Giorgio Saavedra is the Integrated Reporting Lead in the Corporate Reporting group of the World Bank, and is also responsible for statutory and management reporting for the International Bank for Reconstruction and Development (IBRD), one of the World Bank Group institutions. He is a participant in the IR Business Network. In addition to leading corporate reporting for IBRD, Mr. Saavedra plays an integral role in the financial policy decision-making process of the World Bank, and in trying to embed integrated thinking within the organization. Prior to joining the World Bank in June 2005, Mr. Saavedra worked in the Audit and Assurance practices of Ernst & Young, and Arthur Andersen. He holds an MBA in Finance, is a Certified Public Accountant (CPA), and holds the Chartered Global Management Accountant designation.
Christopher P. Skroupa: What is your role at the World Bank?
Giorgio Saavedra: I work in corporate reporting, which has been going through an interesting evolution in recent years. The corporate reporting landscape is becoming more complex—standard setters and legislators are introducing new standards and regulations to address concerns emanating from the recent financial crisis, while various stakeholder groups demand more transparency and insights.
Being in a corporate reporting role places a lot of responsibility on coming up with a story that is both comprehensive and concise for consumption by a vast array of stakeholders. It is a balancing act that requires an in-depth understanding of the business model, performance, strategy, risk management and governance of the organization.
The ability to adapt to the rapidly changing business environment and anticipate the information needs of our investors, shareholders, partners and clients is a vital part of corporate reporting. At its core is the need to develop and use a best practice approach that will assist the decision-making process and contribute to the successful implementation of our strategy. As I lead the implementation of the Integrated Reporting (IR) framework and embed its principles into the fabric of our corporate reporting, my goal is to influence behavior and shift the focus to a more comprehensive view of the factors that contribute to increased strategic alignment and the long-term sustainability of our institution.
Skroupa: Why is IR an initiative of the World Bank?
Saavedra: The foundation of IR rests on integrated thinking, which is something that resonates well with what the World Bank Group is aiming to achieve internally—integrated management.
As the WBG evolves to better position itself to meet the 2030 Development Agenda, having a holistic view of the strategy, governance, performance of the institution against the strategy, and the risks to achieving the strategy is essential to support more informed decision making. Embedding the elements of the IR framework into our corporate reporting can facilitate organizational alignment with our strategic goals and help management understand the linkages between the various factors that affect our strategy and long-term sustainability.
We also see significant benefits in our role as a multilateral development institution in promoting the widespread adoption of IR by our clients to improve transparency and accountability. For example, in a time when the public sector is expected to work in partnership with the private sector to address some of today’s key social challenges, adoption of IR can provide the framework for a more holistic approach to decision making, transparency about risks and how these are being managed.
Skroupa: How does greater transparency and accountability in reporting play a role for a company or a public sector organization?
Saavedra: During the 2008 financial crisis, it became apparent to investors that they did not have sufficient information to adequately assess the risks in their investments. Corporate reporting needed to evolve to provide information beyond financial performance to greater insights into the long-term sustainability of an organization.
There has been a call for action for companies to report on their strategy and articulate if their business model is sustainable in the long-term. Moreover, there is increasing demand for non-financial information and the integration of Environmental, Social, and Governance (ESG) factors into mainstream reporting.
In addition to transparency and accountability, there is a need to focus on creating a sustainable society, and more organizations will be expected to adopt shared value strategies that have a stronger impact that goes beyond shareholders. There will be pressure for companies to articulate how they are contributing to society and to justify their “license to operate.” This will not only force companies to be more transparent and accountable for their actions, but it will also push them to be innovative and more intentional.
The public sector is no different. It accounts for roughly one third of GDP, and it can be argued that the need for more transparency and accountability is even more important.
If you take governments for example, the funding for goods and services which they provide is predominantly based on the taxes paid by citizens. But how can one assess if the decision making process has been in the best interest of the public? In a time of austerity measures when governments are expected to do more with less, greater transparency about the efficient use and allocation of resources can help rebuild trust, improve accountability and communicate how the public sector is creating value for its stakeholders.
Skroupa: How do you consider the integration of financial and non-financial reporting as a driver of change for the accounting profession?
Saavedra: This is a pivotal time for the accounting profession. Accountants have traditionally been in the background, providing historical financial information. In turn, investors and analysts have had to have the ability to read financial statements and derive the story. However, accountants possess more than data. They have the insights and the ability to integrate business information and quickly understand the impact on the organization. We have seen the same parallel with IT, the Chief Information Officer and Chief Technology Officers are a key part of the strategy team, rather than just a provider of IT services, as they have insights into how IT can change the way an organization does business.
As more integration of financial and non-financial information takes place, accountants are well positioned to explain the linkages between the two. Integrated Reporting, which combines financial and non-financial information to provide a comprehensive story about value creation, gives accountants an opportunity to tell that story. This requires and enables them to play a more active role in strategic discussions and be valued as strategic partners within the organization.
Through IR, accountants now are in a position to tell a more compelling story that conveys an in- depth understanding of a company’s business model and how it creates value beyond the financials. When about 80% of the market value of an organization relates to intangible assets, understanding of how other resources, such as human and intellectual capital, are affected is essential to gaining insight on the full impact of decision making.
Additionally, as demand for more transparency and non-financial information increases, more responsibility is being placed on accountants. The profession must evolve to adequately respond to the needs of various stakeholders, and continue to play an important role in creating economic stability through transparency and more holistic reporting.
Many accounting bodies are reworking curriculums to provide the accountants of tomorrow with the skills and competencies necessary to think and be more strategic, and provide more forward looking insight than ever before. In addition, the future generation of accountants must possess the ability to combine their technical expertise and knowledge of the business, with great interpersonal skills and the ability to tell a story that is clear and concise.
Skroupa: Do you believe that disclosure attracts capital in alignment with the values of a company?
Saavedra: I believe that better disclosure can play an important role in attracting the right kind of investors. Take impact investors for example, companies can attract this specific niche by providing disclosures on how they are responding to certain social challenges.
Consumer empowerment and other megatrends are changing the relationship and dialog between companies, investors and society in general. Investment practices are shifting focus from short-term to that of a long-term horizon as investment decisions are focusing on financial stability and sustainable practices.
Investors are demanding a more comprehensive view of how organizations are creating sustainable value over time, and companies are beginning to pay attention. The focus on ESG factors, is pushing the most visionary companies to incorporate these factors into their strategies. In some schools of thought, linking social purpose to profits, represents a tremendous opportunity for companies to unlock hidden value.
Take the Sustainable Development Goals (SDGs), developed in 2015 when more than 190 world leaders made a commitment to 17 goals to help end extreme poverty, reduce inequality and address climate change. These goals are not just applicable to the public sector, but to society at large, and businesses have a big role to play. Meeting the SDG’s will require flow of private capital to address the gap in financing, which in developing countries alone is estimated at $2.5 trillion. More transparency and better disclosure about risks, can facilitate the flow of funds and contribute to increased shared prosperity.
Skroupa: What is the greatest obstacle presently with universal adoption of IR?
Saavedra: I believe one of the greatest obstacles is the lack of convergence and standardization of reporting frameworks for non-financial information, such as intangibles. The reporting of this data is still challenging, especially when it comes down to its reliability. Published financial information (applicable to publicly listed companies) has historically been through the rigor of independent audits, which has provided investors and other users of information with the comfort to place reliance on them. Non-financial data will need to be captured and safe-guarded with the same level of scrutiny and due diligence as financial data. This means system changes and the introduction of a control environment to ensure its accuracy and robustness.
Many preparers of integrated reports obtain various levels of third-party assurance on some aspects, and in some cases on all, of their non-financial disclosures; however this assurance does not go through the same rigor as an audit. In addition, there is still much debate on the level of assurance that is appropriate for an Integrated Report.
As market demand for more transparency of non-financial information grows, including the need for investors to incorporate non-financial metrics into their decision making process, a new wave of standards and regulation is likely to be introduced.
Christopher P. Skroupa is the founder and CEO of Skytop Strategies, a global organizer of conferences.