Evidence of integrated thinking in performance evaluation metrics: A review of listed entities in the United Kingdom

Abstract

This research investigates the extent to which performance evaluation metrics incorporate elements of an integrated thinking logic. To measure the alignment of these metrics with integrated thinking principles, a “performance evaluation integrated thinking index” (the Index) is developed. The index is based on fourteen indicators of integrated thinking drawn from academic and professional literature, which evaluate the alignment of performance evaluation metrics with integrated thinking. The application of the Index is demonstrated using a sample of annual reports from organisations listed in the United Kingdom in 2014, 2018, and 2022. A content analysis is performed to identify disclosures related to performance evaluation metrics which are then assessed using the Index. The results are calibrated using well-established integrated thinking proxies to confirm the robustness of the index for assessing integrated thinking in performance evaluation metrics. The findings reveal that, from 2014 to 2022, there was an increase in the application of integrated thinking in performance evaluation metric disclosures. The increase in integrated thinking principles was a result of the increased use of materiality and integrated tools to monitor performance evaluation metrics, a move away from predominantly financially focused metrics, and the incorporation of the Sustainable Development Goals (SDGs) and multi-capital outcomes in performance evaluation metrics. The Index offers practitioners, standard-setters, and academics a simple method for assessing the extent of integrated thinking, with the potential for application to other publicly available information and across different jurisdictions. In addition, the Index can guide stakeholders in evaluating whether management is effectively implementing long-term value creation and sustainability initiatives.