Tomorrow's Value: achieving long-term financial returns

By Charles Tilley

There is now increasing recognition that value creation needs to be considered much more broadly to reflect both tangible and intangible assets such as brand value, reputation and intellectual capital as well as environmental and social factors. Further, this value needs to be measured with both financial and non-financial indicators: 80% of the market value of major organisations is now represented by intangible assets, not reflected on the balance sheet.

It is now necessary to consider how to create long-term financial value. This is value that goes beyond the estimated financial returns of an asset and considers its resilience in the context of a changing business environment.

It is now more important than ever to take into account strategic risk factors which could have a material impact on future returns. This includes social, environmental, cultural and behavioural factors, all operating over the long term.

Introducing integrated reporting

The problem is that the frameworks such as traditional accounting and financial reporting standards, which have served us well enough, are no longer fit for purpose. New tools and frameworks are needed to support and promote this shift to the integrated thinking that is so vital to ensure sustainable long-term value creation.

That is why CIMA is so committed to the development of integrated reporting, led by the International Integrated Reporting Council (IIRC), and now articulated in the preface to the International <IR> Framework.

But change is required both within the organisation to think and act in an integrated way but also across the investment chain as a whole. Investors need to understand value more broadly and be supported in making long-term investment choices. 

Overcoming behavioural pressures

Unfortunately, this broader view of value is marred by behavioural pressures that affect all key players in the investment chain, making it difficult to go beyond the short term. Evidence also suggests that these pressures are reinforced by the belief that there is no evidence to support long-term investment and by a lack of understanding of trust law principles and fiduciary duty.

The new report Tomorrow’s Value – achieving long-term financial returns: a guide for pension fund trustees aims to address these issues by providing both evidence and supporting resources.

CIMA firmly believes that this paper provides an additional and important resource to promote the integrated thinking required to create long-term sustainable value, and we are therefore delighted to be one of the 28 signatories to the report.