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
In this part of the lecture I’ll introduce the elements of the concept of Integrated Reporting they need by applying it to my “business model me”.
- Introducing the “Tell your value creation story”
- Introducing the six capitals.
- Make the link between The Story, The value creation process, the outcomes and materiality.
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:
Natural capital: serves as the basis and glue for the entire economic and social system. It provides resources that often cannot be replaced. And
it’s essential for the functioning of the economy as a whole. Resources include water or fossil fuels, renewable natural resources such as solar energy or agricultural crops, and the capacity of the world’s carbon sinks — i.e., the air, forests and oceans — to neutralize or sequester the waste generated by economic activity. When it comes to determining whether natural capital is material to an organization, relevant factors must be brought to bear. These include the level of reliance on natural resources, the environmental impact of its productive process, and what the organization has to do to operate within the limits imposed by the environment.
Social and relationship capital: the stock of resources created by the relationships between an organization and all its stakeholders. These relationships include ties to the community, government relations, customers and supply chain partners. Operating licenses, dependence on the public sector or an unusual supply chain may also be factors
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
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)
The processes/roles/activities though which I create value
The effects on capitals I use and affect
- By making nature walks with friends/family/students/collegues. (social)
- By telling the stories, sharing the photo’s of my connection with nature as a beekeeper/gardener/walker (social)
I hold the space for people to connect with their Self, those of others.
- By introducing reflection/dialogue in as many learning processes as I see useful. (intellectual/human)
- By making (silent) walks with others. (human)
- By connecting through nature or breathing exercises on a daily bases with my Self. (human)
Within that space we pay attention to the core qualities and the principles of everyone and we enjoy the moment and the process
- By naming it when I discover qualities of the other in working together and giving the other the opportunity to use this quality. (human)
- By focussing on the experiences during a (learning)process and trusting on the outcomes. (intellectual)
- By sharing on social media and in learning processes the risks of doing nothing and the leading practices (intellectual)
- By sharing how the rest of nature does it (intellectual)
- Because of the number of colleagues and students
- Because once implemented, learning processes are executed several times.
Another place where the impact is big is through my blogposts.
- Because the numbers of hits
- Because it’s open and longer time availability
My value creation story
- develop the ability to learn, lead, cooperate and/or innovate.
- develop the ability of the participants to use their core qualities, stick to their principles.
- include stillness, dialogue, reflection
- connects to the natural cycle.
- are a step on the way towards a society in symbiosis with everything that makes our being possible.
Sharing in blogposts these learning processes and from which learning they are the result.
Time to go to work (60 min)
The students are going to prepare the slides on question 3. I’ll want to be able to judge sources.
Finishing up this part (20 min)
3 groups of students present their slides. I’ll provide feedback.
What to take with me.