The global pandemic in 2020 has made even the most remote stakeholder on this planet realize the inter-linkages between business, society, and the environment. Evolved businesses which recognize this connect are increasingly moving away from publishing Annual Reports for their shareholders to presenting Integrated Reports to their stakeholders.
How are Integrated Reports different from Annual Reports? We have framed five questions for you to assess if the report your company has prepared or the reports you read are Integrated Reports. Please answer these questions to ascertain the nature of the report you read.
- Does the Report cover various types of Capitals used in the business, their inter relationship and the output generated by them?
Human Capital, Intellectual Capital, Natural Capital, Manufactured Capital, Relational Capital, and Financial Capital are the six capitals businesses can use. Capturing the nature and elements of the capitals used and reporting them consistently across years is a key factor of Integrated Reports.
- Does the Report describe the company’s business model, explaining the inputs, the value creation process, and the output/outcome and their relationship with the six capitals?
Description of the Business Model, which could also be called by a different name like Value Creation Framework is essential. An effective description of the model will list the capitals used in business, the importance of four influencers—social, political, economic, and environmental on the value creation process, strategy behind the value creation process and key activities of the business. The description is complete when the business output is also measured using the capitals relevant for that business.
- Does the Report include in the Key Business Highlights tracked, all the capitals and its movement over the period?
Good reports get their readers to focus on key business performance by reporting Key Business Highlights often called Key Financial Highlights in the annual reports. In Integrated Reports, the quantum of the capital and their distinct facets and its movement over the years is captured to get the readers track what the company sees as important elements of its performance.
- Does the Report describe the stakeholder engagement process and how the concept of materiality is defined?
In Integrated Reporting, a matter is material if it could substantively affect the organization’s ability to create value in the short, medium, and long term. Materiality is entity specific and is assessed based on industry and other factors, as well as multi-stakeholder perspectives. Effectiveness in communicating from stakeholders’ perspective is a direct result of thoughtful stakeholder engagement.
- Does the Report have an Integrated Management Discussion and Analysis Report that goes beyond the financial parameters of business and touch upon the other capitals used in the business?
Management Discussion and Analysis (MDNA) is a report of recent origin, emerging in the 1980s to give the stakeholders a ring side view of the business as it unfolded during the year. In companies where the Integrated Approach is deeply embedded in the management process, their MDNA will capture the transition of all capitals relevant to the business during the year due to various decisions made by the company, external influences that affected them and the strategic choices made.