12 September 2019

IIRC: Integrated thinking is a game changer for sustainable corporate governance

Corporate governance is an instrumental tool to shift towards a sustainable economy. The essential change that will make this shift possible is making sustainability the basis of business decisions at every level.

The paper suggests changes in boards’ roles and practices; and proposes legislative and non-legislative actions by EU and national policymakers and regulators. It outlines the critical importance of integrated thinking and reporting.

To make these changes, we need to think and act in an integrated way. This means not only taking into account financial capital but also the other capitals used in the <IR> Framework. They all need to be managed, but moreover, considered jointly. To create and preserve sustainable value, the focus cannot be solely on shareholders; all the relevant stakeholders of a business need to be considered. Without integrated thinking, risk and opportunities will be missed; long term value creation and resilience cannot be assured.

Boards need to integrate the environment as a consideration at all levels of the business and to take a fully integrated approach to strategy and management. This can be done with a comprehensive approach to strategic planning, including scenario analysis. Boards can also manage change inclusively and efficiently through experimentation, decentralization and empowerment

To get there, businesses need to put in place mechanisms to ensure that the business operates in a wholly connected and consistent way. Decisions can no longer be based on financial factors alone or considered in a time-frame that doesn’t match the impacts of the business. Furthermore, connecting information helps to make more informed decisions, with improved awareness of externalities. It thus leads to a more efficient and productive allocation of the different capitals needed by business both within an entity and on markets.

Businesses should report on their performance in an integrated way using the IIRC’s integrated reporting <IR> Framework. This will help to measure transformative progress and share experience on issues that are of public interest. It may be helpful to also ask businesses to explain the basis on which they make their strategic choices and how they move toward a fully integrated approach. To play their role, such disclosures would need to be verifiable and trustworthy.

Full article on IIRC

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