Taking a page from the best – Winners of the NACRA Integrated Reporting Awards 2017. This two-part article highlights certain key areas for improvement and exemplary best practices collated from the adjudication of the Intergrated Reporting Awards 2017.
Reporting by MIA Integrated Reporting Steering Committee
Part 1: Diving into the Guiding Principles
At the heart of integrated reporting (IR) is the desire to communicate an organisation’s value creation story in a manner that engages its stakeholders. The Integrated Reporting Framework (Framework) speaks extensively about how value creation should be communicated, taking into consideration the capitals available to an organisation. Specifically, the Framework provides Guiding Principles that underpin the preparation and presentation of an integrated report, informing the content of the report and how information should be presented.
This article, the first in a two-part series, focuses on the common findings arising from the Integrated Reporting Awards (IR Awards) adjudication of the National Annual Corporate Report Awards (NACRA) 2017, analysed by the Guiding Principles in the Framework.
Before diving in, the Committee congratulates the IR Award 2017 winners on their well-deserved win. Sime Darby Berhad clinched the coveted Platinum Award, setting the benchmark for excellence in integrated reporting. The Gold Award went to Telekom Malaysia Berhad while Petronas Gas Berhad and Tenaga Nasional Berhad tied for a joint Silver Award. We also commend all participants for their efforts in producing integrated reports.
Areas for Improvement
Accordingly, we wish to highlight certain key areas for improvement from the adjudication of the IR Awards 2017. In discussing the observations, examples of good practices are featured, making reference to the annual reports of the IR Awards 2017 winners above.
Strategic focus and future orientation
In articulating an organisation’s value creation strategies, there could have been clearer linkages to their resources or capitals (as referred to in the Framework). The informational value of the disclosures could be enhanced if the strategies were demarcated into short-term, medium-term or long-term strategies. In particular, the adjudicators found a lack of disclosures addressing long- term strategies.
Petronas Gas Berhad Annual Report 2016 pages 74-78.
Their 3ZERO100 strategy was communicated well, with clear progression of strategies up to year 2020. Petronas Gas Berhad’s focus on strategy is also shown via frequent referencing throughout the report.
Connectivity of information
The value creation processes should clearly articulate the connection between inputs, outputs and outcomes. The interdependencies and trade-offs between capitals could also be better articulated.
Tenaga Nasional Berhad Integrated Annual Report 2016 pages 87-108.
Tenaga Nasional Berhad’s sustainable value creation story is linked to the different capitals of the organisation through the use of icons. The different capitals are also referenced throughout the report where applicable.
The key concerns of stakeholders should be communicated clearly in the report. Organisations should also make an effort to show how the organisations’ strategy addresses the needs of their stakeholders.
Petronas Gas Berhad Annual Report 2016 pages 224 – 225.
The business model of Petronas Gas Berhad creates value for their stakeholders through the depiction of its integrated value chain. The disclosure clearly links the inputs, outputs and outcomes of the business process for the key stakeholders.
The materiality determination processes were not clearly articulated. There was also a lack of disclosure of how material matters affect the organisation’s value creation.
Telekom Malaysia Berhad Integrated Annual Report pages 54-55.
There was robust discussion on the identification of Telekom Malaysia Berhad’s material issues. The disclosures covered the identification process, the linkages between the organisation’s material assessment and its sustainability strategy. The material issues were also set out on a materiality radar for ease of understanding.
Organisations should reduce or eliminate as much as possible the use of generic or boilerplate disclosures. These disclosures add bulk to the annual report but provide little value to the user. In achieving conciseness, organisations should also make greater use of infographics in place of lengthy paragraphs.
Sime Darby Berhad Annual Report 2016 pages 16-23.
As a conglomerate with operations in the plantation, industrial, motors, property and logistics sector, Sime Darby Berhad succeeded in communicating succinctly. The flow of information is logical and easy to follow. The organisation also makes good use of infographics throughout the report, making it easy for readers to understand.
Reliability and completeness
Disclosures should be more balanced, with disclosures providing both positive and negative outcomes. There was also a lack of disclosure on the mechanisms that the organisations employed to ensure the reliability of the information in the annual report.
Tenaga Nasional Berhad Integrated Annual Report 2016 pages 40-41.
Disclosures were balanced with Tenaga Nasional Berhad openly disclosing their “lost time injury frequencies” and accident rates. In addressing these challenges, Tenaga Nasional Berhad also highlighted its safety and health initiatives.
Telekom Malaysia Berhad Integrated Annual Report page (111).
The preamble to Telekom Malaysia Berhad’s annual report indicated to what extent assurance had been obtained over the reliability and completeness of the information provided in the annual report.
Consistency and comparability
There was an overall lack of benchmarking against industry statistics and other comparable organisations. Hard key performance indicators should also be disclosed to enable users to make informed assessments. Disclosure of results from prior periods will also assist the stakeholders in gauging the performance of an organisation over time.
Sime Darby Berhad Annual Report 2016 pages 32-111
Sime Darby Berhad reported information in a systematic and consistent manner, enabling easy comparison against past performance. Common industry benchmarks and terminologies were also used, further aiding comparability.
The examples of good practices given above are to facilitate discussion of the specific Guiding Principles and are not meant to be treated as the “perfect” or the “only way” to articulate these principles. Instead, the key takeaway is to observe how the winners have communicated their unique value creation story and leave you inspired to craft your own.
The IR Awards adjudicators hope that these key observations will provide additional guidance to the participants of NACRA and other organisations looking to embark on their own IR journey.