Peter Shergold | CSI blog

In a previous blog I talked about the importance of qualitative attempts by nations to measure the good life.  It was courageous, I thought, to write about statistics.  Today I’m going to address the issue of integrated reporting.  Braver still, I suspect.  I risk becoming the boring bloke who stands between you and the drinks fridge at a party.

I do so because the issue is fundamental to how companies measure, and report upon, their ability to create and sustain value – not just economic and financial but social, environmental and governance factors.  It’s an idea whose time has come.  Below the radar, the reporting framework for companies is set to change.

I sit on the board of a publicly-listed company.  I know, having to read every page, how long, detailed and complex the Annual Report has become.  Much of its arcane nature is driven by regulatory requirements.  Presentation of strategy tends to get lost behind dense technical jargon.

It’s hard to tell our story in an engaging and informative manner to our shareholders, policyholders and stakeholders.  The narrative gets buried in the voluminous financial statements and their detailed explanatory notes.  Like many companies we end up employing workarounds, providing an alternate measure of ‘underlying profit’ that we believe is a better measure of our corporate performance over time.  The financial reporting predominantly looks backwards:  non-executive directors like myself are only too well aware that discussing future prospects gives rise to potential legal liabilities.

Company reporting, then, tends to be extensive but partial.  It is commonplace that documents on corporate citizenship, social responsibility or sustainability are issued separately from the Annual Report.  The measures of performance are then selected from a widening array of reporting vehicles – from the Global Reporting Initiative framework to the London Benchmarking Group.  This gives rise to three problems.

First, it perpetuates the belief that the reporting measures of societal or environmental value may be chosen to present a company’s performance in the best light.

Second, it suggests that community benefit or sustainability initiatives are simply well-meaning (or self-serving) bolt-ons to the real business of the business presented in the Annual Report.

Third, as Helen Brand, the President of the Association of Chartered Certified Accountants has blogged, “Presenting the information separately, in silos, makes it difficult to build up an overall picture of a business’ long-term value …  We need an integrated approach to reporting.”

Thankfully, a move is underway to do just that:  to streamline company reporting, reduce its costs and – most importantly – provide a clearer picture of organisational performance.  The International Integrated Reporting Committee (IIRC) was set up in 2010 by a large group of distinguished corporate, regulatory, academic and civil society leaders to design a more comprehensive but flexible reporting framework.

The IIRC’s mission is to find ways to better communicate the total value that companies create.  To do so it is necessary to make transparent the six ‘capitals’ on which a company depends (financial, manufactured, human, intellectual, natural and social) and to explain how they are assessed and deployed in a strategic manner.  Among the guiding principles of integrated reporting are the connectivity of information, its future orientation, stakeholder inclusiveness and commitment to conciseness, reliability and materiality.

According to Goran Tidstrom, President of the International Federation of Accountants (and a member of the IIRC), “Financial information is not sufficient.  We have to provide information on sustainability, on social issues and environment, and it has to be done in an integrated way with a financial report.”  Here’s how.

Social capital reporting is meant to recognise a company’s social licence to operate, including the corporate values and behaviours that prevail;  how relationships are conducted with customers, suppliers and business partners;  and the extent to which the business enhances individual and collective wellbeing.

Natural capital reporting is intended to exhibit how a company’s activities impact, positively or negatively, on the ecosystem – water, land, minerals, forests and biodiversity. 

Human capital reporting is designed to capture the alignment of a company’s ethical values and governance framework including, for example, how human rights are recognised.

The IIRC has now issued a comprehensive Discussion Paper on its ambitions.  It’s a good read.

The good news is that some Australian innovators are not waiting.  The new cooperative bank, bankmecu, has already announced that it is to work with the Net Balance Foundation to develop an integrated reporting framework for its 2011-12 Annual Report.  At the bigger end of town NAB’s Annual Report for 2011 already includes a significant section on corporate responsibility as an integral part of its business strategy.

Accounting and applied statistics can seem to be dull disciplines.  The truth is that unless we can measure and report upon the value of social and environmental good created by companies effectively, the momentum for them to create ‘shared’ economic and societal value is likely to slow.  That, at least, is my perspective.  I’d welcome your views.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI blog.

Gina Anderson | CSI Blog

2012 looks to be a defining year for the not-for-profit, social enterprise and philanthropic sector and Gina Anderson outlines why she is looking forward to the next 12 months.

I think it will be a defining year for the sector. I gave my forecast for the next 12 months some consideration over the break.

First: social policy and regulation reform. Slow, grinding and often – but so critical for systemic change. This has been at the forefront of the agenda for the past year and as a result, three big issues will have significant social impact in 2012:

1.    The introduction of National Disability Insurance Scheme (NDIS)

Most Australians assume that if people are born with a disability or acquire one later in life, that some system, somewhere, will take care of them. Nothing could be further from the truth. And, as the population ages, the number of people with a disability will increase. At the same time, the number of unpaid carers – family members and friends – willing and able to provide support will decrease.

The NDIS represents an urgent and fundamental reform to the way disability services are funded and delivered. It is a social reform on the scale of the introduction of Medicare and compulsory superannuation – two safety nets now taken for granted by every Australian.  Prime Minister Gillard has now identified the NDIS as a key Federal Government reform.  Visit the Every Australian Counts website for more information.

 2.  The establishment of a new independent statutory agency: the Australian Charities and Not-for-Profits Commission

The Australian Charities and Not-for-Profits Commission (ACNC) will commence operations from 1 July 2012 and will initially be responsible for determining the legal status of groups seeking charitable, public benevolent institution, and other NFP benefits on behalf of all Commonwealth agencies.

The ACNC will also implement a ‘report-once use-often’ reporting framework for charities. It will provide education and support to the sector on technical matters, and establish a public information portal by 1 July 2013.

3.    The introduction of the Pokies legislation.

‘The Federal Government has proposed gambling reforms which include “pre-commitment” technology that will require pokies players to have a card registered to their name and pre-programmed to prevent them losing more than a set amount in a 24-hour period.’

Other trends

Coupled with policy reform, the rise of engaged philanthropists such as Gates and Buffet and their interest in social investment are changing way we all think about social sector.  Established trends such as the move in expectation and measurement of not-for-profit practice from outputs to outcomes, and the realisation that we need multiple sector partnerships to solve our intractable issues, are being accompanied and supported by other trends. These are:

1.    Crowd funding or Micro-Philanthropy

As conventional fundraising struggles, increasingly charities and social enterprises will look to crowd-funding or micro-philanthropy (using the internet to solicit pledges of small amounts of money from individuals) to source money. This is often referred to as the “Obama effect” referring to the US President Barak Obama’s use of the internet to source small donations to fund his electoral campaign.

Importantly donors see their contribution as a ‘social investment’ rather than a donation and as most of these donations are small, the donors do not seek a tax deduction.  In this way donors at all levels are able to invest in social innovation – funding new ideas and processes that move or cause or organisation to greater sustainability, durability, impact, and scale.

2.    Blended capital

The use of blended capital will grow as social enterprises and charities seek finance and capital from outside the not-for-profit sector.  While many will continue to make grants or donations, others will use their capital for impact investing rather than giving a grant.

There will be loans and guarantees to non-profits and gradually, we will see the use of debt and equity instruments.  While others will directly invest in social enterprises seeking a ‘blended return’ on their investments – a financial return on their investments that may not be as high as other possible returns but will better align their investments and their social aims.

3.    Intermediaries

To support this new world of social investment we will see the growth of intermediary organisations and products for different ‘social investors’.

Social finance intermediaries play a crucial role in bringing together the key sources of capital with social businesses and there is a crying need to develop such intermediaries in Australia.

It is exciting time to be working in the not-for-profit sector and I look forward to 2012 with great enthusiasm.

Gina Anderson is the Philanthropy Fellow at the Centre for Social Impact (CSI) at UNSW. This blog first appeared on the CSI blog.

Peter Shergold | CSI blog

It was in May 1968 that Robert Kennedy, with characteristically brilliant oratory, identified the abject failure of governments to measure the quality of life afforded their people.  The traditional statistic – per capita Gross Domestic Product (GDP) – “does not allow for the health of our children, the quality of their education, or the joy of their play;  it does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials …  It measures everything, in short, except that which makes life worthwhile.”  Listen to the speech on YouTube:  it will raise the hairs on the back of your neck.

Two generations on, governments are struggling to address Kennedy’s challenge.  As not-for-profits increasingly seek to measure social returns on investment, and companies to give quantitative dimension to societal as well as financial value, give a thought to the world’s statisticians.  Frustrated with the shortfalls of GDP as an indicator of wellbeing, they are struggling to find alternative means to measure progress in the quality of people’s lives.

It’s not a moment too soon.  Democracy is under challenge.  Levels of trust in politicians are worryingly low.  Less remarked upon is the lack of public confidence in official statistics.  In France and the UK, for instance, only one-third of citizens believe official figures.

Not surprisingly there is a renewed sense of urgency amongst government statisticians.  In May this year the OECD, as part of its 50^th anniversary celebrations, launched the Better Life Index.  It builds on a French initiative, the Commission on the Measurement of Economic Performance and Social Progress, led by renowned American economist Joseph Stiglitz, which reported in 2010.    The Commission concluded that for many purposes there were better economic statistics than a measure of production, GDP:  levels of real household income, for example, or the extent of income inequality.  It is not that GDP is a wrong measure but that it is often inappropriate as a measure what people care about.  In many instances data on social or environmental wellbeing is more relevant.

The Better Life Index seeks to respond to the Commission’s challenge.  It measures 11 dimensions, with 1-3 indicators in each:  housing, income, jobs, education, the environment, governance, health, life satisfaction, safety and work-life balance.  It’s proposed to add more criteria in the future.

The challenge, of course, is how to address the relative importance of such indices of well-being.  The OECD deftly sidesteps the problem by making the index interactive.  Each visitor can weight the variables on-line as they want and share their views with others via Twitter or Facebook.  This is statistics in the age of social media.

It’s made difficult to work out which of the OECD’s 34 member states scores best.  You have to measure the height of flowers and the size of their petals!  I know you don’t believe me but take a look.  Weighing all variables equally on the horticultural scale Australia, I think, is placed second, just behind Canada and just ahead of Sweden in the Better Life garden fertility stakes!  Some 75% of Australians are satisfied with their lives compared to just 59% for the OECD as a whole.

As a nation we rate particularly well on the Community dimension.  Around 95% of Australian respondents believe that they know someone they could rely on in a time of need.  Interestingly 65% report that they have helped a stranger in the last month, compared to an OECD average of only 47%.

The United Nations is also actively seeking to move beyond traditional measures of national wealth. The UN Development Program argues that “an excessive obsession with the creation of material wealth can obscure the ultimate objective of enriching human lives”.  Seeking to redress that defect it has recently issued its 2011 Human Development Report.

Frankly it doesn’t pack the enjoyment of the Better Life Index, requiring its users to possess some understanding of income logarithms and geometric means.  The data, which graph trends back to 1980, is probably more compelling.  It creates a composite index of human development by measuring 3 dimensions (health, education and living standards) against 4 indicators (life expectancy at birth, years of schooling, expected years of schooling and gross national income per capita).

Now I know that your ethical self will recognise the dangers of putting such data into league tables.  But I also know that your inquisitive self wants to know how Australia performs.  The answer is that of 269 countries (47 developed nations) we rank 2^nd after Norway, performing slightly better than the Netherlands, the US, New Zealand and Canada.  In short, the more comprehensive statistical metrics suggest that Australia provides a better quality of life than measures of GDP indicate.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI blog.