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Using Integrated Reporting as a catalyst for integrated thinking.
That’s how Peter Graf, SAP’s Chief Sustainability Officer expressed the firm’s decision to replace two reports – the annual report mandated by the law and submitted to the SEC indicating the company’s financial performance and the sustainability report , voluntary in nature and showing its non-financial performance– by one Integrated Report for 2012.
While Integrated Reporting is a fairly new trend – The International Integrated Reporting Committee [IIRC] website hosts a total of 41 Integrated Reports since 2011 – it’s not surprising.
As the trend of CSR and sustainability reporting grows – due to multiple factors including a recessionary economy, dwindling resources, emerging conflicts in supply chains and a better connected world – logically, Integrated Reporting is the next step for any organization truly attempting to be as transparent as possible about its financial and non-financial challenges and performance.
Shift in Engagement: From Sustainability to Integrated
At SAP, the impetus for the shift was the realization that “we needed to engage within our organization on a different level” according to Graf. “We have been reporting on our sustainability performance since 2008. The report has grown in sophistication over the years and we even won several awards in the last two years for our report’s interactive nature, etc. So technically, we could have continued on that road,” he added.
Last year, CSRwire collaborated with Graf and his team on a webinar to launch SAP’s new interactive report. Complete with social media buttons, comment sections and multimedia options, the report could be customized and perused in multiple ways depending on your agenda. The report was well received – and in a span of an hour we received over 30 questions from a very engaged audience. [Join us for a webinar with Peter Graf, IIRC CEO Paul Druckman and others today at 11am ET]
SAP set a trend last year, so why the shift again?
Connecting the Dots: The Bigger Picture
“We have been measuring key performance indicators [KPI] on the financial and non-financial side for quite a while. But one day, we started to put them all on a white board trying to draw connection lines between them. Before we knew it, the chart was pretty full. We started to do research both internally and externally , to better understand and compute those relationships. Suddenly it became clear, just how interconnected non-financial and financial performance indicators really are,” he explained.
“When I heard about Integrated Reporting for the first time, I got excited. But then I thought: It’s going to be a very long process to achieve the integrated thinking that must be portrayed in the report. I viewed the Integrated Report as an outcome. However, over time our team reached the conclusion that instead of waiting for the right engagement at SAP to happen, we should use the process of producing an integrated report as the forcing function to drive the necessary engagement,” Graf added.
“In its integrated report, SAP lays out the interdependencies between financial and non-financial indicators,” said Graf. Proof points like: an increase or decrease of one percentage of SAP’s retention rate saves/costs the company 62 million euros. And since 2007, a peak year for energy consumption at the company, SAP has avoided 220 million euros ($285 million) through energy conservation efforts.
“When these kinds of relations appear between financial and non-financial indicators, they do more than make the business case for sustainability. They serve as the catalysts for an integrated corporate strategy.” said Graf.
While the entire report is available online, a parsed version – “we kept out customer stories but retained all other ESG data and metrics” – is submitted to the Securities & Exchange Commission.
SAP’s 2012 Performance: Key Highlights
So what will you find in the integrated Report this year?
For one, retention was up [94 percent in 2012] as was diversity, i.e., the number of women in management [an increase of one percent from 2011 to 19.4 percent].
The goal: to reach 25 percent by 2017.
Total energy consumed stayed stable at 2011 numbers while revenue increased by 17 percent and emissions per Euro in revenue and per employee were reduced for the sixth year in a row. Overall emissions were slightly reduced, in spite of the company adding 9,000 new employees in 2012. Finally, the use of renewable energy increased from 47 percent in 2011 to 60 percent in 2012.
Also intriguing to me was a section, which detailed SAP’s People Strategy.
I asked Graf what the strategy involved – and how did they measure the outcomes besides retention and diversity?
“Having a sound strategy around people is essential in a company that solely relies on its employees to create value. Thus our ability to compete is highly dependent on our human resources and it’s impossible to separate that from our financial performance,” he said.
“First, we want to hire more diverse people. We believe more diverse groups innovate better. Second, we want to nurture our talent through clear development plans, challenging assignments, social media, e-learnings, etc. And finally, we want to leverage employee engagement as a decisive factor. So we measure retention and diversity but also engagement, which is a core and central KPI in driving our overall performance in the future,” Graf added.
Measuring Employee Engagement: Critical to Business Performance
So what contributed to a drop in employee engagement in 2006-2009?
“I believe there are various reasons that led to a decrease in engagement during that time. Most important, however, is how we made it back to the high engagement scores of today: When economic growth came back after the recession, the leadership of the company changed, a compelling innovation strategy for growth was established, the company was given the purpose of helping the world run better to improve people’s lives and overall we enjoyed strong and continuous revenue growth as a result. So, a combination of issues got us into low engagement scores and a combination of things got us back on track.”
SAP also measures a Business Health Culture Index. Does that measure the company’s engagement quotient and connect it with business performance?
“We use this index to measure the health of our employees. There are four times as many stress-related illnesses in the intellectual property industry as compared to other industries. So we use data from eight questions [purpose, leadership, recognition, empowerment, rewards, stress levels, compared to people my age I feel more/less healthy] to understand where we stand and what we need to do to take care of our employees.”
In 2012, SAP’s Health Index stood at 66 percent, a one percent increase since 2011 and significant growth since 2008-2009.
Integrated Reporting: Check. What’s Next for SAP?
With all the data and metrics dancing around in my brain, the only question left to ask was, what’s next?
“On the one side, we recognize that integrated reporting is an early trend and that we certainly have to continue to improve and learn. On the other side, we have the ambition to lead, even if this means that we may make a mistake that followers might be able to avoid,” said Graf.
“The next steps clearly are to continue to move away from just having a sustainability strategy to making our corporate strategy more sustainable. This requires an engagement with leaders across SAP that we have not achieved before moving to integrated reporting,” he added.
His recommendations for companies who might be complacent with limited voluntary disclosure or perhaps hesitant to mix the voluntary with the mandatory?
“As soon as people recognize that integrated reporting helps companies understand and grow the way how they create value at their core, , it will pick up. More and more people know this intuitively today but when someone connects all the financial and non-financial numbers with each other, then the big picture emerges,” he said.
SAP’s Integrated Report 2012 is available at www.SAPIntegratedReport.com.
Originally written for and published on CSRwire’s Commentary section Talkback on March 25, 2013.