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Web and flow – megatrends, microtrends and corporate reporting

Posted 12 May, 2017

IIRC involvement in the B20 is a multi-year journey of progress, reflects Jonathan Labrey, Chief Strategy Officer, IIRC

  • web – noun: a complex system of interconnected elements
  • flow – noun:  the action or fact of moving in a steady, continuous stream

2017 marks the fourth consecutive year when the IIRC has put corporate reporting issues on the B20 agenda as a member of the business leaders’ group that advises G20 governments.  We have influenced the thinking and direction of decisions through our participation in the different task forces established by the host country of the G20 – Australia, Turkey, China and, in 2017, Germany.  The B20 advises governments on policies that will promote financial stability and economic success.  Increasingly, as we move out of the shadow of the global financial crisis of 2007/8, leaders are focused on policy solutions that promote inclusive growth, long-term value and resource efficiency.

We are all familiar with the emergence of megatrends, which EY has helpfully simplified under three headings – technology, globalization and demographics.  These megatrends have the capacity both to disrupt accepted practice and create the conditions for transformative growth.  It is important for capital market participants and policymakers to be at both ends of the telescope to manage risks and maximise opportunities that these trends create.  This is where the G20 has been successful since 2009 – it has kept the wheel of the global economy moving and, together with other multilateral processes – the IMF, EU, ASEAN and FSB – has provided a unified framework for analysis and discourse to stabilised the global economy.

The challenge now is altogether different and more complex, but it presents an exciting challenge for those of us involved in corporate governance and reporting.  Because on the other side of the equation from megratrends are the less-heralded ‘micro-trends’ that are equally powerful yet less well known.  And when megatrends and microtrends conflict this creates a barrier to progress.  As the US strategist Mark Penn points out in his influential book ‘Microtrends: surprising tales from the way we live today’, while people are eating more healthy foods than ever, Big Mac sales have never been higher.  And while more people than ever are drinking clear, natural water, more people are also drinking “monster” energy drinks loaded with chemicals and caffeine.  In other words there is a behavioural disconnection, a disharmony, between the different types of trends and movements in the world today.

How does this relate to the G20, B20 and corporate reporting?  There is arguably a disconnection today between what is required from information to enable our capital markets to function productively and efficiently, and what is provided by multiple layers of laws, regulations, codes, recommendations, standards and frameworks that create a web of complexity rather than a flow of continuity.  The Corporate Reporting Dialogue, recommendations of the FSB Task Force on Climate-Related Financial Disclosures and bilateral efforts to bring about greater coordination are welcome, but we should be pressing the G20 for greater coordinated action to simplify the landscape.  Integration could become the corporate reporting ‘microtrend’ that works in harmony with the need, for example, to articulate the value of intangibles.

And there are other benefits too, which speak directly to the G20 agenda.  Transparent flows of information underpin open and inclusive trade, tackling corruption and inequality and fostering innovation that will power future investment.  B20 leaders are in the ‘future business’, putting forward tested ideas that will mobilise coordinated action.

In Berlin earlier this month IIRC CEO Richard Howitt advocated for G20 endorsement for the implementation of the FSB Task Force recommendations on climate-related financial disclosures, something that was reflected in the final call to action to policymakers.  This is vital to ensure we have one coordinated system of disclosure, with different elements contributing to a cohesive and efficient whole.

There were also echoes in the task force reports of previous years’ efforts by the IIRC coalition.  The B20 communique highlighted a comment by Oliver Bate, Chair of the Task Force on Financing Growth and Infrastructure: “Improving investment conditions includes providing greater transparency and quality of information to the private sector on investable infrastructure projects”.  This reflects the findings of the 2014 report by the world’s six major accounting networks which highlighted the role corporate reporting could play in providing greater confidence to investors in long-term infrastructure projects.  John Stanhope and Michael Bray made strong representations during Australia’s G20 Presidency which found their way into B20 recommendations, endorsed by G20 governments.

Perhaps not surprisingly, given the contours of the German economy, SMEs featured prominently in the analysis and recommendations coming out of Berlin.  Charles Tilley did a great deal under Turkey’s Presidency in 2015 to highlight the role integrated reporting can play in broadening the conversation with capital providers to help SMEs gain access to the finance they need to grow.  This was included in the task force report and we are seeing a growing interest in SME reporting from B20 and policymakers.

We used China’s Presidency in 2016 to strengthen our relationship with the Chinese Government.  This has led to the appointment of Dr Lin Zhu to the IIRC council, representing the Ministry of Finance.  The Ministry also highlighted its support for integrated reporting in its five year plan released in October.  This demonstrates that our involvement in this multilateral process has wider benefits that we are keen to maintain as the leadership baton passes to Argentina in 2018.

Despite the uncertainty created by the UK’s decision to exit the European Union and new US administration which is finding its feet, there is increasing coordination at a policy level of what is required to power our economy towards 2020 and beyond.  The IMF/World Bank spring meeting, the ASEAN regional conference and the B20 Summit on 2-3 May all concluded that policies are needed that promote sustainable, balanced, inclusive, job-rich growth.  This agenda can be achieved, but only if we bring the mega-and-micro trends into greater harmony.  The corporate reporting world will play its part.