The social roads less travelled

The often-overlooked social impact of business can be formally approached in a variety of ways, but two related theories are paving the way.

At first glance, integrated reporting (and the IIRC), and the concept of 'shared value' as described by Michael Porter and Mark Kramer, are quite different: Shared value refers to a management approach to improve business decision-making, and build economic value (see Stockland dares to share, November 29), while integrated reporting is a new approach to reporting and communicating strategy and performance (see A journey towards integration, December 15). However, there are key points where these two journeys intersect.

A new role for business

A key connection between the concepts is they both reflect a desire to move beyond businesses prioritising short-term financial performance, and to reorient the efforts of a business toward long-term success and sustainability. This has been driven – at least in part – by the very widely articulated social and economic consequences of the ‘short-termism’ in financial institutions that triggered global economic crisis.

Alongside this there is an implicit recognition that any organisation or firm is an actor that interacts with a complex social and environmental setting. The shared value thesis suggests that that cognizance of, and investment in, an organisation’s social and environmental context can create opportunities for augmenting economic value. That is, social, environmental, economic and other sources of value are interrelated and not necessarily mutually exclusive (which is a common argument among corporate responsibility critics). These underpinnings are also reflected in the capitals approach of integrated reporting, where organisations are encouraged to ‘make visible’ their use and dependence on many sources of capital (financial, manufactured, human, intellectual, natural and social) and how these are used to create value.

The trend of embedding

More broadly, both shared value and integrated reporting reflect the trend of progressive businesses taking a more strategic approach to sustainability by seeking to embed sustainability into core business practice.

Both approaches suggest that breaking down the ‘silos’ of current practice – the corporate responsibility reports vs. annual reports, and the corporate responsibility departments vs. ‘the rest’ of the business – can provide material benefits to organisations.

Integrated reporting is defined by "demonstrating the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates”, and recent evidence shows that the main driver of integrated reporting among the world’s largest companies was "seeking to integrate corporate responsibility into core business”. An example of an organisation pursuing shared value, Stockland integrates environmental and community benefits into central business activities and to sustain long-term value.

Looking out and in

Another key similarity between shared value and integrated reporting is leveraging internal and external factors to the organisation.

Two of the ways suggested by Porter and Kramer to create shared value include ‘reconceiving products and markets’, and ‘building clusters’ which both necessitate engagement with an organisation’s context, including deeper connections with stakeholders. These indicate that shared value revolves around the idea that sensible and productive decision making within an organisation can be made by positively engaging external resources and organisations.

On its own journey, a company producing an integrated report will produce an external communication tool (integrated report) which will be responsive and inclusive to stakeholders, but a crucial additional outcome will be improved internal decision-making and information.

Distinctions

While the two concepts do resonate with each other, their journeys have seen some key distinctions. A key driver of integrated reporting has been the escalating compliance burden of reporting for many organisations. Seeking to cut the clutter of annual reports is a key driver of the initiative for both report producers and its readers.

Another important distinction is the challenges faced in implementation. integrated reporting is a holistic and long-term commitment for organisations; for most organisations the production of an integrated report will require extensive preparation and thus a considerable time frame. Integrated Reporting must also accommodate the plethora of laws and standards across the global that relate to reporting compliance and communication. The hurdles are high.

In contrast to this, shared value is a more agile management approach, which can be undertaken on many levels: from a product, to program and up to an organisational level.

Despite these distinctions, there are points of confluence for integrated reporting and shared value. With great momentum, practitioner and academic interest behind these ideas, it will be instructive to consider how these two approaches learn from, and contribute to each other. Is there any value in looking at these two concepts together?

Original article by Professor Roger Simnett, Australian School of Business, UNSW and Sarah Adams, Centre for Social Impact, UNSW.

CSI is an academic organisation bringing together the business, government, philanthropic and not-for-profit sectors, in a collaborative effort to build community capacity and facilitate social innovation. Its blog provides forum for discussion and debate on topic relating to social impact.