 50% owned by JSE-listed property group Growthpoint and the Public Investment Corporation, which invests on behalf of the Government Employees Pension Fund.
“The mandate of the business looks not only at return on investment but at societal transformation,” Kau told attendees, adding that the first measure of the success of the company is being able to create jobs.
The V&A’s ESG focus has seen it set a goal to eliminate single-use plastics this year, work towards a net-zero target for greenhouse gas emissions, and create opportunities for the approximately 400 SMMEs on the premises.
The tourism industry is faced with fewer challenges than the mining and building industries, for example, which carry significantly more ESG risk – but institutional investors in smaller, more illiquid markets, who are obliged to invest domestically, are prepared to work with companies shifting to more sustainable operations, provided they have a clear goal and a sensible plan of action in mind. “Make sure you put decision-useful information into your integrated reports, conveying the ability of your organisation to understand more than just your day-to-day operations but the context within which you operate,” Martens advised. “What is in your direct circle of influence? What are you doing to mitigate negative or maximise positive impact? Investors are increasingly looking for companies that are an attractive investment in perpetuity – and for many, evidence of IT is the bare minimum requirement for a logical, sound investment.”
A ‘litmus test’ for IT in integrated reports
For Maroun, an absence of material ESG issues in integrated reports points to the possible absence of IT at board level. “There can be a disconnect between what a company says is being discussed and what is actually being discussed,” he said, adding that strategy, risks, governance issues and the ‘six capitals’ (financial, manufactured, intellectual, human, social, relationship and natural capital) should all speak to one another. Creating an integrated report without IT merely “reverse engineers” it into the organisation – but a simple ‘litmus test’ can determine whether it is embedded in the company or not. The IR should:
- Be short, concise, and able to explain a complex business model in simple terms, to allow a non-expert to understand how a company functions at the broadest level.
- Be free of bias, presenting both good and bad outcomes, and not decorating the report with visuals to provide a “Shangri-La explanation of how the company is functioning”.
- Contain a mix of qualitative and quantitative information, with some monetary indicators, as well as data on the six capitals, which indicates that quantified measures are being communicated and used in internal management.
- Contain action-specific and relevant reporting, from strategy to risk to key performance indicators to a post-implementation review.
- Show the presence of assurance of ESG-type metrics. “If someone has assured something, and expressed an opinion on that, it means that systems, processes, controls and data must be in place to support that assurance function,” Maroun pointed out.
Advice for companies
A key message emerging from the webinar is that integrated thinking should be fundamental to how a business is run – but that there is no ‘quick fix’ for adoption. In closing, the panellists offered final advice for companies ready to commit to the IT journey.
“To paraphrase Albert Einstein, not everything that can be counted counts, and not everything that counts can be counted,” said Kau. “Judge the materiality of things and how these deliver on the value they bring to the business. Understand where value really comes from and go from there.”
Maroun advised companies to demonstrate how the six capitals relate to their buisness model, and how those capitals are actually prioritised and managed, not just talked about. “Context matters,” he asserted.
Figure 4: Trialogue’s integrated thinking principles
- Read more about Trialogue’s integrated thinking framework here.
- Read about Trialogue’s review of the V&A Waterfront’s integrated thinking here.
- To find out more about what Trialogue does, visit: trialogue.co.za.
- To find out more about what the Chartered Governance Institute of Southern Africa does, visit: chartsec.co.za.