Tell your Value Creation Story. #lesvoorbereiding # Rennes (part 3)

At April 1st and 2nd,  I’ll be teaching classes in Rennes. As part of the module: Corporate sustainability reporting. It is really helpful that I can use all the material and preparations of my colleague who went last year.

The students will have to hand in an assignment at the end. Evaluating a company’s annual sustainability report using GRI and ISO standards/integrated reporting. The company will be assigned by the teaching staff.

The third question on the assignment is on integrated reporting. Make an outline on the value creation story the company could tell.

• Identify the population of capitals and their mapping
• Apply internal relevance filters (impact)
• Apply external relevance filters (stakeholder influence)
• Applications of the materiality principles.
• Paint a broad picture of the Value creation story to be told

Introduction on “Telling well your value creation story” (10 min)

In the video below Sarah Grey, Markets Director IIRC, tells about three shifts in the (business) world:

• More inclusive capitalisme
• A longer term conversation
• Integrated reporting

And mentions 2 “points of attention”.

• Communicating clearly on the capitals you rely on.
• Telling well your value creation story.

The link to integrated reporting is from the IIRC website

This is where Integrated Reporting comes into the picture. The International Integrated Reporting Council (IIRC) issued its framework for Integrated Reporting in December 2013 as a means to provide greater insight into the resources (the so called “Capitals” – social, natural and human as well as financial and manufactured) used and affected by a business.   It seeks to explain how an enterprise interacts with the external environment and these Capitals to create value over the short, medium and long term.

Ironically, Integrated Reporting isn’t really about reporting at all. It’s about integrated thinking, responsible business behaviours and innovation. And telling it like it is.

Introducing the central themes of IR: the six capitals and value creation (10 min)

A central theme Sarah Grey was also talking about is the six capitals. In a visual it looks like this:

From the E&Y paper, Integrated reporting, Elevating values:

Intellectual capital: encompasses the intangibles associated with brand and reputation that are critical to the organization. It also includes resources such as patents, copyrights, intellectual property and organizational systems, procedures and protocols. These can provide significant competitive advantages. They can also have disadvantages, such as the negative brand equity attributed to major polluters or ill-reputed shareholders.

Human capital: refers to the skills and know-how of an organization’s professionals as well as their commitment and motivation and their ability to lead, cooperate or innovate. The success of an organization is tied to proper management of its teams and care for their motivation and well-being. Excessive employee turnover or inadequate remuneration policies can damage reputations and impair an organization’s ability to create value.

Financial capital: is the traditional yardstick of an organization’s performance. It includes funds obtained through nancing or generated by means of the organization’s productivity. It’s the pool of funds available to the organization for use in the production of goods or the provision of services, including debt and equity. Financial capital interacts extensively with the other capitals. Organizations need to understand and reflect this interdependence in their integrated reports. It’s important to show financial capital is converted into other forms of capital — assigning value to the latter — and explain how these other forms of capital will generate financial returns over the short, medium and long term;

Manufactured capital: mainly comprises physical infrastructure such as buildings or technology equipment and tools. Manufactured capital may be owned by the organization or by third parties, e.g., ports and other public infrastructure. They contribute to an organization’s productive activity. It follows that their efficient management can reduce the use of resources and drive innovation that leads to greater exibility and sustainability.

The simplified version, my own value creation story.

Telling the story is also linking the mission and vision to the outcomes.

From the IIRC website, Outing the outcomes:

It’s a puzzle as to why reporters are going awry – after all, the Framework’s definition of outcomes is clearly worded:  the internal and external consequences (positive and negative) for the capitals as a result of an organization’s business activities and outputs. In essence, the question to ask is what effect have you had on the capitals you use or affect by dint of being in business because these outcomes can affect your future inputs.

There probably needs to be more awareness made of the link between outcomes and value creation. The Framework defines value creation as: the process that results in increases, decreases or transformations of the capitals caused by the organization’s business activities and outputs.  In its entirety then, the consequences of doing business on the capitals used or affected is what value creation is all about. The quality and harmonious integrated report will show this process and disclose the important outcomes, whether or not they are able to be quantified, whether or not they are intended, and whether or not they relate to the now or the future.

In dept: Reporting on outcomes

From the E&Y paper, Integrated reporting, Elevating values:

Let’s make it small. What is my mission/why, am I creating value and what are the outcomes (!materiality)?

• What is my Why/Mission.
• Through which processes/roles am I creating value.
• What effect have you had on the capitals you use or affect. (-> material)
• What is my value creation story (linked)

My why/mission