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.