The impact of integrated reporting on risk management and strategic decision-making for JSE-listed companies
Abstract
Integrated reporting requires a new form of disclosure to provide a holistic view of
the organisation and aims to support integrated thinking, decision-making and
actions that focus on the creation of value over the short, medium and long term. At
the heart of integrated reporting is integrated thinking. Integrated thinking takes into
account the connectivity and interdependencies between the range of factors that
affect an organization’s ability to create value over time, including (among other
things) how the organization tailors its business model and strategy to respond to its
external environment and the risks and opportunities it faces. The International
Integrated Reporting <IR> Framework published in 2013 provides guidelines for the
content elements required in an integrated report. One of the content elements is
‘risk and opportunities’.
This study firstly assessed whether integrated reporting has enhanced integrated
thinking between strategy and the risks and opportunities faced by the organisation.
For this purpose a web-based research questionnaire was sent to high level
implementers of integrated reporting at companies listed on the Johannesburg Stock
Exchange (JSE) in South Africa, where integrated reporting is a listing requirement.
Results of this study provide new insight to companies preparing integrated reports
and other stakeholders to show that integrated reporting has driven change towards
integrated thinking between strategy, risk and opportunities.
Secondly a content analysis was done on a sample derived from the top 100
companies listed on the JSE to determine whether integrated reporting has caused a
change in the disclosure of risks and opportunities. Results provide new research
findings and indicate that most companies conform to the disclosure requirements
noted in the International <IR> Framework regarding risk and opportunities except
for disclosures regarding the assessment of specific risks. The content analysis
further found that integrated reporting has driven limited change regarding the
disclosure of risk and opportunities. The originality of this study is that it applied two
connected and mutually supportive empirical research studies to show that although disclosures of risk and opportunities facing the organisation has not significantly
changed there has been a change towards integrated thinking and the linking of
strategy, risk and opportunities due to integrated reporting. The study contributes to
the body of literature and extends prior work to provide a better understanding of the
true value of integrated reporting. This is important for companies to understand the
sources of information for improved disclosure, to better understand stakeholder
needs and to allocate the required resources to ensure the comprehensive
application of integrated reporting. The quality of integrated reports and the level of
adherence to the International <IR> Framework are important for investors and
analysts assessing companies and investment opportunities. The implication of this
contribution is that implementers of integrated reporting agree that it advances
integrated thinking between strategy, risk and opportunities which provide a reason
to advocate the application of integrated reporting.