Following a tumultuous year including corporate scandals, a volatile operating environment and a subdued macro-economic outlook, the need for trust to build confidence in South Africa’s capital markets is a key priority for business and government alike. Investors are increasingly sceptical about the accuracy and transparency of information being reported to the market.
Integrated reporting has a critical role to play by enabling companies to not only incorporate the non-financial aspects of reporting, but to also communicate their vision, culture and strategy. Importantly, the company’s approach to creating long-term value can help them differentiate their business by turning challenges into a competitive advantage.
EY is committed to continue the quest for excellence in integrated reporting. We hope that companies will be both inspired and encouraged by those who have set the bar high to improve the quality of their integrated reports.
2019 EY Awards
Trends in rankings
The survey includes Top 100 Johannesburg Stock Exchange (“JSE”) Limited listed companies, selected on the basis of their market capitalisation as at 31 December 2018.
The adjudication process ranks entities in the following categories: Excellent, Good, Average and Progress to be made.
Industries included in the survey
Close to 25% of the companies included in the 2019 survey operate in the consumer products and retail sector, whilst almost 20% of the companies are in the financial services sector. These upward trends are coupled with downward trends for the number of companies in both the real estate development sector and the industrial products sector. The number of companies in the mining sector and the insurance sector have remained fairly consistent to prior years, at approximately 15% and 5% respectively.
A further analysis of the companies per industry included in the 2019 survey, illustrates that over 70% of the mining companies are included in the “Excellent” and “Good” categories. This is followed by the consumer products and retail sector and the industrial products sector, which both have approximately 55% of the companies included in the survey included in the Excellent” and “Good” categories. Whilst over 35% of the companies the Financial services sector are included in the “Excellent” and “Good” categories.
Mark Plan & Adjudications
How are companies chosen for inclusion in the EY "Excellence" in Integrated Reporting Awards?
The companies chosen for inclusion in the awards survey are the top 100 companies listed on the Johannesburg Stock Exchange (JSE), which are selected on the basis of their market capitalisation on the last trading day of the calendar year. This is usually the 31st December.
All companies are regarded as being eligible to be included in the survey other than pure holding companies, if there are any.The final top 100 includes the full range of listed companies on the JSE, from resources to industrials, retailers and financial institutions, as well as a number of companies with dual listings. In the case of those companies which operate through a dual listing structure, only the combined group is included in the survey.
How is the mark plan developed?
The mark plan is developed by three adjudicators from the College of Accounting at the University of Cape Town, in conjunction with EY’s Professional Practice Group. The UCT team comprises Professors Alexandra Watson, Goolam Modack and Mark Graham. All of the adjudicators have been involved for many years in EY's "Excellence" in reporting series, and in EY’s Excellence in Integrated Reporting survey since 2011.
What is included in the mark plan?
The mark plan is quite simple and is based on the Guiding Principles and Content Elements that appeared in the International Integrated Reporting Council’s <IR> Framework (the Framework), which was issued in December 2013. A mark out of ten is awarded for each of the seven Guiding Principles (i.e. strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness and lastly consistency and comparability). Similarly, a mark out of 10 is awarded for each of the eight Content Elements (i.e. organisational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook and finally basis of presentation and preparation). Marks are also awarded for the extent to which the integrated report incorporates the Framework’s fundamental concepts, dealing with how value is created with reference to the six ‘capitals’ where relevant.
What do the adjudicators expect to see with respect to the six capitals?
The adjudicators believe that an explanation of how a business creates value with respect to the six capitals, is a particularly suitable way for most companies to present the content that needs to be presented within its integrated report. Furthermore, an explanation of how value is created within an organisation can sensibly be structured around how value is embodied in the capitals that it uses. Doing this should also give the report a more logical flow.
Therefore, whilst the adjudicators do not expect companies to explicitly structure their report around the six capitals, or use specific terminology, they would certainly look for disclosures relating to the stock and flow of the capitals (i.e. financial, manufactured, intellectual, human, social and relationship as well as natural) and the extent to which tradeoffs between different capitals may influence the organisation’s strategy.
Which document is adjudicated?
The document that is actually labelled as being the integrated report is reviewed and adjudicated. For the dual listed companies that do not produce an integrated report, the adjudicators evaluate the information contained in their annual report. This is generally not detrimental to those companies as many of the integrated reporting principles are included in their reports, nonetheless.The combined report is reviewed for the companies that operate through a dual listing. In all cases the online pdf or hard copy of the report is reviewed.
Are separate sustainability reports or other reports reviewed?
No, the adjudicators only look at the document that is labelled as being the integrated report or the annual report in the case where companies have not produced an integrated report.
Do the adjudicators attempt to achieve consensus on the scores?
No, it’s really the ranking that matters. Where an adjudicator’s ranking differs widely from the others, this is reviewed to ensure that information has not been overlooked. Often, scores may vary widely. While the adjudicators generally agree on what is good disclosure, perception of the relative importance of items may differ. Despite this, there is a high degree of consensus among the adjudicating members’ overall perceptions and recommended rankings.
Is there an overriding objective to the ranking?
Yes, absolutely. The overriding objective in ranking the integrated report is the extent to which it complies with the spirit of integrated reporting which is defined by the <IR> Framework as being “a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term” and which King IV positions as the “culmination of a series of leadership responsibilities executed by the governing body.”
The adjudication process results in each of the 100 companies being ranked as “Excellent”, “Good”, “Average” or “Progress to be made”. A further evaluation then results in a ranking of the 10 best integrated reports from amongst those that are ranked as “Excellent”.
How do the adjudicators identify and rank the Top 10?
There are three specific areas which are believed to be crucial to excellence in integrated reporting. These are, the extent to which the report has a clear strategic focus, an emphasis on value creation and a high level of connectivity between the various elements presented. These three areas are then used to identify the Top 10 integrated reports from all the companies ranked as "Excellent" and to assign them a ranking within the Top 10.
Other than the Top 10, are there any other awards?
Since 2016, an “Honours” award is given to the high quality integrated reports that have come closest to complying with all the requirements of the Framework
Who actually adjudicates the integrated reports?
Each of the integrated reports of the top 100 companies is separately adjudicated by each of the three adjudicators from the College of Accounting at the University of Cape Town using the pre-agreed mark plan.
Is this simply a box ticking exercise?
No, absolutely not. A lot of emphasis is placed onthe quality of information presented, the relevance, understandability, accessibility and connectedness of that information. This is weighed against whether users ofthe integrated reports would have a reasonable sense of the issues that are core to the operations of each of the companies and whether companies have dealt with the issues that users would have expected. This means that more credit is given for crisply presented information that highlights relevant facts, compared to the same information needing to be extracted from less relevant information.
The ranking is based on the collation of the scores for the seven Guiding Principles, the eight Content Elements and for adherence to the fundamental concepts as well as individual adjudicator’s recommended rankings. The final ranking for each company is based on a combination of the average of individual adjudicator’s scores, overall perceptions and extensive discussions between the three adjudicators. This ranking process is particularly important as the scoring process is subjective and scores may differ, based on the adjudicators’ impressions at the time.
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