The Relationship Between Integrated Reports and Sustainability. Why Diversity & Inclusion is Now Required in Integrated Reports (Part 2)

• The Relationship Between Integrated Reports and Sustainability. Why Diversity & Inclusion is Now Required in Integrated Reports (Part 1)

Integrated reports synthesize a company's value from both perspectives: "quantitative financial information such as company sales and assets" and "qualitative information representing the company's strengths, such as corporate governance, CSR, intellectual property, management philosophy, and human resources." In Part 1, we spoke with Koji Kinoshita of the Dentsu Group Inc. Sustainability Promotion Office about the background behind the growing number of companies in Japan issuing these integrated reports and the increasing attention they are receiving, as well as why diversity and inclusion initiatives have become a factor in investor decisions. In the upcoming Part 2, we will hear about specific points to consider when creating integrated reports and recent trends.

Integrated reports are created cross-departmentally to demonstrate corporate value to society

Q. I understand the importance of integrated reports. However, capturing various aspects of our company and demonstrating medium-to-long-term growth potential seems like a significant undertaking. How are integrated reports typically created?

Kinoshita: It's simply impossible for one person to create the entire report alone. Typically, teams from Investor Relations (IR), Corporate Social Responsibility (CSR), and Corporate Planning departments collaborate, bringing together information across departments. You cannot create it without a clear understanding of what kind of company you are and your societal positioning. Merely listing facts is insufficient. You must place the company's philosophy and the CEO's management policies at the core, demonstrating how these are embodied company-wide.

Q. You mentioned cross-departmental collaboration. Within that, what roles tend to take the lead?

Kinoshita: IR personnel often take the lead. This is because the integrated report is fundamentally created for investors, and IR staff are the ones who interact with those investors on a daily basis.

IR personnel used to focus primarily on answering analysts' questions about quarterly performance and financial status. However, investors now also seek to understand a company's "purpose" and the "depth of its corporate philosophy's integration." Therefore, IR personnel must now be able to discuss both detailed figures and the vision for the company's future direction.

What are the hot issues and recent trends in integrated reporting?

Q. There are various themes related to Diversity & Inclusion. From the perspective of creating an integrated report, are there any themes that stand out as particularly hot issues?

Kinoshita: While this isn't the only one, initiatives related to "women's advancement" are certainly receiving significant attention lately. Companies will almost certainly be asked about their female representation in management roles and how they plan to improve it. Additionally, areas like "well-being" and "work-life balance," which aim to achieve employees' physical, mental, and social health and happiness, are important. For example, how much childcare leave is taken, including by male employees. In essence, it's about how companies provide a working environment that is easy to work in and enhances productivity.

The significance of advancing women's advancement initiatives certainly includes "greater diversity compared to male-only groups," but above all, it's that "a company where women can work comfortably = a company where men can work comfortably." Therefore, creating an environment where women can work comfortably ultimately improves the performance of everyone working at that company and builds an environment that maximizes the utilization of the company's resources.

Q. Finally,in the first part, you mentioned that "Japan actually publishes a significant number of integrated reports globally." Beyond the sheer volume, are there any other distinctive features of Japanese companies' integrated reports?

Kinoshita: Japanese companies' integrated reports tend to be quite standardized in format. There are various theories about this, but I believe it stems from being overly conscious of investor evaluation, leading to a kind of risk aversion.

After the IIRC (International Integrated Reporting Council) proposed its framework, consulting firms affiliated with audit firms, among others, pushed for companies to adopt integrated reporting, emphasizing that "ESG will be crucial going forward." During this process, a so-called "template" format likely spread and became established.

Consequently, Japanese companies' integrated reports tend to have a very similar overall structure.

For example:

• Company Overview
• CEO Interview
• CFO Interview
• Value Creation Model and Story
• Description of Each Business Division
• ESG Initiatives
• Corporate Governance
• Financial Information, Stock-Related Information

This is a typical flow.

However, many overseas companies seem to follow a different concept: they start with lengthy explanations of their group structure and business operations, only to end with a CEO interview. This approach suggests they prioritize presenting what they want to highlight.

Recently, however, even in Japan, companies demonstrating strong leadership from the top are increasingly producing highly original integrated reports. While some worry that "too much uniqueness might lead to a lack of external recognition," such approaches may simply reflect the distinct character of the company.

Integrated reports contain all information related to a company's growth. Therefore, those creating them must weave a narrative centered not only on "the numbers at hand" but also on the core concept of "what kind of social presence the company fundamentally aims to be," while considering "how it intends to achieve that." Moreover, when telling this growth story, clearly demonstrating initiatives in the Diversity & Inclusion domain is essential. This is because human resources are the very source of all corporate growth, and a company lacking a vision for talent utilization risks being perceived as incapable of demonstrating growth potential.

Even if your work doesn't involve integrated reports, it's worthwhile to thoroughly read your company's own integrated report. It contains the message about what value your company intends to provide to society going forward. It might prompt you to re-examine your current work and inspire you to do better.

Alternatively, reviewing the integrated reports of companies you're interested in or your business partners is also worthwhile. Where do strong companies derive their strength? What corporate philosophy underpins them? You may find important insights for evolving your own business.