At the last annual general meeting of Berkshire Hathaway, Warren Buffett told his online participants that he seems to have been wrong about the airline industry. Taking his investments out of US airlines was justified by a sense that in immediate years following the Covid-19 pandemic people will not go back to flying as much as they used to. His decision resembled reflection by many on what would be different post lockdown, in how far people, companies and institutions will go back to business-as-usual after the pandemic.
In as much the stock market is the beauty contest that John Maynard Keynes described, in which each analyst is most influenced by what he/she thinks most other (leading) analysts think is best, the opinion of Buffet is important. It signals a judgement call on whether a certain technology and the business model that goes with it will survive the test of times. Suddenly longstanding debates between Airbus and Boeing in betting on hub-and-spoke versus point-to-point business models, i.e. large versus small planes, seem irrelevant. Question is, do people want to fly so much in the first place?
The Buffett decision points to a key reflection of integrated reporting, namely: How does your organisation create value over the longer term? This highlights a core element of the business model, namely your value proposition. As managers revisit the value proposition of their companies amidst challenging times where economies are slowly emerging from lockdown, the value creation model of the IIRC Framework can be an extremely useful tool for facilitating that discussion. It is after all a framework for integrated thinking, before you even get to reporting, one that can prove its worth when integrated, holistic thinking is required more than ever.
Consider the value creation model of the IIRC Framework. How would your company respond differently to the different elements of that model following the Covid-19 pandemic? The reflection has to start with the impact (output and outcomes) part of the model, assessing what your company accomplished with reference to each of the different capitals. Consider the following about the post Covid-19 world:
Human Capital: The pandemic illustrated the consequences of years of under investment in health infrastructure. In how far does your business contribute to supplies of medical products and technologies, including broader societal health and hygiene? In how far do your products and technologies serve to address or add to the problem (e.g. products enhancing obesity, respiratory diseases and other chronic conditions)?
Social and Relationship Capital: The pandemic showed a need to redefine working relations between employees, and a blurring of work and private space as more employees worked from home. In how far does your company offer solutions for the mental health of people of different age groups and in different working contexts? In how far do you support organisational and societal preparedness for disaster events?
Natural Capital: The pandemic illustrated the long-term consequences of increasing interruption by humans of natural habitats, and raised awareness of trade in wildlife products. In how far do the operations and solutions of your company support the conservation and sustainable use of natural resources, including the critical role of biodiversity in enhancing the resilience of natural and human ecosystems?
Manufactured Capital: The pandemic highlighted the role of the digital economy in facilitating preparedness and response strategies. In how far does your company offer solutions for the digital economy, one that includes virtual collaboration, alternative conceptions of mobility, data processing, as well as online commerce, education and entertainment?
Financial Capital: Restarting economies following lockdown poses a challenge for public and private financial institutions in processing aid and funding, ensuring resources are allocated reliably to those who most need it. In how far is your company offering solutions that facilitate reliable and accountable transfer of financial resources to families, entrepreneurs and small businesses to support their roles in rebuilding the economy? What innovative ways, including fintech and thematic bonds, have you found to mobilise new capital?
Intellectual Capital: A global pandemic disrupts various industries, and immediate victims in 2020 included the transport, travel and tourism industries. Like the systemic problem of climate change, the impact of Covid-19 will evolve over decades. In how far is your company contributing to enhanced trust in science, integration in risk management, enabling the re-skilling of employees, shaping attractive working environments and providing online solutions to build the capacity of future talent?
The above presents ideas for that in-house brainstorming that your business will need to go through. It is timely, and an important reminder of the importance of integrated thinking. It is a challenge that implies the whole of your organisation, not just a reporting team. It will shape critical substance of what will be material content for your future integrated reporting.