More than 70 percent of Australia’s largest listed companies and many large non-listed organisations are now focusing their reporting on long-term value, through using at least some of the principles of integrated reporting, a new KPMG survey of the ASX 200 shows.
This is up from 48 percent a year ago and is driven, the report argues, by a combination of increasing investor interest, notably from super funds, and important changes in the 4th edition of the ASX Corporate Governance Principles and Recommendations.
KPMG’s sixth annual survey of corporate reporting trends in Australia details how organisations are using the principles of ‘integrated reporting’ to help them better communicate their business and how they create value for their shareholders, customers, employees, regulators and other key stakeholders.
Covering annual reports to 30 June 2019, the KPMG survey includes interviews with directors and senior executives from organisations such as AGL, ANZ, Dexus, Lendlease and Transurban as well as Cbus, Australia Post and Deakin University, who are at different stages in their integrated reporting journeys. These business leaders highlight why and how they got started, the key benefits achieved to date and feedback received from investors and other stakeholders.
Nick Ridehalgh, KPMG’s National Leader of Better Business Reporting said: “Corporate reporting in Australia has been called ‘a mosaic of incrementalism’. On top of that, additional requirements by Governments, regulators and other standard setters to address the ‘trust deficit’ will add to companies’ reporting burdens, unless Boards and management take a more strategic approach. Integrated reporting, with its foundation of better business practice and integrated thinking, provides an opportunity to do this.”
“Amendments to the ASX Corporate Governance Principles & Recommendations made earlier this year* will also be a key influence. These changes require listed corporations to reassess their underlying non-financial value-drivers and risks, and report more transparently on their performance and future prospects. These drivers are really the fundamentals of good business, around customers and communities, as well as technology and IP, use of scarce resources and impact on the environment. They are at the heart of integrated reporting.”
“Eleven listed organisations now explicitly reference the International Integrated Reporting Council’s Framework. These entities clearly explain how they implement their strategy and manage risks and opportunities in line with their Purpose (the ‘What’ of their business); use resources and relationships (the ‘With’) through their governance frameworks and business models (the How) to deliver value for investors and other stakeholders over the short, medium and long term. We believe this is likely to increase over the next few years, as organisations respond to the growing demand from investors, notably super funds, and other stakeholders for more transparent and balanced reporting.”
In the interviews KPMG conducted, business leaders shared key learnings on their corporate reporting journeys. These included practical experience in how to get started; challenges and how they were overcome; business and market benefits realised and stakeholder feedback, and their organisations’ next steps.
Key common threads from the interviews with the organisations included:
- Successful integrated reporting projects are initiated and led by senior management. The Board oversees the projects and exercises active oversight throughout, illustrating the critical role of governance in successful integrated reporting.
- Business benefits achieved include breaking down internal silos, improved understanding and internal management of all business value drivers (not just financial), increased focus and engagement with all key stakeholders, and more insightful corporate reporting.
- The process of developing the integrated report starts to drive integrated thinking within the organisation and better planning and use of all resources and relationships (value drivers) in executing strategy.
- The focus on business value drivers, rather than short-term financials, helps engage all stakeholders (i.e. customers, suppliers, staff, and regulators) in a different way and provides a more transparent report of the business, its performance and future prospects.
- In the current environment, integrated reporting provides better information to address concerns and meet regulatory and public expectations, through its focus on strategy, use of resources, and creation of sustainable value for not only the organisation but also for its stakeholders.
- Those interviewed indicated that their companies have received positive feedback from investors, staff and other stakeholders on their integrated reports.
Corporate Governance – driving improved transparency and integrity of corporate reporting
*The 4th Edition of the ASX Corporate Governance Principles & Recommendations (4th Edition) was released in February 2019, to address contemporary business issues, including ones identified in the findings of the Banking Royal Commission.
Most of the changes in the 4th Edition focus on more long-term business value drivers and risks, including: culture and conduct; quality of service and key relationships; quality of internal controls; processes and systems outside finance; the organisation’s environmental impact; quality of corporate reporting; and the organisation’s community reputation.
The 4th Edition strengthened the recommendation for Boards to ensure the integrity of corporate reporting. Principle 4, and Recommendation 4.3 (R4.3) in particular, make clear the Board’s responsibility for the processes used to verify the integrity of all ‘periodic corporate reports’.
The commentary to R4.3 confirms that the principles of integrated reporting can be used in preparing existing reports, including the Operating & Financial Review (OFR). This approach has been supported by ASIC, AICD, G100 and ACSI and is the approach being used by most of the organisations adopting integrated reporting in Australia.