An ESG Exchange First Tuesdays webinar held on 5 September 2023 and sponsored by Trialogue, delved into the concept of integrated thinking and its transformative impact on corporate strategies. Moderated by Alex Hetherington, the expert panel included Trialogue Managing Director Nick Rockey, AICPA & CIMA Global Head of Sustainability Jeremy Osborn, and Chief Executives for Corporate Purpose (CECP) ESG and Sustainable Business Insights specialist Jenna Moore.

Rethinking integrated thinking

Rockey initiated the discussion by clarifying what integrated thinking is not. He highlighted the historical corporate focus on reporting, where companies produced reports on sustainability issues without actively addressing them internally. This disjointed approach led to initiatives that were misaligned with integrated thinking.

Rockey stressed that integrated thinking is a more complex process than reporting. It is a holistic process that should guide reporting efforts. While reporting follows established codes and standards, integrated thinking lacks such guidance. Rockey advocated for a first principles approach to integrated thinking, beginning with understanding the organisation’s external context, stakeholder interests, purpose and strategic ambitions. This lays the foundation for integrated thinking, where leadership plays a pivotal role in driving the mandate and commitment.

According to Rockey, integrated thinking involves absorbing key principles, particularly the IFRS Foundation’s Integrated Thinking Principles and Trialogue’s Purpose-led Integrated Thinking Framework, driving a change management process. Aligning purpose, strategy, and sustainable development is crucial in this continuum, according to Rockey.

Trialogue’s Purpose-led Integrated Thinking Framework

Integrated thinking as a change catalyst

Osborn expanded on integrated thinking as a change management endeavour. He explained how the IFRS Foundation’s Integrated Thinking Principles emphasised interconnections. Integrated thinking is not a standalone task like reporting but rather a multifaceted concept that interconnects various aspects through an organisation.

Osborn highlighted integrated thinking’s value, particularly for chief financial officers and chief executive officers. Case studies from the IFRS Foundation’s Integrated Reporting focus area revealed that it helped CEOs align strategies with shareholder and stakeholder value creation.

For those preferring quantitative insights, Osborn referenced a 2017 study on South African companies. The research paper, Integrated Reporting: Background, measurement issues, approaches and an agenda for future research, linked high quality integrated reporting to enhanced shareholder understanding of strategy and future cash flows, benefiting investor assessment of company execution and valuation.

Osborn emphasised integrated thinking as a management philosophy primarily serving the organisation itself. He said that investors with a long-term mandate, such as pension funds, scrutinise future disclosures and assess the connection between how organisations manage these resources and their forecasted business performance.

Balancing short-term and long-term value creation is essential. Standards like IFRS S1 and S2 require organisations to look into short, medium, and long-term futures, promoting stakeholder value, including natural and human capital.

Osborn highlighted the growing interest among investors in organisations’ transition plans towards lower carbon or net-zero business models. He pointed out that investors are currently dissatisfied with the lack of confidence in the data, timelines, metrics, and accountability related to these transition plans. He stressed the urgency for organisations to articulate clear transition plans, considering various factors like regulation, timelines, ambitions, and performance metrics. Integrated thinking plays a role in facilitating internal alignment within organisations to create coherent transition plans, he explained.

Navigating integrated thinking

Moore discussed the rising adoption of integrated thinking, explaining that pressures from various stakeholders make it challenging for companies to ignore. The Edelman Trust Barometer indicates businesses must address critical issues, have a positive environmental and social impact, and maintain financial performance, she explained.

However, integrated thinking faces challenges, including balancing long-term value creation against quarterly earnings pressures. A CECP initiative, led by prominent figures, aims to shift the capital markets conversation towards a long-term orientation, assisting companies in managing change.

Moore detailed an integrated long-term plan framework aligned with the IFRS Foundation’s Integrated Thinking Principles. The framework serves as a structured approach to help companies comprehend the interconnectedness of various aspects. She pointed out that often, different company functions operate in isolated silos, and this framework acts as a driving force to bring these functions together and facilitate important discussions. It serves as an internal tool to promote change within the company and encouraged practical action in the field of sustainability and integrated thinking, she explained.

Take control of your own sustainability journey

Rockey highlighted the evolution of integrated thinking from a niche concern of middle management to a top-level executive interest, driven by environmental, social, and governance (ESG) rating agencies’ scrutiny and codes like the Task Force on Climate-related Financial Disclosures (TCFD). He also emphasised the rise of shareholder activism in pushing companies to prioritise sustainability.

Rockey advised companies to define their purpose, adhere to core values, and lead in integrated thinking, rather than reacting to external pressures. He stressed the need for a systematic approach, including clear directives, mandates, budgets, and board-level discussions aligned with the company’s purpose and values.

The panel provided insights into the evolution and value of integrated thinking, highlighting its role in aligning purpose, strategy, and sustainability for organisations and investors. It encourages companies to take control of their sustainability journey, steering towards a more sustainable future.

University programmes driving integrated thinking

Two of the world’s leading business schools offer ESG-related courses that embed integrated thinking.

The CECP partnered with Harvard Business School’s Professor George Serafeim, who co-leads the Climate and Sustainability Impact AI Lab in the Digital, Data and Design Institute, to create the integrated long-term plan framework. As such, Moore said integrated thinking is top of mind for those business schools creating the curriculum. Serafeim’s MBA course includes integrated thinking concepts in its Reimagining Capitalism: Business and Big Problems course.

Osborn said the AICPA has partnered with Oxford’s Saïd Business School to launch a new course on ESG and sustainable financial strategy. Integrated thinking in central to the course, with the first intake set to start at the end of September 2023.