An organisation’s strategy is dependent on the way that it does business (i.e. its business model), the environment in which it operates, and the vision and goals of the organisation. The board is responsible for formulating strategy, and the future success of the organisation is dependent on how robust these strategies are given the skills of its employees and the resources available.

 

A major difference between integrated reporting and traditional reporting is the fact that integrated reporting focuses on long term value creation. As such, information that can be used for forecasting purposes becomes very important. It also follows that the number of variables that must be considered in this regard increases as the time horizon increases. The needs, interests and expectations of a wide variety of stakeholders additionally have to be analysed and evaluated where long term value creation is concerned. The radically changing natural and social environment in which organisations operate will also have a major impact on long term value creation.

 

With the future viability of an organisation dependent on the strategies that the board adopts in response to the different variables that might impact it, integrated reporting gives businesses a platform from which to make far-reaching – sustainable – decisions.  

 

An integrated report is the result of an integrated reporting process, and should include the following elements as a minimum:

 

The way in which an organisation creates value or, more simply put, its business model. Ideally the business model should describe the inputs, value creation activities and outputs of the organisation.

 

This should be followed by a description of the operating context of the organisation. This will detail the way in which the organisation engaged with its stakeholders to understand their needs, interests and expectations. The result of this component will be a summary of the major risks and opportunities that the organisation faces.

 

The board must react to the risks and opportunities facing the company by means of a strategy. The first step of this process will be to identify the most material issues that warrant a response, and then to address these with an appropriate strategy that can be implemented.

 

The success that was achieved in executing the strategy should be measured and reported on in some way. This can be using key performance indicators. Ideally the financial impact of strategies should be quantified.

 

The organisation should then explain to what extent governance processes in place assisted it to execute the strategy. The way in which directors are remunerated should also be aligned with the organisation’s strategy so as to incentivise them to achieve the strategic objectives.

 

The results of all of the above sections should then culminate in a discussion about the future prospects of the organisation.

The integrated report should be short and concise. It should be written in everyday language with only the most material information reported. While the Companies Act permits abridged financial statements in the integrated report, more detailed information can be disclosed on the internet if required.

 

Since March 2010 entities listed on the JSE have been producing integrated reports.

 

An analysis of these reports shows divergent application of integrated reporting principles. More detailed guidance is expected through the planned release of an Integrated Reporting Framework by the International Integrated Reporting Council at the end of 2013.

 

This article was first published in Volume 1 Issue 01 of The SA Leader magazine.