Are you a glass half-full or half-empty person? The reality is that most of us are genetically hardwired to focus on things that could go wrong, rather than looking for what could go right. It’s a trait that helped our ancestors survive and thrive.
Today’s world might give us ample cause to prepare for the worst, but a tendency to look for downsides over opportunities isn’t always helpful. And when it comes to professional accountants, who are (quite rightly) even more likely to spend more time looking for risks than most, it can even be a handicap.
‘Opportunities need to function as a strategic lever’
This is the central argument in a new ACCA report, which looks at how our instinct to prepare ahead for negative eventualities – clearly reflected in corporate reporting – might affect businesses. ‘Such an imbalance may limit investment and access to financing to drive innovation – and progress towards resilient, sustainable business models,’ it argues.
The report, The leadership behind reporting opportunities, draws on the results of three polls conducted on LinkedIn, a global roundtable and an ACCA sustainability conference panel discussion, to explore how business leaders, and finance professionals in particular, approach the ‘opportunity narrative’ while navigating concerns around commercially sensitive information, organisational readiness and the expectations of stakeholders.
The opportunity
The roundtable participants made the point that any opportunity pursued by an organisation will bring risks with it. But without opportunities, there is no future for a business.
The report notes that there is no specific definition of ‘opportunity’ in the context of corporate reporting, although past ACCA research has explained that opportunities arise from potential activities an organisation can undertake that result in positive outcomes for it and for its stakeholders.
Board discussions must focus on whether capital allocation is merited
Opportunities, it adds, lie at the intersection of strategy, sustainability and capital allocation. ‘In identifying opportunities, it is not enough to have aspirations or action a particular initiative – the opportunities need to function as a strategic lever that will strengthen long-term value creation and improve organisational resilience.’
The research found that while there is an abundance of guidance and discussion about risk disclosure and mitigation, the guidance and disclosures relating to opportunities are strikingly sparse.
Factor-driven
The panel discussion noted that in large companies, opportunity reporting tends to adopt a factor-driven approach that identifies opportunities alongside risks. 71% of respondents to the LinkedIn poll said there was enough information about opportunities available in corporate reporting, but 44% added it was not easy to locate.
The fact that regulatory developments around sustainability reporting have led to organisations making changes to their reports in order to better present and connect financial and sustainability information is another complication, as users have had to reorient themselves to find opportunity-related information.
The report explores the thought processes that sustainability and finance leaders take, from when opportunity is first identified through to when it is first communicated publicly. ‘An organisation’s business model and strategy guide how it seeks opportunities,’ it says. ‘At the same time, opportunities – regardless of whether they are pursued – inform the organisation’s strategy and future direction.’
It is important to seek alignment and develop confidence internally
The report suggests that opportunities should be considered through six lenses: stakeholder value creation, strategic fit and relevance, sustainability and ESG viability, financial viability, risk appetite, and operational viability. Professional accountants should also reflect on these to work out how they can best provide support.
The organisation’s board will then examine the opportunity from the perspective of whether it is credible, scalable and aligned to the organisation’s long-term value creation. ‘It is not enough for an opportunity to sound good or have great elements,’ the report explains. ‘Discussions at the board level focus on whether the opportunity deserves capital allocation.’
Top tips
The report makes a number of suggestions to help organisations manage challenges around the reporting of opportunities, including:
- Go further than compliance. Be deliberate in connecting sustainability drivers and financial outcomes with long-term value creation and organisation resilience.
- Understand the expectations of key stakeholders, including regulators. Address their concerns about how value creation will evolve over time.
- Ensure processes are in place to actively identify short, medium and long-term opportunities, and allow the organisation to pivot as needed.
- Be comfortable with imperfect data on opportunities.
- Use technology to facilitate timely access to decision-useful information and reduce the risk of information overload.
One of the report’s key takeaways is that in pursuing an opportunity, it is important to first seek alignment and develop confidence internally, before working towards communicating opportunities externally. This reflects the biggest concern raised by respondents to the LinkedIn poll – managing the competition. ‘There is an undeniable nervousness that competitors may exploit such information,’ says the report, ‘and the organisation may lose out as a result.’
