WBCSD President and CEO, Peter Bakker: Reporting on all capitals will lead to sustainable value creation

Posted
17 December, 2020

Following on from our 2020 Global Conference, we are pleased to present a series of articles by our diverse array of speakers. The second in the series is by Peter Bakker, President & CEO of the World Business Council for Sustainable Development (WBCSD) on the development of integrated strategy and reporting worldwide.  


Across the globe, integrated strategy and reporting has been undergoing important developments, many of which are ongoing efforts. From my position as the President and CEO of the World Business Council for Sustainable Development (WBCSD), a CEO-led organization of over 200 leading global businesses working together to accelerate the transition to a sustainable world, I have seen these developments first hand. The following aims to give an overview of the current integrated reporting trends worldwide, followed by an update of the global adoption of integrated thinking and strategy, as well as the progress towards a sustainable global economy.

Current integrated reporting trends worldwide

As you might have seen in the recently launched 10-year anniversary report of the IIRC, over 2,500 companies in 70 countries are using the principles of integrated reporting. There is particular evidence of uptake in Japan, Australia, South Africa, Spain and the Netherlands and evidence of growing momentum in many other jurisdictions.

Every year, WBCSD analyzes sustainability reports from our member companies against a set of comprehensive indicators. We then compile the overall results to publish our Reporting Matters report, which showcases good practices and provides recommendations for how to improve.

Based on our research, a few points stand out in our 2020 Reporting Matters report:

  • The relative percentage of stand-alone sustainability reports has dropped from 65% in 2017 to 59% in 2020. This is due to the increase in self-declared integrated reports and annual reports that combine sustainability and financial information;
  • We see that 41% of reports reviewed combine financial and non-financial information, up from 35% in 2017;
  • Reports that combine financial and sustainability information make up 4 of our top 11 performers, and about a third of top quartile reports;
  • We see some regional differences emerge: our members with headquarters in Europe are much more likely than Asian and North American headquartered companies to combine sustainability and financial information into a single report, with 55% for Europe compared to 32% for Asia and 11% for North America respectively.

 An update on the global adoption of integrated thinking and strategy

Among our members, we can see the living practice of integrated strategy and thinking – although there is still some way to go. We can see that our members show integration between strategy, action, SDGs etc. through circular practices, research and development, practical case studies, co-creation of solutions, development of vision for the future and fundamental review of business models and corporate strategies.

Our research shows that our members are increasingly integrating ESG risks into enterprise level risk, and that the level of this alignment is growing:

  • In 2018, 45% of our members had an average degree of alignment between risk filing disclosure and ESG risks. In 2020, 56% of members have such alignment;
  • In 2018, no members showed full alignment, while 8 members do in 2020;
  • Increasing ESG and enterprise risk alignment is especially advanced in our members in Europe and North America;
  • The most advanced sectors in this regard are Consumer Products and Services & Personal Care, Drug and Grocery Stores.

There is still progress to be made, particularly towards the strategic integration of sustainability as a fundamental component of business purpose, business models and business performance, and away from a separation between sustainability and core business priorities.

We look forward to a future in which companies see sustainability as a fundamental aspect of their business model, performance and disclosure, based upon an understanding that businesses are part of a larger environmental and social system, not separate or distinct from it, is at the heart of integrated thinking and of truly sustainable companies which exist to deliver value to all stakeholders over the long term.

The progress towards a sustainable global economy

Such as progress towards a sustainable global economy depends on a number of factors, but the end vision is very clear – more sustainable businesses should attract a lower cost of capital.

For that to happen we need a few things to happen.

We need to move to a system that optimizes sustainable value creation across Financial, Environmental, Social and Human Capital.

Consistent messaging should be deployed by governments, standard setters, investors, for example, to limit doubt and enshrine requirements about what needs to be done but also to allow flexibility for how it should be achieved – to create the fertile ground for resilient and sustainable enterprises to grow. Alongside highlighting the need and opportunities for sustainable growth, it is also key to call out greenwashing to ensure that we can trust the commitments of business for sustainable change.

Business can do this by integrating ESG information in the enterprise risk management, in their management decision making and in their disclosures to their investors and other stakeholders.

These disclosures need to be integrated in the mainstream filings of a company. In order for these disclosures to be decision useful for investors, we need to get to a mandatory reporting standard. In this context recent developments such as the IMP effort towards a globally harmonized system for ESG disclosures, the merger between IIRC and SASB (and soon, hopefully, CDSB) and the consultations currently being undertaken by both IOSCO and IFRS are important steps forward.

Once standardized, comparable ESG information is integrated and disclosed, we need to make sure that the investor relations activities of business reflect this new language. It is critical to ensure that the information disclosed is both focused on material sustainability issues and also decision useful for investors in order to provide clear signals for business as to how this information will affect investor capital allocation and valuation models.

Defining the role, duties and actions of companies in driving progress towards a sustainable future is vital work, especially in the light of the COVID-19 crisis, which has given rise to urgency for the development of new forms of equitable and sustainable capitalism.

Covid-19 has highlighted the flaws in our current system, and the coming years will test it further. We believe that integrated thinking is essential for building a resilient and sustainable system fit for the future.