Integrated Reporting

https://www.integratedreporting.org/

Integrated Reporting and Stakeholders

Overview

Integrated Reporting (IR) has become an important instrument for organisations to communicate annually with its key stakeholders. Prior to the development of Integrated Reporting, annual reporting of most organisations was focused on mainly one or two stakeholder groups, i.e. shareholders and owners, often providing them, at best, with summarised overviews of the organisation and its finances and performance. Critical information regarding the effects on the environment, sustainability and governance (ESG) was often ignored or overlooked, providing a breeding ground for major scandals, such as the implosion of Enron and with it, at the time, highly regarded firms, such as Arthur Anderson. Over time, it has become evident that many more stakeholder groups than shareholders and owners need to be considered, giving rise to the development of Integrated Reporting guidelines and frameworks as well as governance codes such as the King IV™ Code in South Africa.

Stakeholder engagement is an important aspect of Integrated Reporting which means that an organisation needs to establish which stakeholder groups are affected by the organisation or who affect the organisation. Also important for the organisation is to determine the importance (salience) of stakeholder groups, i.e. which stakeholder groups have most impact on the organisation.

An effective approach to engage with stakeholders is, firstly, to identify the extended range of stakeholder groups (key stakeholders and beyond) that may affect the organisation or may be affected by it. Secondly, to invite individuals within the stakeholder groups identified, to participate in a structured survey to determine their experiences and viewpoints regarding interactions with the organisation. Such a survey can provide significant insight into stakeholder views regarding practices, processes and the values of the organisation. It can also provide valuable information to be included in the Integrated Report, as well as guidelines to improve organisational performance and excellence and possible changes or transformations that could lead to improvement towards excellence as well as to the sustainability and value of the organisation.

Several business frameworks that can form the basis of stakeholder surveys have been developed over the past decades. These frameworks include excellence frameworks, governance frameworks, performance frameworks and ISO standards.

The Stakeholder Voice System has been developed to allow organisations to acquire the viewpoints online from a large number (thousands) of stakeholders from a wide range of stakeholder groups. The viewpoints are related to governance frameworks such as King IV™, Excellence frameworks such as EFQM™ 2020, a number of ISO standards, as well as performance such as the balanced scorecard. Analysis of the feedback from assessments can provide insight into issues in the organisation that need to be addressed. Information obtained can also enrich organisations’ Integrated Reports.

Integrated Reporting

Annual reporting by organisations was typically focused on informing shareholders and owners. Over time it became clear that significant changes needed to be made to the reporting system. Since the early 1990’s a number of initiatives were embarked upon to develop clear guidelines that were to lead to what is currently known as Integrated Reporting. These initiatives include:

The King I™, King II™, King III™ and King IV Codes™
The Global Reporting Initiative (GRI)
The International Integrated Reporting Framework

South Africa has been a pioneer in the development of Integrated Reporting which has its roots in the institution of a private-sector body by Professor Mervyn King in 1992 to draft corporate governance guidelines. These guidelines culminated in the King IV™ Code in 2016. Having been on the boards, in most cases as chairman, of the leading governance bodies worldwide, Professor King is certainly seen as one of the most authoritative experts when it comes to Integrated Reporting (www.mervynking.co.za).

The King IV™ Report states that stakeholder inclusivity and integrated reporting are “foundation stones” of King IV. The report states the importance of stakeholder management and carries on as follows: “Understanding stakeholders' expectations will greatly assist the executive to develop better strategy. Stakeholder relationships should be a recurring item on the governing body's agenda so that the board can be kept apprised of the current state of the relationships between the organisation and its stakeholders.” (King IV™, 2016. P5).

The Global Reporting Initiative (GRI), refers to the ISO standards: 26000 - Guidance on social responsibility, 45001 – Occupational Health and Safety Management Systems, as well as the 14001 Environmental Management System

Integrated Reporting is defined by the Institute of Integrated Reporting (IIR) as: “A process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time. It includes related communications regarding aspects of value creation.” (<IR>, 2013). It furthermore states in the Integrated Reporting (IR) Framework that: “An integrated report should provide insight into the nature and quality of the organization’s relationships with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to their legitimate needs and interests.” (<IR>, 2013)

The International Integrated Reporting Council defines an Integrated Report as follows: “A concise communication about how an organization's strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.” (<IR>, 2013)

Most South African companies are required to provide Integrated Reports that address the following themes:

Governance
Strategy
Finance
Inputs
Outcomes
Stakeholder relationships
Sustainability
Corporate Social Responsibility (CSR)
Environment, Society and Governance (ESG).

Stakeholder experiences and perspectives of organisations become important and many organisations embark on stakeholder surveys, often performed and analysed by advisory firms. These surveys could be used to perform SWOT (Strengths, Weaknesses, Opportunities and Threats) analyses that may provide guidance to improvement interventions.

Integrated Reporting is a listing requirement on the Johannesburg Stock Exchange (JSE)

Much more consideration should be given by organisations to communication, interaction and engaging with stakeholders. This means that organisations must identify their key stakeholder groups and include interactions in their strategies as well as their codes of conduct. Interactions with stakeholders therefore also need to be included in organisations’ annual integrated reports.

Issues that need to be considered regarding interaction with stakeholders are the following:

The definition(s) of the concept of stakeholders
Awareness of the importance of stakeholders to the organisation
Identification of all stakeholder groups related to the organisation
Identification of the most salient (important) stakeholder groups
Engaging with the different stakeholder groups
Obtaining feedback from stakeholder groups
Managing stakeholder group relationships
Reporting on stakeholder interactions in annual integrated reports
Adjusting strategies regarding relationships with stakeholders where necessary

Integrated Reporting