This article was first published in Edition 8 (January 2014) of Accountancy Futures, ACCA's research and insight journal.
The Crown Estate is a UK business that is steeped in history yet has its sights set far into the future. Back in 1760, King George III handed over the crown’s lands to the UK Treasury in exchange for a fixed annual payment that later became known as the Civil List.
Fast forward 250 years and The Crown Estate is a commercially run property business with a diversified £8.1bn portfolio covering urban and rural areas, about half of Britain’s coastline and almost all of the surrounding seabed. Assets include London’s Regent Street, 15 retail parks, Windsor Great Park, three marinas, numerous harbours and 17,000 moorings.
It’s a misconception that The Crown Estate also owns the royal palaces, but that is not the case and the monarch does not have any power over the organisation. The Crown Estate is managed on behalf of the nation with profits going to the Treasury (£253m last year).
With a high public profile and responsibility for the careful stewardship of such extensive and valuable public assets, it is perhaps not surprising that sustainability is at the organisation’s core.
Finance director John Lelliott FCCA says it’s about a lot more than looking at the socioeconomic and environmental impact. He reels off examples such as ensuring that rural tenants have land management plans; avoiding obsolescence and protecting the ability to adapt; evaluating the impact of severe weather conditions; support for maritime wind and tidal power development, and much more.
‘If you don’t nurture and invest in your land and buildings, you will compromise long-term value and the potential rental income that can be realised from them,’ Lelliott says. The bottom line, he adds, is the need to hand over the property portfolio to the next generation in a better state.
The Crown Estate is therefore in the vanguard of developments in renewable power and sustainable land and buildings management. It is also in the vanguard of developments in corporate reporting, having become one of the earliest adopters of integrated reporting with the publication of a multi-award-winning integrated report for 2012/13.
Lelliott says that it felt like the natural thing to do after the appointment of a new chief executive – Alison Nimmo, in January 2012 – prompted a fresh look at the organisation’s strategic direction and the role of sustainability. It was a move that Lelliott, who had long been at the forefront of sustainability reporting, embraced with enthusiasm. As a long-standing member of HRH The Prince of Wales’s Accounting for Sustainability Project and The Crown Estate, Lelliott was already a member of the International Integrated Reporting Council’s (IIRC) pilot programme.
This confluence of factors, says Lelliott, led them to take the plunge. ‘Looking at the aims of the IIRC and our aims, there was a lot of convergence. One of the key things that the integrated reporting framework wants you to articulate is how you create value and what your business model is. It’s a great way of communicating what the business does.’
Explaining to stakeholders
Lelliott emphasises that The Crown Estate is run very much on commercial lines and benchmarks itself against leading UK property companies, but adds: ‘Unlike a plc, which has shareholders and analysts, we have myriad stakeholders to whom we have to explain how we operate, how we create value and what our strategy is.’
And so The Crown Estate embarked on a three-year plan to integrate its reporting. Introducing the concept in the report, Lelliott wrote: ‘This, our first integrated report, helps to explain our business in a concise way and starts to explain the interconnectivity of resources and relationships upon which our business depends.’ The report also highlights the organisation’s wider contribution, pointing out that it indirectly supports 94,000 jobs and that each employee adds £709,000 to the UK economy.
In the first year, Lelliott and his colleagues focused on the business and the material issues that affect it; they listed 14, ranging from attracting commercial partners and the effect of climate change, to government policy and creating amenity value. Integrated reporting, he says, forces accountants to look forward much more than they do with traditional reporting. Moving forward, he says The Crown Estate will focus more on the six capitals listed in the integrated reporting framework: financial, manufactured, human, intellectual, natural and social.
He explains: ‘An integrated report is not one where you’ve just merged your normal and your sustainability report. It’s about much more than that. The beauty of integrated reporting is the connectivity of it all. By creating the business plan and working out those material issues, and linking it to risk and governance, it has become the framework of our business planning.’
Putting the report together, says Lelliott, was very much a team effort that required a lot of hard work and dedication. But he says that the benefit of it became more and more apparent to team members as they worked on it.
So will others follow The Crown Estate’s lead? ‘Some of our FTSE 100 rivals have been asking us how we’ve done it,’ Lelliott says. ‘The underpinning principle is about demonstrating how you create value and the issues that affect your business, so it’s just as relevant to any organisation – be it public or private – as it is to us.
‘Some industry sectors lend themselves much more easily to it than others, but more and more people are seeing the benefit of it and the investor community is starting to come round and demand more and more information.’
Support from the top, he adds, is a critical success factor. And it is vital that the finance director is not only on board, but is the champion of integrated reporting.
The Crown Estate has won plaudits for its integrated report, winning two categories in the coveted PwC Building Public Trust Awards. Commenting on the wins, Lelliott concludes: ‘Producing it was a tremendous challenge, but also a fantastic way of telling our story.
A member of the ACCA Global Forum for Sustainability, John Lelliott FCCA joined The Crown Estate in 1985 and became finance director in 2001. He is also a member of the Accounting for Sustainability Project CFO Leadership Network.
Chris Quick, editor