FIRST INTEGRATED REPORTING FRAMEWORK RELEASED

FEBRUARY 2011

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FIRST INTEGRATED REPORTING FRAMEWORK RELEASED

NEW GUIDANCE TO BE IMPLEMENTED BY PUBLIC SOUTH AFRICAN FIRMS
February 2011 Licensed Content

EXECUTIVE SUMMARY
South Africa leads the world in developing and implementing the practice of integrated reporting. Integrated reporting creates a single report to all stakeholders synthesizing the most relevant financial and sustainability information. From March 1, 2010, all 457 firms listed on the Johannesburg Stock Exchange must produce an integrated report for financial years starting from this date, or explain why they have not done so. The Integrated Reporting Committee, formed in May 2010, released a framework for producing an integrated report for public discussion on January 25, 2011. This report highlights key considerations for firms preparing to adopt integrated reporting. In particular firms must carefully consider relevant and material economic, environmental, financial and social trends in order to fully describe their operating context. The integrated report should include summary financial information and direct readers to more detailed information on finance, governance and sustainability. Firms should seek independent assurance from auditors for both summarized financial and sustainability information.

TABLE OF CONTENTS
DISCUSSION FRAMEWORK DEFINES INTEGRATED REPORT STRUCTURE
Integrated Reporting Is Mandatory For Listed Firms In South Africa Firms Must Place Business Model In The Context Of Sustainability

FIGURES & REFERENCES

Figure 1. The Integrated Reporting Framework Outlined By The IRC Figure 2. Integrated Reports Should Provide A Synthesis And Link To Further Resources

ORGANIZATIONS MENTIONED
AccountAbility, Deloitte, Ernst & Young, Gold Fields, Government Employees Pension Fund, Integrated Reporting Committee, International Integrated Reporting Committee, Johannesburg Stock Exchange, KPMG, Nedbank, Old Mutual, PwC

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VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED DISCUSSION FRAMEWORK DEFINES INTEGRATED REPORT STRUCTURE
Integrated reporting is the practice of combining firms financial, governance and sustainability information in a single report to facilitate a systematic assessment of environmental and social factors when judging the value of a firm. The International Integrated Reporting Committee (IIRC), formed of accounting and sustainability reporting stakeholders, develops and advocates a globally accepted integrated reporting framework (see Verdantix Integrated Reporting Think Tank Launched). This Verdantix report provides both individuals responsible for reporting and firms considering integrated reporting with a summarized integrated reporting framework.

Integrated Reporting Is Mandatory For Listed Firms In South Africa

The King Code of Governance Principles for South Africa 2009 (King III) created new principles for corporate governance, including a recommendation that firms should adopt integrated reporting. The South African Integrated Reporting Committee (SA IRC) was formed to issue guidance on good practice in integrated reporting. South Africa leads the world in developing and supporting the practice of integrated reporting by:

Requiring firms listed on the JSE to publish an integrated report. All 457 firms listed on the Johannesburg Stock Exchange (JSE) must produce an integrated report for financial years starting on or from March 1, 2010, or explain why they are not doing so. Following the incorporation of King III into the JSE Listing Requirements, firms such as Gold Fields, Nedbank and Old Mutual will need to synthesize the financial and sustainability information they currently provide into a single report. Encouraging investors to incorporate sustainability into investment analysis. The draft Code for Responsible Investing By Institutional Investors In South Africa asks that investors, such as the Government Employees Pension Fund, include environmental, social and governance considerations in their investment activities, including assessment of firms integrated reports. Providing a detailed framework for firms preparing an integrated report. On January 25, 2011, the SA IRC released the Framework For Integrated Reporting And The Integrated Report for public comment. This document outlines key principles for integrated reporting, elements that should be included and advice on assurance (see Figures 1a and 1b). The Big Four audit firms Ernst & Young, Deloitte, KPMG and PwC will advise boards on developing integrated reporting, and have prepared their own guidance.

Firms Must Place Business Model In The Context Of Sustainability

South Africa leads the world in developing and implementing an integrated reporting model by making its adoption compulsory for public companies. The SA IRC outlines key principles and information requirements in its Framework For Integrated Reporting And The Integrated Report. According to the framework, firms preparing to adopt integrated reporting for the first time should:

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VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED

Figure 1a. The Integrated Reporting Framework Outlined By The IRC Section Scope & boundary Recommended Material

Guidance
On boundary setting:

The reporting cycle Reporting boundaries, including geographic scope, entities represented and the information provided for each entity The process used for identifying the reporting boundary The reporting principles applied (e.g. IFRS, GRI G3, King III guidelines) The assurance provided, the policy that lead to it, relationship between firm and assurance provider Significant restatements from prior reporting periods Reference to supporting documents (e.g. annual financial statements, sustainability report) Brief overview of organization Outline of the business model, describing how value is created Existing resources and any claims against them Key aspects of the governance structure, policies, commitments and ethical approaches Material economic, environmental, financial and governance issues and trends The firm's significant positive and negative impacts on the above systems, identifying where these influence the firm's ability to create and sustain value The quality of relationships with stakeholders, and the potential for this to affect the firm's ability to create and sustain value The process followed to assess the issues, impacts and relationships above A concise statement of the risks and opportunities relevant to the firm's activities If there is doubt that the firm is a going concern, give reasons for the doubt

International Financial Reporting Standards The 'Boundary Protocol' of the Global Reporting Initiative on setting boundaries for sustainability reports World Resources Institute and World Business Council for Sustainable Development 'Greenhouse Gas Protocol'

Overview of the organization

Operating context

On determining material issues and trends:

Ceres 2010 The 21st Century Corporation: The Ceres Roadmap for Sustainability GRI G3 Sustainability Reporting Guidelines International Council on Mining and Metals Sustainable Development Framework International Organisation for Standardisation (ISO) guidance on Social Responsibility ISO 26000 UN Global Compact Blueprint for Corporate Sustainability Leadership World Business Council for Sustainable Development Translating Environmental, Social and Governance Factors into Sustainable Business Value

Strategic objectives

The strategic objectives that aim to create and sustain value over the short, medium and long term The competencies required to realise these strategic objectives in the operating context outlined above A list of key performance indicators and key risk indicators, including frameworks used

On integrated or connected reporting:

The Prince's Accounting for Sustainability Project 'Connected Reporting: a practice guide with worked examples' Robert G, Eccles and Michael P. Krzuz 'One Report: Integrated Reporting for a Sustainable Strategy'

Source: Verdantix, Integrated Reporting Committee

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VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED

Figure 1b. Integrated Reporting Framework Outlined By The IRC Section Account of performance Recommended Material

Guidance

Activities undertaken in the reporting period to address the strategic objectives and material impacts A brief description of outcomes, both positive and negative. A brief commentary on the data collection and management process.

Future performance objectives

Statement of intent for future performance, including specific targets The statement of intent should be aligned with the assessment of changing social context and stakeholder expectations A forward looking reflection on internal competencies required to manage the identified risk and opportunities and deliver on the firm's strategy.

On stakeholder engagement: AccountAbility AA1000 Stakeholder Engagement Standard The European Alliance for Corporate Social Responsibility's Proactive Stakeholder Engagement The International Finance Corporation's 'Stakeholder Engagement and the Board' International Federation of Accountants (IFAC) Sustainability Framework

Remuneration

Disclosure on employee and senior executive remuneration KPIs that could influence senior executive remuneration should be identified and disclosed

Analytical commentary on performance

Executive team's view on the firm's current and anticipated performance in the context of the strategic objectives Inclusion of appropriate ratios of economic, environmental, financial, governance and social information. Summarized historic performance

Assurance

Assurance strategy should take into account assurance provided by: Management Internal audit External audit Other external assurance providers The extent and level of assurance will increase with the maturity of integrated reporting In time all material economic, environmental, financial, governance and social issues could be covered with reasonable assurance

International Standards on Auditing (ISAs) International Standard in Assurance Engagements 3000: Assurance Engagements other than Audits or Reviews of Historical Financial Information AccountAbilitys AA1000 Assurance Standard (AA1000AS) Organizations should engage at an early stage with auditors and other external and internal assurance providers

Source: Verdantix, Integrated Reporting Committee

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VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED

Figure 2. Integrated Reports Should Provide A Synthesis And Link To Further Resources Example Reports

Integrated Report

Governance Statement

Sustainability analyst
Sustainability Report

Financial analyst
Annual Financial Statement
Source: Verdantix, Integrated Reporting Council

Consider the key principles of relevance and materiality. The principle of relevance requires firms to provide information that helps stakeholders assess the ability of a firm to create and sustain value over the short, medium and long term. This includes information on the firms impacts on economic, environmental, financial and social systems. The principle of materiality requires that this information only need be included if it is sufficiently important that it would impact the assessments and decisions of the firm or its stakeholders. For financial information, materiality is assessed by the magnitude or nature of the accounting data omitted or misstated. The materiality of sustainability information is much more dependent on the operating context and activities of the firm, and so requires careful consideration. Include summary financial and economic information. For publically listed firms with a high volume of information, the integrated report may be separate from the more detailed financial statement required by the IFRS. But the integrated report should contain abridged financial statements, details of factors affecting profitability, financial investments such as R&D and capital expenditure, financial value added and economic value added to the community. Information should be consistent with that contained within audited annual financial statements. Link to more detailed financial, governance and sustainability information. The integrated report should be a synthesis of all key information, directing stakeholders requiring detailed financial information to annual financial statements and stakeholders interested in sustainability performance to sustainability reports or online equivalents (see Figure 2). Apply integrated assurance. Both King III and the framework proposed by the IRC recommend that the sustainability information disclosed in the integrated report should be independently assured (see Figure 1b). External auditors should also summarize financial information, following International Standards on Auditing (ISAs). Assurance of sustainability information could follow International Standard in Assurance

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VERDANTIX FIRST INTEGRATED REPORTING FRAMEWORK RELEASED

Engagements 3000: Assurance Engagements other than Audits or Reviews of Historical Financial Information, or AccountAbilitys AA1000 Assurance Standard (AA1000AS). There are currently no standards specifically designed for assurance of integrated reporting.

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