Shareholders are continuing to press for more clarity in Australian
corporate reporting, including detail on strategy and ESG issues. companies
will notice some positive changes when their Operating and Financial
Reports arrive in the inbox or the mail this year. A growing number of
Australian boards are adopting the principles of integrated reporting,
responding to investor demand for greater clarity on the drivers of longterm
value. Plus, it is helping management and boards to save time and cut
the volume of reporting.
So far, the list includes the likes of National Australia Bank, Urbis,
Lendlease, Stockland, Australia Post, Macquarie Group, BHP, Bank Australia,
as well as industry superannuation fund CBUS. They’re among more than
1500 companies worldwide improving the quality and relevance of the
information this way including GE, Coca-Cola, Diageo and Danone.
Concerns remain about liability risks for directors making forward looking
statements, a long-standing AICD issue and a barrier to the full
adoption of integrated reporting in Australia. The AICD is, however,
encouraging boards to consider flexible and voluntary use of integrated
Integrated reporting emphasises an organisation’s strategic focus and
future orientation. It aims to provide an integrated picture of how an
organisation’s business model and strategy, governance, performance and
prospects lead to creation of value over the short, medium and long term. It
helps frame the drivers that are important to future value creation through
the interdependencies of inputs (the resources and relationships the
organisation uses or affects such as financial, manufactured, intellectual,
human, social and relationship, and natural capital).
“The best way to describe it is: what is the future resilience of a company
in a very changing world?” says Pauline Vamos MAICD, CEO of Regnan
Australia, which assesses environmental, social and corporate governance
(ESG) risks of ASX200 companies on behalf of institutional investors.
lower cost of
While some fund managers and hedge funds are interested in quick
gains, superannuation funds and asset managers such as CalPERS
(California Public Employees’ Retirement System), BlackRock, Vanguard and
Fidelity are demanding an end to short-termism.
BlackRock CEO Larry Fink, in his 2016 annual
letter to S&P500 company CEOs asked them to
inform shareholders of their strategic frameworks
for long-term value creation and affirm that their
boards had reviewed those plans.
Academic research now highlights the market
benefits for organisations that move away from
being centered on regulatory “tick-a-box” reporting
towards better explaining how they create and
preserve long-term sustainable value.
A recent paper by Professor Mary Barth at
Stanford University Graduate School of Business
found integrated reporting is positively associated
with stock liquidity and firm value. 
It found investors in companies using
integrated reporting revise their estimates
of future cash fows as a result of better
understanding of the firm's capitals and strategy,
and that future flows also increase because of
improved internal decision-making by managers.
Roger Simnett of UNSW Business School found
that for smaller listed companies the improved
information provided to investors lowers the
company’s cost of equity capital.  This is
consistent with the notion that investors are
willing to accept a lower rate of return as a result
of reduced information risk.
Australia is behind other jurisdictions when it
comes to adopting the reporting framework, says
Liz Prescott, Australian-based Technical Director
of Projects and Stakeholder Support at the
International Integrated Reporting Council (IIRC).
Integrated reports are required in South Africa
and inform the UK’s reporting framework. In
Japan, Prime Minister Shinzo Abe’s support for it
has been part of the country’s economic reform
program, while the Securities and Exchange
Board of India (SEBI) has asked the country’s top
500 companies to produce integrated reports.
Prescott expects the rate of adoption in Australia
to accelerate over the next 12–18 months. She says
directors considering going down this reporting
path should be sure they have the right indicators
to monitor performance against strategy.
“A greater focus on non-financial value drivers,
such as intellectual capital, human capital and
social and relationship capital encourages
more emphasis on leading rather than lagging
indicators. You can’t tell where you’re headed
looking in a rear-view mirror, so the systems
capturing non-financial information need to be
as robust as a financial system,” she says.
 The Economic
Market and Real Effects, Mary Barth,
Steven Cahan, Li Chen,
Elmar Venter (April 2017).
 Does Integrated
Reporting Matter to
the Capital Market?
Shan Zhou, Roger
Simnett, Wendy Green;
Abacus, Volume 53,
Number 1 (2017).
How They’re Doing It
Macquarie Group’s most recent annual report and investor presentation encapsulates many elements of the long-term value reporting framework. Michael Coleman FAICD, chair of the Macquarie audit committee, says the board asked, “what do we think our shareholders and stakeholders want to know and how might we best present it?” Macquarie would not call it an integrated report, but “to a large extent, it follows the same sorts of principles and gives a very detailed report of the way in which the business operates,” says Coleman, who also chairs the reporting committee at the AICD.
Some investors and stakeholders have welcomed the new report format, but the broader investment community hasn’t said too much, says Coleman.
He did note that the Australian Council of Superannuation Investors had rated Macquarie’s level of sustainability reporting as “leading”.
Global developer Lendlease moved to adopt principles of integrated reporting a year ago, keen to better articulate how it created value for its stakeholders through financial and non-financial means. The company produced its first annual report with reference to the Integrated Reporting Framework in 2016 through its Operating and Financial Review. In doing so, it was able to reduce its reporting portfolio by two reports, saving substantial management and board time. This helped provide a much clearer story of value and eliminated six weeks of report preparation.
Lendlease said the consolidated information source “should assist our stakeholders in understanding our business model, strategy and performance”. The integrated report “provides a simple and clear way for us to share the value creation story”, writes Lendlease chair David Crawford FAICD in his chair’s report.
AICD policy position
Integrated reporting can offer useful principles for communicating on strategy, business model and governance, risks, performance and outlook.
The AICD encourages directors to consider the aims and principles of the Integrated Reporting Framework (IRF) in corporate reporting as relevant to their organisation and stakeholder needs.
Flexible, voluntary adoption of relevant content elements of integrated reporting may help directors seeking to improve the quality and usefulness of information reported to the stakeholders.
The IRF suggests content elements that companies could adopt in reporting, as relevant. Many of these content elements are similar to guidance produced by ASIC for the Operating and Financial Review (OFR) [a requirement for listed companies] or can be effectively adopted within the OFR framework.
The AICD does not recommend adoption of the full framework due to directors’ liability concerns with forward-looking statements and the need for a directors’ compliance statement under this formal framework.