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Blog : BOARD TALK

The Timing Is Right For Integrated Reporting

Posted on September 25, 2014 at 12:05 PM

It's a rare thing when so many factors come together to push in the same direction. Events around the Climate Summit in New York have brought together governments, business, civil society and the person on the street - across generations.


Behind concern for the state of the planet lies recognition of the urgent need to focus on sustainability in business. But there is also an ongoing debate about the very purpose of business in society, which inevitably places the spotlight on value creation. It's not just a question of 'short-term' v 'long-term' perspective - how businesses actually report, and the factors they take into account in their thinking is critical - and that is where integrated reporting ( <IR> )  comes in.


And suddenly the buzz around integrated reporting is getting louder. Last week the Ethical Corporation hosted a webinar with Chief Sustainability Officers from Solvay and Carillion on new ways to  move towards Integrated Reporting in practical terms. Its intention was to cover a range of issues - from  how to work with finance teams to integrate your report, to investor feedback and the key advantages of the <IR> approach. 


You can listen to the webinar recording here - unfortunately technical issues meant the start of it was lost, but it succeeds in bringing some of the issues to life in a vibrant way. 


But integrated reporting is also not just about sustainability or ESG concerns. They have just become particularly relevant all at once. BHP Billiton today has provided an excellent example of the extent to which a different kind of thinking can possibly change business behaviour. 


As a global natural resources - aka mining - company, it has been working hard for some time to re-invent itself for a rapidly changing world. Take diversity - this is what Vanessa Torres, Head of Group Investments and Value Management had to say last week at the International Mining and Resources Conference on how diversity improves business results and shareholder value. Note - It's a lot more blunt than much of the language we have been hearing on this issue in the UK for the last few years.


Here is an extract (my emphasis) : "So, why has the mining industry, the business environment, and society in general ignored this business case for so long? And why, even now, when we have some enlightened CEOs that really get the business case and advocate for diversity, is it so difficult to stop operating in a sub-optimal manner?


In my view, the answer lies in a simple word that relates to both statistics and psychology: that word is bias. In statistics, maths and engineering, bias is - a systematic distortion of a result due to a factor not allowed for in its derivation... Whether the bias is conscious or unconscious that is irrelevant.


Any engineer knows that, when you have a sub-optimised system due to a negative bias, the first and most powerful action to optimise such a system is.... To get rid of the bias! So, if our industry is a sub-optimised system due to the effect of negative bias that affects diversity, it is time to stop discussing the business case and start engineering out this bias." 


I like her style. But I digress.


BHP Billiton has paid attention to the global conversation around integrated reporting for quite some time.Today, alongside the release of its Annual Reporting Suite, it published a sustainability report. And to support that, it is also holding an ESG briefing with "comprehensive information on the Company’s approach to the management of climate change risk, governance, health, safety, environment and community."


So, to what extent has BHP Biliton's approach to reporting affected its behaviour ? There was another revelation from the company this morning - it has frozen the pay packets of the CEO Andrew Mackenzie and his management team.


True, this reflects pressure felt across the mining industry. But as the Sydney Morning Herald put it: "Investors told Fairfax Media that BHP executives had to lead by example, given the miner was freezing or reducing salaries across the company....Mr Mackenzie's target annual remuneration in the CEO role is $US7.72 million and is heavily linked to business outcomes and shareholder returns."


US$7m is still an awful lot of money. But it's just possible too, that 'joined up thinking' leads to better corporate governance.








Categories: Transparency, Accountability, Green Issues