Foreword Integrated reporting challenges companies to rethink their business model and how they do business, what resources and relationships they are dependent on for future success and how performance in one area impacts that in another. Integrated Reporting therefore reflects, and supports, “integrated thinking” – the ability of those within the organisation, in particular management and those charged with governance, to understand and base their decisions on the interconnections between the factors – economic, environmental, social and governance – that contribute to success over time. For some, where sustainability is already core to the company’s approach to business, integrated reporting presents the opportunity to demonstrate leadership and differentiate from competitors. For others, the simple fact of bringing together financial and non-financial information in a new way will highlight opportunities to innovate, ways to save costs and enable more effective collaboration across the business – certainly this is our experience working with companies on The Prince’s Accounting for Sustainability Project. Black Sun’s research highlights examples of how companies from around the world have sought to develop integrated thinking and reflect that thinking in their Annual Reports – from understanding the changing business context and leadership response to setting their strategy and objectives, identifying risks and opportunities and assessing performance. This provides important insights for the development of the International Integrated Reporting Framework as well as useful lessons for those companies starting on the journey. Jessica Fries, Director – International Integrated Reporting Committee and The Prince’s Accounting for Sustainability Project Internat ona Integrated Report ng research W h n eg a on s ng on he co po a e epo ng agenda and w h he ecen o ma on o he n e na ona n eg a ed Repo ng Comm ee RC B ack Sun e he me was gh o ga n g ea e ns gh n o g oba n eg a ed epo ng ends and deve opmen s Th s pub cat on s part of our nternat ona ntegrated Report ng research su te ntegrated Th nk ng n Report ng Showcases examp es o epo ng app oaches used by compan es o demons a e n eg a ed epo ng www.blacksunplc.com 4 Towards Global Sustainability A country by country review of the international integrated reporting landscape www.blacksunplc.com © Black Sun Plc 2011 5 8 Towards Global Sustainability A country by country review of the international integrated reporting landscape www.blacksunplc.com © Black Sun Plc 2011 9 ‘Towards Global Sustainability’ Examines integrated reporting on a country-by-country basis and highlights different national and international approaches. International Summary This research study aims to provide an overview of integrated reporting practices and trends and an assessment of the current state of integrated reporting across seven key G20 markets and countries, including: Country statistics South Africa ¦ Looked at purely from an integrated reporting perspective, South African reports could credibly claim to be leading the way. Although many good examples of integrated reporting can be seen for individual companies in other nations, South Africa as a country, stood on its own in our sample group as the most advanced in terms of integrated reporting. The majority of the reports reviewed have made some progress on the integrated reporting journey. This lead is likely driven by the legislative requirements of the King Report on Governance 2009 (King III) which from March 2010 requires listed companies to issue an integrated report. This report is de ned as: ‘a holistic and integrated representation of the company’s performance in terms of both its nance and sustainability’. South Africa’s main exports are gold, diamonds, metals and minerals and this representation is re ected in our sample group, with most companies operating in the basic materials sector. The increasing regulation in the industry around issues such as local economic development, environmental management and climate change strategies has also been a driver of integrating sustainability into corporate strategies. Overall, these companies represent the strongest group at attempting to integrate nancial and non- nancial information throughout the report. Most of the reports clearly identify relevant issues and the potential impact on the business, although there are only a few that explicitly disclose the materiality process. The strength of this integration also acts as a weakness. Annual reports need to communicate as well as comply and the ‘one report’ approach to meet all audience needs means that South African reports, Europe ¦ Well developed guidelines and regulation drives a practical, targeted and measured approach to reporting. Key statistics 100% state a clear overall vision of the company 62% make a commitment to wider stakeholders 63% link non- nancial issues to overall group strategy, objectives or vision 63% mention business model, 40% of those refer to non- nancial elements 75% identify non- nancial risks factors, 62% disclose impacts and mitigation activities 62% have a board level sustainability committee 87% provide non- nancial performance data A country-by-country review of the international integrated reporting landscape Brazil China Europe Belgium France Italy Norway Switzerland Finland Germany Netherlands Spain UK on average, are the longest at 336pp. They also have the longest average narrative at 185pp, sometimes making them quite overwhelming to read. This is often not helped by the approach to the creative, which is usually quite conservative, focused on demonstrating the quality of the assets or the business and not particularly inspirational or engaging. Key statistics 46% link non- nancial issues to overall group strategy objectives or vision 80% outline long-term business objectives 28% of reports convey non- nancial issues are integral to the group strategy 38% of reports non- nancial discussion complements the group strategy 82% report on non- nancial performance data 55% make a commitment to wider stakeholder groups in the overall vision whilst 20% make a commitment to shareholders only Key highlights • Most reports outline a clear vision along with a commitment to deliver value to their wider stakeholders. • Majority of reports present very good market reviews and opportunities, using supporting external data which helps to put the strategy into context as well as enabling the company to provide clear objectives and targets for the future. • Most companies report strategically on the business with many setting strategic agendas which are a mix of nancial and non- nancial elements and de ne how sustainability is core to delivering growth drivers. • In some cases sustainability is built into the investment case for business. A few companies use the explanation of their business models to do this. • Many report on their engagement with stakeholders, identifying key material issues and relationships. • Risks and opportunities seem to be more integrated into reporting overall rather than a standalone section – a few are outlining strategic risks directly related to stakeholder interests. • All reports contain very detailed operating reviews. Europe as a sample group was certainly not homogeneous. No country dominated the sample group with representation from ten different countries in total. Three quarters of the sample group was made up from the UK, France, Germany and Switzerland. Sectors that dominate include: consumer goods, nancial or oil & gas and a few broad trends transcend geography and sector: simple businesses usually have simple reports, complex organisations usually have complex reports. Other trends are noticeable too. Consumer facing businesses often pay more attention to communicating through their reports, giving more focus on products and brands in ‘telling the story’ and seem to be more responsive to meeting the growing social and environmental concerns of their customers, than business-tobusiness organisations. Financial services companies focus more on the numbers than the narrative, which is clearly driven by their extensive disclosure requirements. In addition, there is little evidence of integration of non- nancial issues into their core businesses. Overall European reports, tend to be more developed and consistent in the subject matter, covering market context, strategy, performance, governance, risks and sustainability issues. However, reporting on non- nancial activities and performance, for the most part, the approach seems to be split between two categories: those where non- nancial issues are integral to the business and strategy and reported on as such and; those where reporting on nonnancial issues is dominated by a conservative and almost ‘box ticking’ approach driven largely by quite established mandatory and voluntary frameworks. An emerging group of companies seem to be moving to a place where non- nancial issues are presented as integral to business strategy and reported on as such. In addition, there are also examples of innovative approaches where companies are de ning their role in meeting some of the global sustainability challenges, although few demonstrate how this will be achieved with their business strategy. India South Africa Republic of Korea United States Key highlights of reporting: • Structured approach to reporting with the majority of the companies covering key elements of strategy, risk, performance and governance. • The strategic discussions are quite developed with many companies providing clear details of their objectives and priorities. • Majority of reports have detailed strategic information included in the report but only a select few of the reports effectively discussed the integration of non- nancial issues within the strategy. • Most of the companies in the sample group discuss non- nancial issues and the policies in place to manage these issues although; the approaches to reporting on these varies across countries and sectors. • Prominence given to Board and governance processes. Companies reviewed by sector (%) Basic materials Consumer goods Consumer services Financials Healthcare Industrials Oil & gas Technology Telecommunications Utilities Conglomerate 11 8 2 26 6 3 13 9 10 7 6 Average length of report by country (pages) 350 336 Average annual report length Average length of narrative Average length of nancials 300 250 Full sample 135 203pp Full sample Longest average narrative 113pp Full sample Longest average nancials 91pp 249 239 Longest average annual report 206 101 200 150 100 China 50 0 South Africa 106 336pp South Africa Shortest average narrative 185pp South Africa 60pp Brazil 151pp 30pp Average report length 150 Shortest average annual report Shortest average nancials Rep. of Korea South Africa United States 106pp United States Average length of narrative Average length of financials Number of ‘integrated’ reports Average report length Average length of narrative Average length of financials Number of ‘integrated’ reports Europe Brazil India 336 pages 185 pages 151 pages 6 out of 8 reports 239 pages 138 pages 101 pages 2 out of 40 reports The journey towards integrated reporting: One step at a time US STAGE 6 INTEGRATION In this stage, the company’s sustainability has become integral part of the business strategy, culture and operations. Companies are also beginning to demonstrate the links and implications between nancial and non- nancial information and performance. Anglo American 2009 Annual Report Basic Materials UK About Anglo American Chairman’s statement A world class combination of resources and people Sustainable development Outlook Delivering on our commitments About Anglo American 6 We recognise that successful integrated reporting is a challenging and lengthy journey for many companies. Each year, there is a need to adjust reporting in response to feedback from stakeholders. Therefore, where a company is on their journey is often a reflection of the progress which has been made from moving beyond being compliance driven to demonstrating sustainability as a corporate imperative. The following steps are usually taken along the way: A clear strategy for delivering value Refreshing the Board We are committed to key projects to maximise our long term returns. Sir John Parker Chairman, appointed August 2009 Career in brief 1964 Joins the ship design team at Harland & Wolff as a naval architect and engineer 1978 Joins the board of British Shipbuilders Corporation 1983 Returns to Harland & Wolff as chairman and chief executive, leading a transfer from the public to the private sector 1986 Joins British Coal Corporation as a non-executive director 1993 Joins Babcock International as CEO (becoming chairman the following year) 1997 Becomes a non-executive director of British Gas, which leads to him becoming chairman of the Lattice Group when it demerges from BG Group 2002 Appointed chairman of National Grid Transco when the Lattice Group and National Grid merge. Becomes chairman of RMC Group, Aggregates and Cement. He is also knighted for services to the defence and shipbuilding industries 2004 Appointed Chair of the Court of the Bank of England 2005 Appointed chairman of P&O, leading the sale to Dubai’s DP World 2009 Joins Anglo American as chairman STAGE 5 PROGRESSION Background: Annual Report 2009 Safety 5 In this stage, companies are demonstrating not only that they are managing sustainability in the same way as other business issues, but that there is a strategic response to material issues. These issues clearly include links to action plans, targets and measurement against the stated objectives. A strategy for unlocking value Anglo American is one of the world’s largest mining companies focusing on platinum group metals, diamonds, nickel, iron ore, metallurgical and thermal coal. They operate across Africa, Europe, South and North America, Australia and Asia. The aim of the Company is to be the leading mining company through becoming the industry’s employer, partner and investor of choice. To achieve this, they have implemented a sound strategy, a commitment to sustainable development and good governance. The Annual Report presents the key sustainability issues and reports on them as part of their overall strategy and a separate Sustainability Report is produced which reviews the issues in greater detail. 06 Dividend Operating and financial review Key performance indicators (KPIs) Sir John Parker Chairman Anglo American plc Annual Report 2009 Anglo American Anglo Amer American plc Annual Report 2009 uses KPIs to help measure its performance. The KPIs are aligned to the three key strategic aims of the Group Strategic aims 07 Strategic focus KPI Description Results and target (if applicable) Investment of choice Operating and financial review STAGE 4 ACTION Partner of choice 4 In this stage, companies demonstrate a clear understanding of the relevance of sustainability issues to the business and are beginning to report the importance by starting to manage and report on sustainability in the same way as they do other business issues. Content Review: Given the sector that Anglo American competes in, operating in a socially and environmentally responsible way is fundamental to their ‘licence to operate’. This commitment to excellence in good times and bad is clearly set out in the Chairman’s statement and discusses how the Company continues to integrate sustainable development into business processes and gives examples of progress over the year. This message is then clearly reinforced in the CEO’s statement with more detail around key initiatives such as safety, sustainable development and health. The strategic discussion in the Report is focused around the three strategic aims of the Company – investment of choice, partner of choice and employer of choice. These aims are directly linked to key performance indicators which chart progress and set targets for the future. Partner of choice encompasses sustainable development with measures for elements such as energy, water, CO2 emissions; and employer of choice encompasses people and safety with relevant measures. There is a detailed review of group performance against each of the strategic aims which clearly addresses the overall objective of each of the performance measures, progress against it and targets for the future. This demonstrates to the reader that all of these issues are of strategic importance to the business and provide a holistic overview of the Company and its performance. There is no separate sustainable development section as all the key issues are reported on as part of the strategic review. This strategic discussion is then followed by a nancial review and operating review by product group. Non- nancial risks are clearly identi ed with some details of mitigation activities and there is also a Board level sustainable development committee. Employer of choice Operating and financial review Performance against KPIs continued Energy consumption GJ (million) Year 05 06 07 08 09 96 107 105 103 2 105 0 0 50 100 150 200 250 300 Group excluding divested businesses Divested businesses 92 203 197 Partner of choice Sustainable development Energy consumption 16 Anglo American plc Annual Report 2009 Anglo American plc Annual Report 2009 17 Operating and financial review STAGE 3 PREPARATION Low carbon technology Energy efficiency 3 In this stage, companies have begun to focus on the importance of sustainability issues to their business and have started to address this by focusing on the development of, and reporting on, policies, processes and measurement. However, this remains to appear quite disconnected from the central business issues. Adaptation CO2e emissions Tonnes (million) Year 05 06 07 08 09 0 6 16.5 20.1 19.4 5.1 19.1 0.6 19.0 0 12 18 24 30 36 15.9 16.3 Climate change Group excluding divested businesses Divested businesses Carbon dioxide emissions Energy Carbon abatement STAGE 2 CONTEMPLATION Operating and financial review Performance against KPIs KPI continued 2 In this stage, companies are realising the growing importance of sustainability issues from a top level however, there is little evidence of these issues being addressed through their reporting. 22 Anglo American plc Annual Report 2009 Lost time injury Anglo American plc Annual Report 2009 frequency rate (LTIFR) and fatal injury frequency rate (FIFR)* LTIFR FIFR 0.03 0.025 0.02 0.015 0.01 0.005 0 05 06 07 08 09 Employer f h 23 Employer of choice l i Safety Operating and financial review 1.2 1.0 0.8 0.6 0.4 0.2 0 Year Transformation HIV/AIDS LTIFR FIFR *See KPI table on page 17 for definitions of LTIFR and FIFR Note: The basis for reporting LTIs became more inclusive in 2003, when Anglo American began to include restricted work cases as LTIs. This was fully implemented by 2006. Summary: STAGE 1 PRECONTEMPLATION In this stage, companies demonstrate little or no understanding of sustainability issues and provide no evidence through their reporting. The Anglo American Report gives a very clear commitment and review to their strategic approach to non- nancial issues and sustainable development and comes across as an integral part of their business strategy as well as dayto-day business processes. A separate Sustainability Report is also produced which reviews the issues in greater detail. Anglo American voluntary labour turnover % Year 05 06 07 08 09 0 1 2 3 4 5 4.3 3.9 6.8 6 7 4.9 5.4 Health People Talent management Occupational health Anglo American diversity % Female Year 05 06 10.6 07 12.0 08 12.0 09 0 5 10 19.0 15 20 17.0 15.3 12.5 13.0 14.2 15.2 1 Reward and performance Organisational development % Female managers % Females 26 Anglo American plc Annual Report 2009 Anglo American plc Annual Report 2009 27 4 The integrated journey www.blacksunplc.com © Black Sun Plc 2011 5 ‘The Integrated Journey’ Focuses on individual companies from around the globe currently recognised for their integrated reporting progress www b acksunp c com © B ack Sun P c 2011 1
