We are entering an era of mass disruption, where 43% of a public company’s net profit margin now depends on factors outside management’s direct control. That’s why integrated thinking — and its partner, integrated reporting — matters more than ever.
At the IFRS Integrated Thinking and Reporting Conference in Tokyo last week, corporate leaders, advisers and standards-setters agreed that integrated thinking was the best way for companies to understand and communicate how they create value.
As I argued during a panel session, every capable decision-maker understands the paradox of making money—that forces outside the business, such as geopolitics, climate, and technology—ultimately shape markets and shareholder returns. The Integrated Reporting Framework, alongside IFRS S1 and S2, gives visionary businesses a structured way to use these insights in their everyday decision-making.
The benefits
Integrated thinking delivers several practical benefits:
First, strategic clarity. The value creation model reveals how your structures, systems and relationships create value for all stakeholders. When boards and management more fully understand how their organisation creates value and for whom, they make better informed decisions.
Second, strengthened risk management. Alongside IFRS S1 and S2 adoption, integrated thinking helps organisations foresee and address the sustainability- and climate-related risks and opportunities that directly affect cash flows, access to finance and cost of capital.
Third, cross-functional collaboration. Integrated thinking breaks down organisational silos, fostering deeper collaboration across the organisation. This benefit cannot be overstated. A major US firm told us that adopting integrated reporting improved collaboration between its sustainability and finance teams—directly leading to lower-cost financing through green bonds.
How to embed integrated thinking
During the discussion, I was asked to share practical tips for companies to consider in their integrated thinking journey. Here’s what I offered:
1. Keep it strategic. Integrated thinking should never be reduced to a compliance exercise. Done right, it’s a blueprint for helping build a resilient organisation that can navigate an uncertain business environment.
2. Visualise and simplify value creation. Use infographics to visualise how value is created and write in plain English. We encourage our clients to translate the “six capitals” into language stakeholders immediately understand. For example, “Financial capital” becomes “Shareholders”, “Human capital” becomes “Employees”, and “Social and relationship capital” becomes “Communities”.
Here’s an example of a good value creation model.
3. Answer the WIIFM question. Every section of your integrated report should answer the reader’s primary question: “What’s in it for me?” Too many reports catalogue activities without linking them to a stakeholder outcome or business benefit. For example, if you’re reporting on diversity initiatives, make sure to link training programs to measurable outcomes like improved staff engagement or productivity gains. Obvious, you’d think, but many managers fail to do this.
Writing a report in this way requires more strategic thinking, because every activity disclosed must be tied to a stakeholder outcome and/or a business benefit to warrant inclusion. But the process is simple and logical to follow.
4. Use the reporting process as a strategic tool. This process uncovers opportunities to improve how the organisation evaluates the success of its initiatives. For example, if employees are spending time and effort on an activity but the outcomes and business benefit are unclear, the reporting process can feed back this oversight to leadership. The reporting process is then an annual prompt to refine strategy, helping management evaluate performance and create value more effectively.
5. Ensure executive buy-in. Early and active support from executives (especially the CEO and CFO) and board endorsement is critical. Their backing signals commitment and helps secure the resources required for embedding integrated thinking across the organisation.
The investor perspective
Among the most compelling Tokyo conference voices was Clara Barby of Just Climate. When assessing companies, Barby explains that the CEO’s vision is critical to long-term value creation. For a food business, for example, she tests their understanding of the sustainability of crop yields and regenerative agriculture—an underwhelming answer is a governance red flag.
Barby also looks closely at the articulation of risks and opportunities in a company’s scenario planning, particular in R&D commitments. For a steel producer, say, she will find out if management is considering co-location alongside abundant renewables, given the need for the industry to ultimately transition from coking coal.
“We’re in a difficult environment today,” Barby observes. “For a long time, investors have talked about transition risks with respect to climate and nature. The conversation is flipping. Transition risks still matter, but physical risks are here, as evidenced by rising insurance premiums. In time, we’ll see massive shifts in risk pricing, but only after multiple crises wake the market up.”
But Barby is optimistic. She points out that Trump 2.0 is the third downturn in sustainability, after the 2008 financial crisis and Trump’s first administration. Each previous slump saw sustainability bounce back even stronger, she adds. It may sound counter-intuitive given the current mood, but visionary companies should include an unexpectedly robust recovery in their scenario planning, clearly detailing the risks of inaction now.
I’d love to hear your thoughts – email luke@bwdstrategic.com or message me on LinkedIn if you’d like to continue the conversation.
A special thanks to the IFRS’s Caroline Bridges, Jonathan Labrey and Antonia Johnson for inviting me to participate, as well as to panel moderator Stathis Gould and fellow panellists Charles Tilley and Chun Wee Chiew.