The Case in Brief

• This Case discusses the Integrated Reporting process at Natura Cosmetics; a Brazilian company and a leader in the cosmetics, fragrance & toiletries market.

• Natura utilizes an integrated management model that focuses on the economic, social and environmental throughout the process of the Company.

Geography

• World 5th largest country (area & population)• Largest country in south America• 200 indigenous people & 170 languages• 7,492 km Atlantic coastline• 15~20% of the world biological biodiversity

Politics

• Federal Republic with 26 states• Capital: Sao Paulo• Official Language: Portuguese• 1985 transition from military to civilian rule

(democratically elected representation)• 2010 nonpermanent seat in UN security

council

Economy

• 8th largest economy = France• $2.17 trillion GDP in 2011• $10,800 GDP/Capita• FDI $368.4 billion in 2010• Average economic growth 4.3% (2011-2020)• > 1 in 4 Brazilian adults are entrepreneurs• 49.6% of entrepreneurs are females

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Social Development

• 10th worst unequal income distribution• 26% of population below poverty line• Poor education• Inadequate access to healthcare• High level of corruption (3.7 CPI) (EGY 2.9)• Ranked 73rd in the human development index• (EGY 85th)

Sustainability

• Signed most major international agreements: Kyoto, Ozone, Wetlands, whaling,……..

• Many environmental Challenges: Illegal wildlife, timber trade, ecosystem degradation,….

Natura

Natura

Brazilian manufacturer and marketer of beauty products, household, and personal care, skin

care, solar filters, cosmetics, perfume and hair care products.

An eco-friendly, sustainable company

A master of “lean innovation”.

Quick Facts

• Founded 1969 by Antonio Seabra• 2004: Natura went public• 2009: 1.2 Million direct sales consultants• Markets: Latin America & France• 23.6% market share in 2010• 55% household penetration rate• Nearly 100% Brand recognition level

Natura Work Environment

• 7,000 Professionals• Happy and proud Culture like a college

campus.• Best Employee benefits (such as bus to work,

onsite lunch, onsite day care, and focus on health and fitness)

• Huge applicants wait list“Google of Brazil”

Natura Strategy

• A new strategy focused on corporate social and environmental responsibility and sustainable development.

• Strategic purpose defined in terms of progress on Economic, Social & Environmental performance.

Triple Bottom Line

Triple Bottom Line

• A term coined in 1994 by John Elkington• TBL consists of three Ps: profit, people and

planet. • TBL measures the financial, social and

environmental performance of the corporation over a period of time.

• A company that produces a TBL is taking account of the full cost involved in doing business.

Triple Bottom Line

Triple Bottom Line

Triple Bottom Line

Integrated Reporting @ Natura

• New Strategy requires new integrated reporting process.

• The integrated reporting process supports Natura values and defines priorities and commitments.

• Supports dialogue and mutual collaboration• Ensures better understanding for all

stakeholders.

Integrated Reporting

Integrated Reporting brings together material information about an organization’s strategy,

governance, performance and prospects in a way that reflects the commercial, social and environmental

context within which it operates. It provides a clear and concise representation of how an organization demonstrates stewardship and how it

creates and sustains value.An Integrated Report should be an organization’s

primary reporting vehicle.

Integrated Report

An integrated report is a concise communication about how an organization’s strategy,

governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long

term.

Integrated Reporting Benefits

• More efficient capital allocation This is an opportunity for companies to refocus investor attention on long term business value. Greater transparency and focus on strategy and prospects will help analysts re-align their models with the business model. The result should be greater confidence in the organization's risk and reward and the ‘right-sizing’ of their cost of capital.

Integrated Reporting Benefits

• Enhanced organizational clarity Internal and external messages aligned under a clear articulation of the business strategy and business model. The result should be improved focus throughout the organization on those matters most critical to driving performance or threatening the achievement of strategic objectives.

Integrated Reporting Benefits

• Cost reduction and streamlined reporting an Integrated Report should by definition be aligned with management’s own reporting and data collection systems. Ultimately this means a single focused reporting mechanism based on a single data set with corresponding cost benefits. Efficiency may be further enhanced by the use of business reporting automation based on technological innovation such as web-based and real-time reporting.

Integrated Reporting @ Natura

• Early years (2000-2006)

• Current State

• Future challenges

Early Years

Integrated Management Culture• Asking employees to think about the impacts

of their decision sin three dimensions (economic, social & environmental)

• 2000: Adopting GRI principle and framework.• 2004: Integrated management culture

matured and GRI Indicators are part of performance goals of all operating units.

Early Years

Key Perfromance Indicators• GRI guidance to define and measure non-

financial KPI’s• 1st reports with only 12 (economic, social &

environmental)• 2006: All material KPI’s defined by GRI are

included in the integrated report.

Early Years

Reporting & Communication• 2002: Financial & Non-financial combined in a

single report.• 2006: The report went online to be available

to general public• Feedback obtained and report sections were

created focusing on specific groups (e.g. employees & suppliers)

Early Years

Stakeholder Dialogue• Develop a culture of dialogue and

transparency within the organization.• Understand the implications of management

decision outside the organization.• A systematic process was developed to engage

with stakeholders, to record their inputs and to analyze performance on an ongoing basis.

Current State

New Strategic IntentIdentification of opportunities for improvement

and mobilizing people to action.• A more integrated report should be created to

promote the actions needed to develop and implement innovative solutions to sustainability challenges facing Natura.

Current State

Integrated Management Culture• Emphasizing on solutions and the defining of

six Sustainability priorities.• The Challenge: Developing multidimensional

valuation models that would assist management in making better integrated decisions

• Examples, 30% Handicapped and Organic alcohol.

Current State

Stakeholder Dialogue• The need to broaden stakeholders base and

change nature of engagement to achieve Natura’s objectives.

• Existing channels: website, Customer service center and internal employee network.

• 2007: New Communication department

Current State

New Communication department• Relationship managers for: Suppliers, Direct

sales force and Different Communities• Engagement Panels (e.g. palm oil)• Roundtable discussions• Result: better communication and enriched

experiences• Records available to the public

Current State

Digital Platfroms• 2009: virtual social network (Natura Connecta)• Increased Engagement (8,000 people registered)• Stakeholders participate in the WikiReport which

in included in the final integrated annual report.• Virtual debates and Web-cast• Identification of opinion leaders

Current State

Reporting & Commuincation• Non-financial information became mores

specific and audited by DNV.• Suppliers impacts included in the process.• To increase relevance to readers, the format

becomes less technical and more narrative.• More human perspective of the Organization’s

strategy and performance.

Future Improvement

• How could Natura Increase society participation in the collaborative effort to develop new solutions to today most challenging problems?

• How could the report provide a clearer representation of the organization’s strategy and its ability to create and sustain value over the long term?

• How could web based technologies be used to promote the organization's integrated reporting and sustainable development objectives?

Future Improvement

InspireThe report should tell an inspiring

story about the a journey all would want to take

“From informative to transformative”

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Question 1

How do you define an integrated report, and what are the primary differences from

conventional reporting?

Integrated reporting < IR>

IR is a process that results in communication, about value creation over time. An integrated report is a concise communication about how

an organization’s strategy, governance, performance and prospects lead to the

creation of value over the short, medium and long term.

Integrated reporting < IR>

The process includes four components, each of them is performed as part of a continuous cycle. 1- Integrated management culture. 2- Key performance indicators. 3- Communication plan. 4- Stakeholder dialogue.The information from each step provided the needed inputs for the subsequent step in the process.

Conventional Reporting

• A document containing information organized in a narrative, graphic, or tabular form, prepared on ad hoc, periodic, recurring, regular, or as required basis. Reports may refer to specific periods, events, occurrences, or subjects, and may be communicated or presented in oral or written form to provide information.

Integrated report Conventional report Criteria

Integrated Isolated Thinking

All form of capital Financial capital stewardship

Past and future connected strategies Past financial focus

Short, medium and long term Short term timeframe

Responsive to individual circumstances Rule bound adaptive

Concise and material Long and complex concise

Technology enabled Paper based Technology

Question 2

Who benefits from integrated reporting? And who is potentially at a disadvantage?

Beneficiaries

• Primary stakeholders:Customer- employees –suppliers- shareholders.• Secondary stack holders:Community –competitors- government-general public • At Natura the secondary stakeholders are

considered as important as primary stakeholders because the company considers the implication of their management decision on all stakeholders

Potentially at a disadvantage

Those that the reports does not reach them and cannot give their voice and engage and show

their opinions

Question 3

How do you think integrated reporting might change behavior or decision making of

Companies?

Answer 3• It leads to a better understanding of how the

organization will create value over time that results in a clear communication of values and better relationship between the business and the stakeholders.

• It will result in more informed decision making which will lead to better business decisions.

Answer 3• As illustrated in the case, employees were

asked to think of any decision implications in three dimensions (Social, economical & Environmental) which are addressed in the integrated report.

• Accordingly, sense o responsibility towards business surroundings shall be reinforced.

Answer 3• Business decision maker shall look at decision

in a more holistic approach in the light of the reported information.

• Integrated Reporting can ultimately ensure that better, more effective long-term decisions can be made.

• It shall promote innovative solutions to sustainability problems.

Question 4

Do you think Natura exhibits any different characteristics compared to the companies we have studies so far and other companies that

you know?

YES, it does

• Natura was different for three main reasons:1. The innovation2. The balance they made between economic,

social and environmental values.3. They were pioneer in the Integrated

reporting process.

Innovation

Natura understands innovation as a process that should cross permeate all its activities. • It is at the core of their value creation and is expressed not

only in their products, but also in their commercial model, management system and the relations they establish with their stakeholders and society as a whole.

• Elected the 8th most innovative Company in the world by Forbes Magazine, in a survey published in July 2011.

• The only Brazilian Company ranked among the 50 most innovative companies, Natura was placed close to global icons in innovation such as Apple (5th place) and Google (7th place).

The balance between economic , environmental and social values

Economic : Strong cash generation Growth and profitability Consistent dividend payout

Environmental Carbon neutral Use of refill packaging Sustainable extractionUse of recycled and recyclable materials

The balance between economic , environmental and social values

Social:Wealth creation for consultantsBenefits shared with communities and involved in extractive activities

A Pioneer in INTEGRATED REPORTING

• Since 2002, Natura has published its sustainability and financial reports in a single document encompassing all dimensions of the business: economic and financial, social, environmental and governance.

•The integrated report, a global trend, is aimed not only at combining financial and non-financial documents in the same publication but at reflecting a business strategy that incorporates all dimensions of the business in its management and analysis of risks and opportunities.

A Pioneer in INTEGRATED REPORTING

• To learn and to grow in this area, Natura is involved in the main global forums discussing integrated reporting.

• It sponsors the development of the fourth generation of GRI indicators, designed to further integrate financial and non-financial information.

A Pioneer in INTEGRATED REPORTING

• The Company also participates in the International Integrated Reporting Council (IIRC), comprising global leaders of companies, investors, academic institutions, industry associations, regulatory and standardization bodies seeking to create a global standard for integrated reports.

• The IIRC global committee is engaged in defining global indicators and principles. Natura is one of the companies involved in the pilot project

Question 5

Would you recommend that the company you work for adopts integrated reporting?

Yes, without hesitation

• Real estate development has social and economical and environmental implications that are often overlooked.

• Reporting such implications will benefit the organization and all stakeholders (shareholders, the government, the neighborhood residents and even home owners)

We recommend IR

• Also, as illustrated before, decision-making process will be supported with more information which will lead to better decisions.

• Integrated reporting with its emphasize on social and environmental implications of company decisions shall strengthen the company reputation and may increase brand loyalty.

References

• Road to integrated reporting• Integrated%20reporting%20systems%20(1).pdf (Integrated reporting a

guide )• deloitte_integrated_reporting.pdf (Integrated reporting navigating your

way to a truly integrated report• http://www.conference-board.org/retrievefile.cfm?filename=TCB-DN-

V3N23-11.pdf&type=subsite (The Role of the Board in Accelerating the • Adoption of Integrated Reporting)• https://www.globalreporting.org/information/current-priorities/

integrated-reporting/Pages/default.aspx• http://www.naturacosmeticos.com.ar/