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Integrated ReportingThe South African Experience

By Leigh Georgia Roberts

Few countries can claim that integrat-ed reporting (IR) is common among

domestic companies. An exception isSouth Africa, with many listed and pub-lic organizations having produced inte-grated reports for over six years. Theemergence of IR as the dominant formof corporate reporting in South Africahas produced a significant number ofinternal and external benefits for thecompanies that have adopted it. One of

the most beneficial is the improvementin internal integration and management;companies now have a better understand-ing of business value drivers, a morethorough risk analysis, improved strategicresource plans, and reduced departmentaland functional siloing. It is a testamentto South Africa’s focus on corporatereporting that it was—for the seventhconsecutive year—ranked number one inthe world in auditing and reporting stan-dards in the World Economic Forum’sGlobal Competitiveness Report 2016/17.

Integrated reporting in South Africabegan with the King Code ofGovernance for South Africa 2009

(King III), which contained the principlethat “the board should appreciate thatstrategy, risk, performance, and sustain-ability are inseparable” and recommend-ed that companies prepare an integratedreport to reflect this. As the principlesof King III were included in the ListingsRequirements of the JohannesburgStock Exchange (JSE), listed companieswere required to prepare an integratedreport or explain why they were notdoing so. King III did not, however,elaborate on how this report should bestructured or the content it should con-tain. This led to the birth of theIntegrated Reporting Committee (IRC)

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of South Africa, a multiorganizational,voluntary, national body that hasbrought together accountants, companysecretaries, internal auditors, directors,institutional investors, the JSE, compa-nies, and others with an interest in cor-porate reporting. The IRC developed aframework for an integrated report in2011, which was used as a starting pointfor the development of the InternationalIntegrated Reporting Council’s (IIRC)International <IR> Framework,released in December 2013.Companies listed on the JSE released

their first integrated reports in2010/2011; today, it is a common prac-tice that has spread to the public andnonprofit sectors. Today, South Africanorganizations follow the best practiceguidance of the framework under theoverarching corporate governance prin-ciples and recommended practices ofthe recently released King IV Code.

Evolution of Reports over TimeIR has come a long way, and the lat-

est reports of the top 100 JSE-listedcompanies are of a much higher qualitythan their 2011 equivalents. For starters,they are shorter—an average of 148pages in 2015, according to Ernst &Young’s Excellence in IntegratedReporting Awards 2016 Survey. This isbecause the companies focus on includ-ing only material matters and informa-tion in the integrated report, withdetailed information housed elsewhere,such as the annual financial statements,sustainability report, or on the companywebsite. It is also the result of a trendamong some companies—over half,according to the Ernst & Young sur-vey—to include summarized or limitedfinancial information in the integratedreport, with due reference to the sepa-rately available annual financial state-ments. The remaining companiesinclude the full annual financial state-ments, usually at the end of the report.

Another noticeable change is that thelatest reports have a more consideredarticulation of the external environmentand its effects on the company, con-densing the information into importantexternal factors neatly laid out in tablesor infographics. The reports are also eas-ier to read; they do a much better jobof connecting the different (but inter-twined) elements of the business, suchas governance, business model, strategy,risks, and performance against strategicobjectives, in the context of the externalenvironment. There is a greatlyimproved connectivity between strategyand risk; indeed, the area of risk disclo-sure stands out for its significant

improvement among JSE-listedreporters. Furthermore, companies havebecome good at offering relevant infor-mation on how future events can affectfinancial performance, such as a miningcompany explaining the financial impactof a one-dollar change in the price ofgold to the bottom line. In this author’s opinion, there are four

areas where improvement is still needed.Firstly, the framework requires the dis-closure of the outcomes of the compa-ny’s products, services, and businessactivities; that is, the positive and neg-ative consequences on the six forms ofcapital relied on or affected by the com-pany—financial, manufacturing, intel-lectual, human, social, and natural. Thisconcept has been slightly misunder-

stood, with companies disclosing theiroutputs, inputs, or desired goals ratherthan their effects on the capitals.Furthermore, some companies haveonly focused on the positive value cre-ated for stakeholders, ignoring negativeor unintended outcomes. The disclosureof outcomes in reports should, however,improve following the release of theIRC’s Information Paper: Reporting onOutcomes.Secondly, the governance sections of

the reports need work. Currently, theymostly comprise compliance-driveninformation rather than the most rele-vant information, such as the board’scomposition and skills, the workings

of its subcommittees, and the majorissues discussed during the year thataffected the value creation ability ofthe company. Thirdly, many reports do not ade-

quately disclose how a company hasperformed against its strategic objec-tives and targets. Organizations in thepublic sector often do this better thanthose in the private sector, probablybecause of their traditional focus ofreporting performance against nonfinan-cial targets and the related maturity ofreporting systems and assurance. Thisarea was the topic of the IRC’s techni-cal information paper, released inDecember 2016.Finally, some of the reports lack bal-

ance; they tend to disclose only positive

IR has come a long way, and the latest reports of the

top 100 JSE-listed companies are of a much higher

quality than their 2011 equivalents.

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information rather than a more com-plete overview. Fewer still contemplatewhat the companies are doing to miti-gate negative outcomes.

A Thriving IR IndustryUnsurprisingly, an industry of sorts

has risen up around IR in South Africa,and it has flourished. Firstly, many pro-fessional and industry organizations aremembers of the IRC. The organizationsthemselves offer a range of services totheir members, from training courses tosector-specific publications, to updatesat conferences, with many preparingtheir own integrated reports for theirmembers.

South Africa’s Big Six accountingand auditing firms have specializedteams that offer integrated reportingadvisory services. Full assurance onintegrated reports, rather than assuranceof some of the performance or sustain-ability information in the report, is notyet a reality, but is certainly likely onceinternational standards setters have set-tled the matter. In August 2016, theIAASB released a discussion paper“Supporting Credibility and Trust inEmerging Forms of External

Reporting: Ten Key Challenges forAssurance Engagements,” whichincludes consideration of assurance onthe integrated report.

There is also a range of boutiqueconsultancies offering IR advisory ser-vices, some with a background inaccounting and others from the sustain-ability and strategy spheres. Morerecent entrants to the industry includemanagement consultancies that haverecognized the opportunity for servicesin the areas of integrated thinking andvaluing outcomes.

IR has spurred surveys and rankingsof integrated reports in South Africa. TheEY and Nkonki Inc. awards cover all thetop 100 JSE-listed companies, as well asthe top state-owned companies. TheChartered Secretaries South Africa(CSSA) award covers listed and state-owned companies, as well as nonprofitorganizations. The awards encourageongoing improvements in reporting andhighlight emerging trends.

IR is also covered in the accountingand reporting syllabuses of most univer-sities. The expanse and depth of IR hasmade it a popular topic among mastersand doctoral students.

Integrated ThinkingIR has also spurred the concept of

integrated thinking; indeed, manybelieve that adopting integrated thinkingthroughout the business is more criticalthan preparing the annual integratedreport. Enlightened investors look forintegrated thinking in the companiesthey invest in; it shows that the boardand management are aware of all thecapitals needed to ensure the ongoingviability of the business. The essence ofintegrated thinking is the managementof the six capitals. An enlightened boardwill set or approve the company’s strate-gic objectives only after considering allthe capitals important to the viability ofthe business; management will imple-ment these objectives throughout thecompany and ensure that the staff rec-ognize their importance.

When South African companies werefirst called on to publish integratedreports, they did not have the luxury ofintegrated thinking. Their first reportsnevertheless endeavored to show thecompany’s business model, strategy, andrisks, as well as its most importantresources and relationships. Some com-panies were indeed already operating on

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an integrated basis, but had not formal-ized these processes into an integratedmanagement model. In other companies,integrated reporting has led to integratedthinking. This process does not happenovernight; it takes time to become busi-ness as usual.

Integrated Reporting TipsThere should be an executive cham-

pion who leads the preparation process.In some companies, the finance direc-tor/chief financial officer has responsi-bility for the integrated report; in others,it is the company secretary, head of cor-porate affairs, or investor relations. Inmost cases, the chairman and theboard’s audit committee will sign offon the integrated report. The involve-ment of the board is a key factor. Theintegrated report is viewed as theboard’s report, and the board can helpensure a smooth preparation process. A multidisciplinary steering committee

of employees can contribute to the contentof the integrated report. These employeeswould mostly come from finance, strate-gy, sustainability, corporate affairs, gov-ernance, and risk. This committee reportsto the project director.Deciding which of the company’s var-

ious reports to print, which ones shouldgo on the website, and how they all fittogether was initially an issue for compa-nies. Adopting the IRC’s “octopus model”has helped; the integrated report is seen asthe head of the octopus, linking to detailedreports such as the annual financial state-ments, sustainability report, remunerationreport, and other compliance reports. There is a need for internal systems that

measure, monitor, and report on the non-financial performance figures. Collectingthis information on par with financial infor-mation has been labor intensive for somecompanies. For example, the finance direc-tor of a large financial services companyhas said that their nonfinancial systemsimproved considerably only when theywere brought under the finance umbrella.

The integrated reporting process runsmore smoothly when the performance fig-ures are a part of the regular monthly orquarterly management review processes.Some companies now also produce inte-grated board reports throughout the year.Setting the correct key performance

indicators (KPI) to accurately measure theachievement of the strategic objectivesimproves and furthers IR and integratedthinking. External assurance of these KPIsis common and a key consideration in pub-lic acceptance of integrated reports.Including the achievement of strategic

objectives in departmental scorecards, aswell as individual performance and bonusassessments, is often cited as a success fac-tor in achieving integrated thinking.

Companies have said that ensuring personalresponsibility, whether for achievement ofstrategic objectives or for the informationneeded for the report, is also important.Some companies bring in consultants to

perform a technical review of their inte-grated report. This external review checksalignment against the 18 requirements ofthe framework and gives feedback onreadability and connectivity.

The Impact of King IVThe King IV Code, released on

November 1, 2016, emphasizes integratedthinking in a business and again recom-mends the preparation of an integrated

report. King IV rests on much of what isin the framework and is likely to spur arenewed focus on integrated thinking. Itis also likely to broaden the reach of inte-grated reporting in South Africa, as it rec-ommends that other sectors—small- andmedium-sized enterprises, nonprofits,retirement funds, state-owned enterprises,and municipalities—prepare integratedreports and apply integrated thinking.IR has undoubtedly been good for cor-

porate reporting in South Africa. It hasbroadened internal and external under-standing of the value drivers of a business,both financial and nonfinancial. It hasincreased the quality of reporting on strat-egy and risks, as well as key resourcesand stakeholder relationships. Research

has suggested that IR is beneficial to thevalue of a company by attracting long-term investors. Critically, IR has eitherspurred or supported integrated thinkingand integrated management within busi-nesses. The benefits and rewards of IRare directly correlated with the amount ofeffort a company puts into its integratedreport, integrated thinking, and integratedmanagement. q

Leigh Georgia Roberts, CA(SA), is thechief executive officer and the chair-man of the working group of theIntegrated Reporting Committee ofSouth Africa.

Enlightened investors look for integrated thinking in the

companies they invest in; it shows that the board and

management are aware of all the capitals needed to

ensure the ongoing viability of the business.

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