The Global Reporting Initiative or GRI did much to develop a framework for this type of reporting and South African companies responded well. Over the past decade, reporting companies have grappled with each version of GRI – with G4 and its focus on the business model launched in May 2013. The most obvious shortfall of such a framework, however, is its inability to accommodate every facet of every industry. GRI attempted to address this with sector-specific supplements. But industry issues in a developing market are very different to those in a developed market. Still, it was, and is, a common standard of sorts. See www.globalreporting.org for details.
The latest seismic shift is integrated reporting. In essence, this summarises a company’s performance against its strategy to give readers the bird’s-eye view of its prospects. Modern management manuals would call this the high-level overview. Or some such phrase. The jargon is rapidly becoming a discipline in itself.
The fact that the International Integrated Reporting Committee has needed close to two years to develop a consultative draft framework is just one clue to the enormity of this task. After all, integrated reporting is a quantum leap for the narrative in an annual report on the same scale as Generally Accepted Accounting Practices were for annual financial statements – and those took decades to develop. The consultation draft of the integrated reporting framework can be accessed at http://www.theiirc.org/consultationdraft2013.
For South African reporting companies, the task is even more complicated. Listed companies in South Africa also have a new Companies Act to deal with as well as the impossibly-named governance review and appendices fondly referred to as King III. To up the complexity factor, dual-listed companies have new stock exchange-driven reporting requirements in each jurisdiction. So a company listed in Johannesburg and New York, say, can add Sarbanes-Oxley to the mix.
So what does all this mean for the reader of an annual report in the second decade of the 21st century? Well, for starters, expect your chosen annual report to take longer to produce as its writers battle to comply with myriad requirements. And don’t hold your breath for the pithy 60-page tell-all summary.
Integrated reporting is in its infancy. The aim is noble and clear – how does a company create value and is its plan sustainable?
The reality is a little more complicated. Each company in each sector in each country has different drivers, different legislation, different material issues, different social and environmental considerations. Many don’t want to disclose certain facts. Others are simply not measuring the indicators that today’s disclosure standards require. For some, the capital expenditure involved in setting up those measurement processes could mean closing their doors.
The utopian ideal of an annual report that discloses every risk, every opportunity and every facet of the strategy to mitigate the first and capitalise on the latter is, right now, just that – an ideal.
But companies are striving towards this ideal. Responsible investors demand it, governments are legislating it and some stakeholders are even marching for it. Oh yes, and management manuals are coining ever-more inventive jargon to describe it.
The annual report is growing up fast, but we’re still grappling with the teething pains.