An adjudicator’s viewpoint

By Professor Mark Graham
UCT and Adjudicator of the EY Excellence in IR Awards

Based on a speech at the EY Awards event in Johannesburg on 3 August 2018

The overriding objective in our ranking of integrated reports is the extent to which it complies with the spirit of integrated reporting as defined by the International <IR> Framework (<IR> Framework) as being “a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term”. There are four specific areas which we believe are crucial to excellence in integrated reporting. These are: the extent to which the report has a clear strategic focus; an emphasis on value creation; a high level of connectivity between the various elements presented; and, an appropriate balance between positive and negative matters. These four areas are then used to identify the Top 10 integrated reports from all amongst those ranked as excellent and to assign them a ranking within the Top 10 [the JSE top 100 companies are included in the survey].

We have an ‘honours’ award for those high-quality integrated reports that we believe have come closest to complying with all the requirements of the <IR> Framework.

Our overall impression this year is, once again, that those companies who take integrated reporting seriously are continually improving whilst those that do not, are showing very little improvement. This year, we ranked 47 integrated reports in the ‘good’ and ‘excellent’ categories. This certainly shows that almost half of the larger listed companies are, in our opinion, making a serious attempt to produce an integrated report. The number of companies that we consider to have ‘excellent’ integrated reports this year number 23 – this is slightly down on last year’s tally of 27, but of course these are not necessarily the same companies as there is some movement in the composition of the Top 100 companies and because the robustness of our adjudication process increases each year as we learn and understand more about integrated reporting.

This year, in the excellent reports, we saw improvements in:

  • Layout and structure of the value creation narrative, and increased disclosures of the value the organisation is creating for itself and others.
  • Improvements in the explanation of the strategy to create value and more reports are now incorporating the various capitals (without necessarily using this specific terminology) and explicitly showing the trade-offs between these capitals.
  • Increased disclosures of the opportunities that are available.
  • Better understanding of the difference between outputs and outcomes.

There are of course many areas where our local integrated reports, including those ranked as excellent, could improve:

  • Almost all companies appear to be struggling with governance and remuneration disclosures. Increased attention needs to be given to refocus these sections of the report to show how the organisation’s governance and remuneration structures will create value and to avoid generic, boilerplate, tick-box compliance disclosures.
  • Increased emphasis needs to be given to try to achieve a balanced report by including both ‘bad news’ and negative outcomes.
  • Disclosing more detailed and less generic explanations of the trade-offs between the various capitals.
  • Providing more detail on actual strategies and not just strategic objectives or aspirations, including meaningful measures the will be used to measure the achievement of strategic objectives.
  • Improving the linkage between the various Content Elements.

As the momentum of integrated reporting continues to grow worldwide and the academic evidence of the benefits to organisations that produce credible integrated reports continues to mount, we hope that those preparers that are producing excellent reports continue to improve the quality of their reports and we encourage those that are not to move in the right direction.