This is part 2 of a 6-part series about integral thinking and true materiality. It proposes a new impetus to develop reporting that is able to serve the idea of a green & inclusive economy. Part 1 can be found here.
Those of us who have been working in the areas of corporate sustainability and integrated reporting struggle to reconcile the gap between our aspirations for a world we envision, and the current world that falls short of sustainability and integration. More precisely, some of the following aspects have also led to the raison d’être of the three initiatives that I presented in Part 1. Here are the most important ones:
- the fact that existing standards (GRI, IIRC, SASB, etc) fall short of enabling if and when an organization will actually be 'sustainable.’ We call this the Sustainability Context Gap, which the Sustainability Context Group has been addressing with the major standard-setters for years. Many SustyContextGroup members are actively engaged in Reporting 3.0 as well as the Sustainable Brands communities.
- the failure of linking corporate performance with social floors and environmental ceilings in ways that lead to organizational transformation and pioneering leadership. The ThriveAbility Foundation calls this a 'three gap problem,’ and if not tackled all together there is little chance of success that the reporting entity will ever be sustainable.
- the still diverse understanding of materiality. Allen White, co-founder of GRI, described this in a recent virtual dialogue, held to prepare the 2015 Reporting 3.0 conference: “Corporate reporting must keep pace with the realities of an economically and ecologically interdependent world. The narrow scope and short-term horizon of financial reporting is increasingly detached from the complexities and multiple performance drivers of 21st-century organizations. It is a moment for leading initiatives to find common ground, synergies and win-win situations in laying the groundwork for the next decade of innovation and mainstreaming a new form of corporate reporting. It is time to remove the artificial distinctions between internal and external materiality.” In other words, companies need to address both what’s material when considering the interests of their own organization, andwhat’s material when considering broader societal interests.
- the contracted notion of what is now called integrated reporting. This way of applying what the IIRC advocates for as ‘integrated thinking’ lacks two main components. First, integrated thinking is mainly used to increase the collaboration of departments within an organization and often still lacks fluid interaction with various sets of external stakeholders around the multiple capitals, which is traditionally addressed through old-fashioned dialogue, but has become less and less prevalent and truly functional as of late; and secondly, this sort of thinking misses out on two of the three gaps as described by the ThriveAbility Foundation, namely really instigating organizational transformation and pioneering leadership. Integrated thinking as articulated by IIRC falls short on these fronts, and thus fails to be truly ‘integral.’
- the fact that accounting isn’t yet ready to shift toward multi-capital bookkeeping (even in trial pilot form). The litmus test of 'integral’ approaches in accounting needs to showcase that financial capital hasn’t been built on the back of any other capital (natural, manufactured, social, human, relational, intellectual). Based on that, the ThriveAbility Foundation offers the idea of 'True Future Value’ as a new business equation of success, to be discussed in part 4 of this series.
- the fact that many organizations pursue sustainability as a goal isolated from other aspects of the business. For example, most organizations focus on negative footprint reduction, and have yet to learn how to increase their positive impacts (handprints) and how to scale them up through their products and services, through collaboration, through advocation of their leaders, and by organizing their own operation around flexflows instead of hierarchies. Scalability of what works well and how it can be combined through yet unknown possibilities are often far out of sight.
In consequence of this list of struggles, strategy, organizational dynamics, data management, accounting and finally reporting need a new impetus if we want to tap the 'transformational potential’ to become thriving organizations. We need trust, innovation and resilience as the outcome of a combined approach to renew the discussion around purpose, success and scalability, as shown in diagram 1 in Part 1 of this series. Part 3-5 will pick up on each element — purpose, success and scalability, while part 6 will look at the wanted effects — trust, innovation, resilience. Together, they define the future agenda of reporting as a trigger for sustainability — to create the future we envision.