At an April FEE/IIRC event in Brussels, Jyoti Banerjee spoke about the way integrated thinking creates a single information architecture that works across strategy and planning, operations, performance management and disclosure. Here are some excerpts from his talk. 

For decades the CFO has operated as the financial gatekeeper of the company. The role of the CFO has focused on governance, compliance and control, seeking to optimize the efficiency of the organization and to manage financial complexity. Four important developments in the global business environment are beginning to change that.

1. Calls for long-termism
   Investor communication has traditionally focused on the short-term financial performance articulated in annual shareholder letters. However, demand is now growing from shareholders and stakeholders such as BlackRock CEO Larry Fink for the board to articulate a clear strategy for longer-term value creation, as well as the metrics to support it. Investors increasingly believe that a longer-term perspective helps them to understand short-term financial results in the right context.
   A further example of this is the call from CalPERS in its new governance code : “The board should provide an integrated report that puts historical performance into context, and portrays the risks, opportunities and prospects for the company in the future, helping shareholders understand a company’s strategic objectives and its progress towards meeting them.
2. Visibility of non-financial information
   The growing importance of non-financial information is broadening the scope of financial and regulatory reporting the CFO is responsible for. It is also broadening the CFO’s role in decision-useful disclosure, as the CFO increasingly becomes a partner with the CEO in executing strategy. This is reflected in a growing number of regulatory requirements around the world. From 2018, for example, all large European enterprises will have to disclose material non-financial information to their stakeholders. Further, the use of non-financial metrics is growing in the way investors are making their resource allocation decisions: witness the nearly $20 trillion of investments made worldwide in 2104 which incorporated non-financial information into investor strategies.
   3. Exponential growth of data
   A new understanding of the role of data in driving better, smarter, real-time decisions is changing the way businesses compete and operate. This data may be from inside the corporation or outside of it, it may be structured or unstructured, online or mobile. Companies that invest in and successfully drive value from their data will enjoy a performance advantage over their peers. The challenge for CFOs is to enable a structured approach to decision-making through data-driven insights, rather than relying on a reactive or intuitive approach.
   4. Disruption driven by new business models
   New business models are transforming the global business landscape and reshaping entire industries. The majority of the opportunities for these models are emerging from new and innovative ways of applying technology to traditional business practices. In this volatile environment, the key for the CFO is getting ahead, and staying ahead of disruption. CFOs need sharper tools to enable them to do this, because the rate of change will only accelerate

The role of integrated reporting
There are individual solutions available to each of these developments in the business landscape. For example, some companies are exploring analytic solutions across their complex and fragmented information landscapes. Others are seeking new ways to track and report on non-financial metrics. The investments required to implement these compartmentalised approaches can be prohibitively expensive, and yet not scale effectively.

The rise of integrated thinking and reporting, led by the International Integrated Reporting Council (IIRC), is a global movement providing a way for companies to connect all these challenges through a single information architecture.

<IR> encapsulates how an organisation’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long-term. This process of integrated thinking drives communication by the organisation internally and externally. The most visible output is a periodic integrated report. At the core of <IR> is an understanding of value creation that goes beyond financial performance to include multiple forms of capital over time: financial, manufactured, natural, social & relational, human and intellectual capitals.

The breadth and depth of information required to underpin this value creation story is unprecedented. At the same time, the volume of information flowing in and out of every company is growing exponentially. In our view, this means technology must have a role in supporting the integrated thinking and reporting process and its output, the Integrated Report.

The common threads across frameworks
Although Integrated Reporting offers a single umbrella architecture that works across multiple business challenges, it is not unusual for businesses to employ multiple reporting frameworks to deal with specific information and reporting issues. As a result, there are greater market calls for consistency, coherence and comparability across the reporting frameworks. One response to these calls is the Corporate Reporting Dialogue (CRD) which has produced a mapping tool which shows how the different frameworks relate to each other, and to the multiple capitals in the <IR> Framework.

One area where reporters are seeking an improved alignment across framework standards is the issue of materiality, a pervasive concept that is differentially used in financial and non-financial reporting, and for many other business purposes. This has also complicated the ability of reporters to work across multiple frameworks. While it is entirely appropriate for different framework standard-setters to tailor their definition of materiality to their own particular mission, the Corporate Reporting Dialogue is recommending that “any modifications adhere to the foundational principle that ‘material information is any information which is reasonably capable of making a difference to the conclusions reasonable stakeholders may draw when reviewing the related information .”

What all these issues point to is that, ultimately, the day is getting closer when the disconnects that exist – between strategy and reporting, between internal management practice and external disclosure, and between corporate governance and investor expectations – are removed, and a single information architecture provides a new degree of connectivity across the business landscape. Currently, the only information architecture to meet this requirement is Integrated Reporting.

 The material for this talk was drawn from a forthcoming publication, A Technology Toolkit for <IR> Adoption, from the <IR> Technology Initiative of the IIRC.