Would it worry you to know that you might only be looking at 20% of the likely value of your organization?
This question was recently posed by Richard Howitt, CEO of the International Integrated Reporting Council.
The issue is that traditional financial statements, usually focussed on by analysts and other stakeholders, fail to truly reflect the value created by an organisation's business model. According to research, the 'missing' 80% of value is made up of items like brand names, reputation, knowledge and skills, and customer relations - internally generated intangible assets which do not feature in the balance sheet.
A recent report issued by Brand Value found that:
- Global intangible value reached $57.3 trillion in 2018
- Intangible value now accounts for 52% of the overall value of all publicly traded companies worldwide (which now amounts to $109.3 trillion)
- Amazon and Microsoft have the highest ratio of intangibles to total value – 96% and 95% respectively
Investors and other stakeholders are increasingly demanding information regarding the holistic value of organisations. Integrated Reporting is one way for this to be provided.
For anyone new to the concept of Integrated Reporting, one of its aims is to provide a holistic view of how an organisation creates value over time. Value is not defined in monetary terms, it is viewed through the lens of six capitals, one of which is financial capital, but other capitals – including human capital and intellectual capital - should also be considered as part of the value creation process.
This means that through Integrated Reporting, organisations can present information on their true value without having to place a monetary value on them, though many do present relevant Key Performance Indicators.
Thousands of organisations are embracing Integrated Reporting around the world, either as a stand-alone document or as part of their Annual Report. Implementation is often part of regulatory demands, for instance the EU Non-financial Reporting Directive is closely aligned with the principles of Integrated Reporting. Whether disclosure is voluntary or mandated, it is fair to say that investors, employees, customers and the public are concerned about corporate conduct. Integrated Reporting can highlight matters such as ethical behaviour, environmental impacts, and human rights.
So while Integrated Reporting can be a means of completing the jigsaw in terms of organisational value, its true potential value is perhaps much wider.
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