Corporate Performance Isn’t All about Financial Results 

Integrated reporting that includes measures of sustainability and social performance point to a better corporate future.

A look into the crystal ball of global sustainability issues for the next few decades highlights some scary trends that will change how companies do business and deploy resources.

By 2050, the World Bank predicts, global population will reach 10 billion, oil reserves and fossil fuels will be depleted, and global warming and climate change will contribute to droughts and water shortages. The squeeze on natural resources, coupled with population increase, will change and pressure business models and strategies as we know them today.

That’s a long time from now, but the trends that will result in those business realities are already in motion. One company that’s stepping up in light of them is SAP, the German software firm. Two years ago it issued its SAP Integrated Report 2012, presenting financial, environmental and social performance in one document.

SAP had come to a conclusion that reporting performance strictly from a financial perspective was no longer an adequate measure of its performance as a whole. Broadening the definition of performance was crucial for developing a sustainable business, says SAP’s chief sustainability officer, Peter Graf. Integrated reporting (IR) recognizes non-financial activities as a critical part of a company’s performance, measures them and links them to performance reports.

IR focuses on mid- to long-term performance, not the traditional short-term measurement of financial performance. For example, SAP’s goal for greenhouse emissions is to meet its year-2000 levels in 2020, instead of just focusing on business growth.

In 2012, SAP’s sustainability achievements included relying on renewable energy sources for 60 percent of its electricity and reducing greenhouse and carbon emissions by 10 percent per employee. Such non-financial measures can be linked to cost savings.

CFOs Takeaways
CFOs can and should play a key role in making employees aware of the impact sustainability issues can have on an organization. Through educational programs, CFOs can encourage integrated thinking among their workforces as a first step toward adopting integrated reporting.

As corporate strategic partners, management-team members and executives responsible for corporate reporting and performance measurement, CFOs can help their organizations develop companywide and departmental sustainability programs, set goals, champion programs and initiatives, and measure results. The initiatives should focus on employee engagement and participation, with an end goal of embedding integrated thinking into the company’s culture.

Efforts don’t have to be limited to employees. They can include customers, too. The hotel where I stayed during a recent visit to Japan, Marriott’s Prince Sakura Tower Tokyo, offered me a small voucher if I waived maid service for a day to help reduce greenhouse gas emissions. And National Car Rental gave me an opportunity to contribute a $1.25 Greenhouse Gas Emissions Offset fee.

Two global initiatives led by the International Integrated Reporting Council, the Global Reporting Initiative and the Sustainability Accounting Standards Board, are exploring and developing integrated reporting frameworks and guidance for companies and organizations. Because IR is in its infancy, there are no checklists or prescriptive guidance, and compliance is voluntary.

CFOs should note that IR is not a one-size-fits-all solution. Until universal guidelines are in place, companies should include in their reporting environmental and social measures that are aligned with their industries and identify company-specific risks and exposures. If more CFOs focus on sustainability, the global outlook for 2050 will look more promising — and their companies will reap both financial and non-financial benefits.

(Author: Kristine Brands, assistant professor at Regis University in Colorado Springs, Colo. She is also a member of the Institute of Management Accountants’ global board of directors).

Source: CFO

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