Verdantix Integrated Reporting Release

8/6/2019 Verdantix Integrated Reporting Release

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Verdantix Ltd 2007-2011. Reproduction Prohibited.

FIRST INTEGRATED REPORTING FRAMEWORK RELEASEDFEBRUARY 2011


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Verdantix Ltd 2007-2011. Reproduction Prohibited. 2

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

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may make one attributed copy of each figure or paragraph contained herein. Additional reproduction is strictlyprohibited.

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

FIRST INTEGRATED REPORTING FRAMEWORK RELEASEDNEW GUIDANCE TO BE IMPLEMENTED BY PUBLIC SOUTH AFRICAN FIRMS

Licensed Content


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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:

VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED


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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


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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