Global Chairman and CEO, EY
Ten years ago, the world was still reeling from the worst economic crisis since the Great Depression. It was time for businesses to step up like never before – to exercise their unique power to improve lives and build a more inclusive economy. It was time to focus beyond the short-term and take action to create long-term value for a wide community of stakeholders.
That’s when a trailblazing coalition of businesses, investors, influencers, academics and NGOs, led by His Royal Highness, the Prince of Wales, convened to embrace this paradigm shift. While many businesses wanted to invest in the well-being of stakeholders, society and the environment, there was no widely accepted way to communicate the long-term value this would create. There was a disconnect between how environmental and social externalities could impact the operations and long-term performance of a business. Moreover, traditional financial reports still considered investments in areas like research and development, or training and development as costs - even though they helped create intangible assets, often representing a significant portion of a company’s value.
I’m proud to be a Council Member of the IIRC, because their work has helped bring about a sea change in corporate reporting. A decade ago, only a handful of companies issued sustainability reports. Today, the majority of public companies recognize the importance of measuring and reporting a wide array of intangible assets — from environmental impact to human capital to innovation. Since the founding of the IIRC, companies in over 70 countries have adopted integrated reporting, and 40 stock exchanges around the world have also begun including integrated reporting in their guidance.
And the momentum is only building. The work that the IIRC began has helped accelerate the evolution we see today. Determining how companies should measure and communicate their long-term value is now the focus of a number of different initiatives, including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and, more recently, the World Economic Forum’s International Business Council. Just last summer, the Business Roundtable issued a statement that defined a corporation’s purpose as creating stakeholder value. Regulators and global accounting institutions are taking notice.
And we see this global movement happening during an unprecedented time. The impact the Covid-19 pandemic has had on businesses and society at large, and the social unrest seen in many countries illustrates how important it is to understand how current dynamic forces can and will affect long-term value. Businesses must grapple with short-term pressures while also planning for uncertainties in the future. The ones that develop strategies for long-term value creation – and bring their stakeholders along – will be the best equipped to weather the storm.
We’ve been proud to embrace this mindset at EY, as well. We don’t just advise EY clients to consider how they are creating long-term value, we strive to take an inside-out and outside-in view of stakeholder needs as well, which reflects the foundations of integrated thinking at the heart of the IIRC. We measure our performance against the non-financial value we create via our investments in our EY people and in our communities around the world. We only consider ourselves successful if we are helping those groups succeed too.
But unlike in the early days of IIRC’s tireless work, most are not questioning whether businesses should report on stakeholder or environmental impact. The debate is not whether to report on non-financial information. What we are focused on is the ‘how.’ That’s progress. And to answer the ‘how’, there are a multitude of frameworks, metrics and approaches for companies to take. As I see it, that’s a good sign; it’s a sign of demand for an integrated way of thinking and reporting.
But now we must focus on how to bring this community together, in a way that works for companies, investors, and other stakeholders. It’s time to contribute to convergence and collaborate across initiatives to allow both the breadth and consistency needed for comparison among companies, and the depth to allow each company to tell their own story to all its stakeholders. Here again, the IIRC is positioned to help lead the way. The organization has been attentive to the constant adaptation that is needed to provide a dynamic framework, fit for purpose in an ever-changing world, and just recently joined with standard setters GRI, SASB, CDP, and the Climate Disclosure Standards Board to significantly advance a shared vision for working together as part of a collaborative approach. That really is progress.
The private sector—and society as a whole—will be better off when all businesses realize, measure and hold themselves accountable for the many ways they can create value and impact stakeholders. The IIRC has played a pivotal role in putting us on the path to achieving this — and I look forward to continuing that work to build a stronger, more inclusive economy, together.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.