Sasol, AkzoNobel and how transparency can drive integrated thinking
SustainAbility's recently-released report, "Sustainability Incorporated: Integrating Sustainability into Business," calls out the need for business to further embed sustainability into core strategies.
The report highlights five pathways that sustainability practitioners can leverage to more deeply integrate sustainability into their business: employing business model thinking; putting materiality to use; applying a sustainability lens to products and services; tapping into culture; and leveraging transparency. Read the full series here. In this installment, we focus on leveraging transparency.
SustainAbility has long recognized that corporate transparency is integral to sustainability. We have been active contributors to the evolution of sustainability reporting, from publishing our Global Reporters series (1994-2008) to fundamentally questioning reporting’s present day value in "See Change: How Transparency Drives Performance."
Ultimately, we recognize that reporting is just one tactic in a much broader, more strategic transparency evolution. With this in mind we explore how an emergent aspect of transparency – integrated reporting – can both drive and reflect larger efforts to integrate sustainability into business.
Integrated reporting is still mostly the exception rather than the rule. Most companies’ investor-facing reports still limit themselves to describing the value they create in financial terms. But the idea of providing a more comprehensive look at value creation, in environmental and social as well as financial terms, is gaining traction.
Integrated reporting can drive integration
More companies are pursuing integrated reporting for the benefits that can be attained from the process as well as the output, an integrated report.
Our research revealed that it provides structure and guidance for thinking in an integrated way and progressing integration more widely, which is valuable well beyond the production and publication of the report itself.
The process calls for insights into the company’s business model, the interconnectedness of issues and impacts up and down the value chain. This approach also requires analysis of inputs from across the company, reaching far beyond the sustainability team.
“When we talk about integrated reporting, we are not talking about the publication. We are talking about an integrated process of defining what’s relevant and collecting the information," said Denise Nogueira, sustainability manager at Brazilian bank Itaú Unibanco. "The importance is the process, not the report itself.”
Sasol, the South Africa-based chemicals and energy company, made a step change with an integrated report in 2015 and advanced its strategy as a result.
Various factors prompted the shift, including early involvement in the IIRC of Stiann Wandrag, Sasol’s Head of Sustainable Development Performance Tracking and Reporting, who shepherded Sasol’s constantly maturing reporting process internally. Sasol also recognized the potential value gained by taking on integrated reporting given that, as an extractives company, it already had a strong awareness of the context and environment in which it operates.
This enabled the company to consider different forms of capital to better reflect their role in social, environmental and financial value creation.
“It is critical that we can show the golden thread from the board and how the board directs senior management in value creation for shareholders and stakeholders,” says Alexandra Russell, Sasol’s Vice President of Strategy, Policy and Sustainability.
The sustainability and finance teams led the transition to integrated reporting, but several enablers helped them gain buy-in. For instance, a strong history of environmental and sustainability reporting meant that a substantial amount of relevant data was also already available.
Integrated reporting, integrated strategy?
While integrated reporting can spark further integration in the business, reporting can also communicate and reflect a company’s integrated strategy.
The integrated reporting framework enables companies to articulate how the business is assessing its risks and opportunities in the long term and helps the company effectivelycommunicate its value proposition to investors and others.
While interest in integrated reporting is limited, there are indications that integrated communications will have more impact in the future as uptake of integrated thinking and reporting grows.
Integrated reporting is an effective way to communicate that a company is taking a comprehensive view of its impacts and the ways in which it creates value. Some of the companies that have produced strong integrated reports following the IIRC’s guidance include AkzoNobel, Crown Estate, Eni, Natura, Philips and Sasol.
AkzoNobel, the Netherlands-based chemicals company, reflects how integrated reporting can support a strategic shift towards integration. The company began analyzing external trends such as a growing population and the importance of cities.
From this analysis, the company began to identify sustainability as an opportunity for growth and innovation, as well as a way to ensure its viability into the future. This piqued the interest of the CEO and supervisory board, leading the risk management team to incorporate sustainability issues as part of its processes and resulting in the development of 60 financial and non-financial targets.
The company soon began publishing integrated reports to help reflect its integrated strategy. By going through the exercise of integrated reporting, the multiplicity and overlap of processes or strategies that could hopefully be streamlined was brought to light.
“How do we align our report with our material issues? We have four different processes: a strategy review, financial review, risk management process and sustainability materiality analysis," said AkzoNobel Director of Sustainability André Veneman. "Aren’t they all four facets of the same process?”
Now AkzoNobel seeks to improve its impact upon human, social and natural capital, along with financial capital. To that end, the company recently undertook a pilot 4D impact assessment project with partners True Price and GIST Advisory.
Attaching economic value to both positive and negative impacts revealed insight into natural and social capital, where the company previously did not have visibility.
AkzoNobel and Sasol illustrate how integrated reporting can be used effectively, whether to internally foster integrated thinking or to better reflect an integrated company externally.
Integrated reporting is a powerful tool to leverage for companies serious about integrating sustainability into their work