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FIRST INTEGRATED REPORTING FRAMEWORK RELEASEDFEBRUARY 2011
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February 2011
EXECUTIVE SUMMARY
South Africa leads the world in developing and implementing the practice of integrated
reporting. Integrated reporting creates a single report to all stakeholders synthesizing the most
relevant nancial and sustainability information. From March 1, 2010, all 457 rms listed on the
Johannesburg Stock Exchange must produce an integrated report for nancial years starting from
this date, or explain why they have not done so. The Integrated Reporting Commiee, formed in
May 2010, released a framework for producing an integrated report for public discussion on
January 25, 2011. This report highlights key considerations for rms preparing to adopt
integrated reporting. In particular rms must carefully consider relevant and material economic,
environmental, nancial and social trends in order to fully describe their operating context. Theintegrated report should include summary nancial information and direct readers to more
detailed information on nance, governance and sustainability. Firms should seek independent
assurance from auditors for both summarized nancial and sustainability information.
TABLE OF CONTENTS
DISCUSSION FRAMEWORK DEFINES
INTEGRATED REPORT STRUCTURE
Integrated Reporting Is Mandatory ForListed Firms In South AfricaFirms Must Place Business Model In The
Context Of Sustainability
2011 Verdantix Ltd. All Rights Reserved. Verdantix, Green Quadrant, Total Portfolio and Critical Moments aretrademarks of Verdantix Ltd. All other trademarks are the property of their respective companies. Verdantix clients
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Figure 1. The Integrated Reporting
Framework Outlined By The IRC
Figure 2. Integrated Reports Should ProvideA Synthesis And Link To Further ResourcesORGANIZATIONS MENTIONED
AccountAbility, Deloie, Ernst & Young,
Gold Fields, Government Employees Pension
Fund, Integrated Reporting Commiee,
International Integrated Reporting
Commiee, Johannesburg Stock Exchange,
KPMG, Nedbank, Old Mutual, PwC
FIGURES & REFERENCES
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DISCUSSION FRAMEWORK DEFINES INTEGRATED REPORT STRUCTURE
Integrated reporting is the practice of combining rms nancial, governance and
sustainability information in a single report to facilitate a systematic assessment of
environmental and social factors when judging the value of a rm. The International
Integrated Reporting Commiee (IIRC), formed of accounting and sustainability reportingstakeholders, develops and advocates a globally accepted integrated reporting framework
(see Verdantix Integrated Reporting Think Tank Launched). This Verdantix report provides
both individuals responsible for reporting and rms considering integrated reporting with a
summarized integrated reporting framework.
Integrated Reporting Is Mandatory For Listed Firms In South Africa
The King Code of Governance Principles for South Africa 2009 (King III) created new
principles for corporate governance, including a recommendation that rms should adopt
integrated reporting. The South African Integrated Reporting Commiee (SA IRC) was
formed to issue guidance on good practice in integrated reporting. South Africa leads the
world in developing and supporting the practice of integrated reporting by:
Requiring rms listed on the JSE to publish an integrated report. All 457 rms listed
on the Johannesburg Stock Exchange (JSE) must produce an integrated report for
nancial years starting on or from March 1, 2010, or explain why they are not doing so.
Following the incorporation of King III into the JSE Listing Requirements, rms such as
Gold Fields, Nedbank and Old Mutual will need to synthesize the nancial and
sustainability information they currently provide into a single report.
Encouraging investors to incorporate sustainability into investment analysis. The
draft Code for Responsible Investing By Institutional Investors In South Africa asks
that investors, such as the Government Employees Pension Fund, include
environmental, social and governance considerations in their investment activities,
including assessment of rms integrated reports.
Providing a detailed framework for rms preparing an integrated report. On January
25, 2011, the SA IRC released the Framework For Integrated Reporting And The
Integrated Report for public comment. This document outlines key principles for
integrated reporting, elements that should be included and advice on assurance (see
Figures 1a and 1b). The Big Four audit rms Ernst & Young, Deloie, KPMG and PwC
will advise boards on developing integrated reporting, and have prepared their own
guidance.
Firms Must Place Business Model In The Context Of Sustainability
South Africa leads the world in developing and implementing an integrated reporting model
by making its adoption compulsory for public companies. The SA IRC outlines key principles
and information requirements in its Framework For Integrated Reporting And The Integrated
Report. According to the framework, rms preparing to adopt integrated reporting for the
rst time should:
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Figure 1a. The Integrated Reporting Framework Outlined By The IRC
Source: Verdantix, Integrated Reporting Committee
Scope &boundary
The reporting cycle Reporting boundaries, including
geographic scope, entities representedand the information provided for eachentity
The process used for identifying thereporting boundary
The reporting principles applied (e.g.IFRS, GRI G3, King III guidelines)
The assurance provided, the policythat lead to it, relationship between firmand assurance provider
Significant restatements from priorreporting periods
Reference to supporting documents(e.g. annual financial statements,sustainability report)
On boundary setting: International Financial Reporting
Standards The 'Boundary Protocol' of the
Global Reporting Initiative onsetting boundaries for sustainabilityreports
World Resources Institute andWorld Business Council forSustainable Development'Greenhouse Gas Protocol'
Overview oftheorganization
Briefoverview of organization Outline of the business model,
describing how value is created Existing resources and any claims
against them Key aspects of the governance
structure, policies, commitments andethical approaches
Operatingcontext Material economic, environmental,financial and governance issues and
trends The firm's significant positive and
negative impacts on the abovesystems, identifying where theseinfluence the firm's ability to create andsustain value
The quality ofrelationships withstakeholders, and the potential for thisto affect the firm's ability to create andsustain value
The process followed to assess theissues, impacts and relationships above
A concise statement of the risks andopportunities relevant to the firm'sactivities
If there is doubt that the firm is a going
concern, give reasons for the doubt
On determining material issues andtrends: Ceres 2010 The 21st Century
Corporation: The Ceres Roadmapfor Sustainability
GRI G3 Sustainability ReportingGuidelines
International Council on Mining andMetals Sustainable DevelopmentFramework
International Organisation forStandardisation (ISO) guidance onSocial Responsibility ISO 26000
UN Global Compact Blueprint forCorporate Sustainability Leadership
World Business Council forSustainable Development
Translating Environmental, Socialand Governance Factors intoSustainable Business Value
Strategicobjectives
The strategic objectives that aim tocreate and sustain value over the short,medium and long term
The competencies required to realisethese strategic objectives in theoperating context outlined above
A list ofkey performance indicatorsand key risk indicators, includingframeworks used
On integrated or connected reporting: The Prince's Accounting for
Sustainability Project 'ConnectedReporting: a practice guide withworked examples'
Robert G, Eccles and Michael P.Krzuz 'One Report: IntegratedReporting for a Sustainable
Strategy'
Section Recommended Material Guidance
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Figure 1b. Integrated Reporting Framework Outlined By The IRC
Source: Verdantix, Integrated Reporting Committee
Futureperformanceobjectives
Statement of intent for futureperformance, including specific targets
The statement of intent should bealigned with the assessment ofchanging social context andstakeholder expectations
A forward looking reflection oninternal competencies required to
manage the identified risk andopportunities and deliver on the firm'sstrategy.
On stakeholder engagement: AccountAbility AA1000 Stakeholder
Engagement Standard The European Alliance for
Corporate Social Responsibility'sProactive Stakeholder Engagement
The International FinanceCorporation's 'Stakeholder
Engagement and the Board' International Federation of
Accountants (IFAC) SustainabilityFramework
Remuneration Disclosure on employee and seniorexecutive remuneration
KPIs that could influence seniorexecutive remuneration should beidentified and disclosed
Account ofperformance Activities undertaken in the reportingperiod to address the strategic
objectives and material impacts A briefdescription of outcomes, both
positive and negative. A briefcommentary on the data
collection and management process.
Analyticalcommentaryonperformance
Executive team's view on the firm'scurrent and anticipated performancein the context of the strategic objectives
Inclusion ofappropriate ratios ofeconomic, environmental, financial,governance and social information.
Summarized historic performance
Assurance Assurance strategy should take intoaccount assurance provided by:
Management
Internal audit External audit Otherexternal assurance
providers The extent and level of assurance will
increase with the maturity ofintegrated reporting
In time all material economic,environmental, financial, governanceand social issues could be covered withreasonable assurance
International Standards on Auditing(ISAs)
International Standard in AssuranceEngagements 3000: AssuranceEngagements other than Audits orReviews of Historical FinancialInformation
AccountAbilitys AA1000 AssuranceStandard (AA1000AS)
Organizations should engage at anearly stage with auditors and otherexternal and internal assuranceproviders
Section Recommended Material Guidance
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Consider the key principles of relevance and materiality. The principle of relevance
requires rms to provide information that helps stakeholders assess the ability of a rm
to create and sustain value over the short, medium and long term. This includes
information on the rms impacts on economic, environmental, nancial and social
systems. The principle of materiality requires that this information only need be
included if it is suciently important that it would impact the assessments and
decisions of the rm or its stakeholders.For nancial information, materiality is
assessed by the magnitude or nature of the accounting data omied or misstated. Themateriality of sustainability information is much more dependent on the operating
context and activities of the rm, and so requires careful consideration. Include summary nancial and economic information. For publically listed rms with
a high volume of information, the integrated report may be separate from the more
detailed nancial statement required by the IFRS. But the integrated report should
contain abridged nancial statements, details of factors aecting protability, nancial
investments such as R&D and capital expenditure, nancial value added and economic
value added to the community. Information should be consistent with that contained
within audited annual nancial statements. Link to more detailed nancial, governance and sustainability information. The
integrated report should be a synthesis of all key information, directing stakeholders
requiring detailed nancial information to annual nancial statements and stakeholders
interested in sustainability performance to sustainability reports or online equivalents
(see Figure 2).
Apply integrated assurance. Both King III and the framework proposed by the IRC
recommend that the sustainability information disclosed in the integrated report should
be independently assured (see Figure 1b). External auditors should also summarize
nancial information, following International Standards on Auditing (ISAs). Assuranceof sustainability information could follow International Standard in Assurance
VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED
Figure 2. Integrated Reports Should Provide A Synthesis And Link To Further Resources
Source: Verdantix, Integrated Reporting Council
Financial analyst
Sustainability analyst
Annual Financial Statement
Sustainability Report
Governance Statement
Example Reports
Integrated Report
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Engagements 3000: Assurance Engagements other than Audits or Reviews of Historical
Financial Information, or AccountAbilitys AA1000 Assurance Standard (AA1000AS).
There are currently no standards specically designed for assurance of integrated
reporting.
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