Countries looking to develop and introduce Integrated Reporting (IR) can learn a great deal from developments in South Africa where this new way of reporting is now mandatory, ACCA (the Association of Chartered Certified Accountants) outlines in a discussion paper.
IR is a new and fast developing concept in corporate reporting, which enables businesses to present environmental, social or ethical information, in a way that is explicitly related to the financial, strategic, and governance information within an annual report.
IR has been mandatory in South Africa since 2010/11 and ACCA’s discussion paper ‘Reporting pre- and post-King III: what’s the difference?’ summarises the findings of a full academic report called Integrated reporting: the new face of social, ethical and environmental reporting in South Africa? written for ACCA by Jill Solomon (King’s College London) and Warren Maroun (University of the Witwatersrand, Johannesburg). It analysed 10 annual reports from South African companies pre-IR – 2009, and post-IR – 2010/11, including mining companies Impala Platinum and Royal Bafokeng; and Sasol, the oil and gas company.
Rachel Jackson, head of sustainability at ACCA says: 'Our intention was clear – to find out if there are any key differences pre and post mandatory IR, using South Africa as a case study. We wanted to know what works, what does not; how companies approach IR; and, importantly, whether or not IR makes a difference. Our findings show there is a difference between then and now, and it appears that the organisations examined have had a growing realisation that non-financial issues have financial implications for their firms. There has been a change in how sustainability issues are now linked to materiality and risk.'
The analysis of these 10 companies’ reports shows that there is significantly more social, environmental and ethical information reported in the 2010/11 reports than those before IR became mandatory. The pre-IR reports show that this information tends to be restricted to specific sections usually the sustainability report itself rather than being part and parcel of the whole report which IR advocates.
One of the most important changes seen in the reports is a shift towards more stakeholder orientated reporting, something which is very noticeable in the chairman’s statement and chief executive’s review. There is also a discourse of care for stakeholders emerging in the integrated reports, and a greater level of attention is given to stakeholder engagement than in earlier reports.
ACCA’s analysis offers five recommendations for the development of IR, based on the academic’s findings:
- The way in which information is set out could be more concise to avoid repetition.
- The form of reporting could be extended to incorporate more feedback from consultation with stakeholders regarding social and environmental issues and corporate responsiveness to feedback.
- Organisations should solicit the views of their major stakeholders about the social, environmental and ethical information (and underlying policies and practices) that they report and include these views within integrated reports.
- Academics can and should play a significant role in researching the IR framework and its applicability.
- Academics should, can and do play an important role in educating potential managers and users in integrated reporting through university and professional education in which they are involved.
Rachel Jackson adds: 'It is clear that the emergence of IR presents new opportunities but also new challenges for the corporate reporting agenda and indeed poses challenges for the International Integrated Reporting Council (IIRC) which will need to take these into account. The ‘stakeholder engagement’ approach could present a challenge to the IIRC, whose recent documentation suggests that it does not favour such an approach. Instead, the IIRC’s focus has been on the production of integrated reporting for decision-making purposes, and for shareholders – the IIRC itself has made clear its emphasis on shareholder, not stakeholder, accountability.'
South Africa and CSR
The Johannesburg Stock Exchange’s (JSE) introduction of integrated reporting is based on the recommendations of Judge Mervyn King, author of the King Reports. South Africa has long been recognised as a pioneer in progressing corporate governance reform, with the first King Report (1994) heralding a new departure in stakeholder accountability. Following political, social and environmental challenges, South Africa has taken a lead, through its stakeholder-oriented corporate governance reports, in forcing businesses to embed social, environmental and governance considerations into the heart of their operations. King II (2002) suggested further integration of sustainability into governance and reporting but in 2009, King III insisted on integrated reporting for companies listed on the JSE and, through the JSE listing requirements, companies are therefore obliged to produce an integrated report.