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Now more than ever, businesses must have a long-term view of their purpose, how they create value and for whom. Integrated thinking is a 21st-century answer to today’s ever-changing environment, shaped by seismic factors such as the global pandemic, climate change and demographic change far beyond the control of any single business. It provides a structured approach for considering how to create the right environment within an organization, as well as for reviewing and course-correcting what can, at times, go wrong.
In December the Value Reporting Foundation launched the Integrated Thinking Principles (‘Principles’), completing its comprehensive toolkit of resources. The Principles are rooted in the International <IR> Framework and provide a structured approach to embedding integrated thinking into an organization year-round. The Principles are designed to be used with the <IR> Framework and the SASB Standards, which provide industry-specific disclosure topics and metrics.
What is integrated thinking?
Integrated thinking is a management philosophy that unites the constituent parts of an organization and focuses the whole organization on value creation for the enterprise and its key stakeholders. It supports stronger governance and better management, underpinned by integrated decision-making and a holistic approach to resource allocation. It balances short-term performance needs with a longer-term approach to value creation and preservation. Integrated thinking can help create a virtuous loop of integration within an organization across functional siloes. Businesses that are in this integrated thinking loop are on a continuous journey, evaluated through a management and reporting philosophy that results in ongoing performance improvements.
Integrated thinking has been successfully implemented in many organizations around the world across a wide variety of sectors, particularly by organizations that are on an integrated reporting journey and adopting the <IR> Framework. The Value Reporting Foundation’s case studies illuminate the benefits of integrated thinking.
How can my organization adopt the Integrated Thinking Principles?
The Principles are designed to be embedded into an organization’s business model and applied across key activities overseen by the board and managed by the senior leadership team. They are implemented on three levels: the first comprises questions to the board and CEO on how widely each Principle has been adopted across the organization; the second offers the opportunity to assess how deeply the Principles have been embedded into the organization; and the third consists of strategic management tools, practices and processes to bring integrated thinking to life.
The Principles help unlock the full intrinsic value of an organization’s intangibles and communicate this to investors through an integrated report, based on the <IR> Framework and international financial and sustainability accounting standards.
The evolution of the landscape
There is momentum building around the formation of the International Sustainability Standards Board (ISSB), which was launched during COP26 in Glasgow in November 2021 with support from over forty Finance Ministers and Central Bank Governors. Later this year, the Value Reporting Foundation will be consolidated into the IFRS Foundation, forming the team which will support the development of the ISSB’s sustainability-related financial disclosure standards, already bolstered by the absorption of the Climate Disclosure Standards Board (CDSB) in January.
Many investors and regulators have called for the IFRS Foundation to build upon market-led initiatives and to use its experience in creating accounting standards in more than 140 jurisdictions to bring globally comparable and decision-useful reporting on sustainability matters to the capital markets. Later in March, the ISSB will release the exposure drafts of the climate and general sustainability disclosure standards, which heralds a significant step forward in the creation of a comprehensive global corporate reporting system.
It is expected that the IFRS Foundation will embrace the principles and concepts of integrated thinking and integrated reporting, whilst also leveraging the existing SASB Standards, as a means to help connect financial and sustainability management and reporting. It is therefore recommended, now more than ever, that organizations should embrace these three resources of the Value Reporting Foundation, as this will help them implement the ISSB’s future sustainability-related disclosure standards.
Integrated thinking develops when an organization understands the relationships between the areas that are key to how it creates value, supporting improved decision making, increased transparency and a forward-looking multi-capital management approach, helping organizations build resilience and deliver long-term value creation. Ultimately, integrated thinking reveals the pathways, tools, processes and practices that enable organizations to deliver their purpose for the benefit of their investors and key stakeholders. By bringing together expertise across the whole organization, the Integrated Thinking Principles can guide businesses in the ongoing evolution of their response to the needs of today’s – and tomorrow’s – environment.