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COVID-19 increases ASX200 companies use of Integrated Reporting principles

ASX200 companies use of Integrated Reporting increases

The impact of COVID-19 and a push from regulators and investors for enhanced disclosures on Environmental, Social & Governance (ESG) issues have seen most of Australia’s top listed companies adopting the principles of ‘integrated reporting’ in their 2020 annual reports, a KPMG study shows.

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KPMG’s seventh annual review of corporate reporting trends across the ASX200 shows a combination of short and longer-term focus during the crisis. Company reports to 30 June 2020 have provided detail on the financial impact of the pandemic on their revenues, cost base, asset valuations and funding, but have also focused on the actions taken to protect all the fundamental value drivers of the business for short-term business continuity and survival, the study finds.

Key findings include

  • 96 percent of ASX200 (from March 2020) reported on the actions taken to protect employees and/or customers as a result of COVID-19.
  • 51 percent, just over half, also discussed activities to support other key stakeholders, such as suppliers, partners and the broader community, address the health and economic impact of the pandemic.
  • 79 percent (FY19 74 percent) of ASX200 companies focused reporting on how they had created longer-term value, rather than short-term financial earnings, for their shareholders and broader stakeholders. This increases to 90 percent of the ASX50.
  • 60 percent of the ASX200 (85 percent of the ASX50) enhanced their disclosures on climate change risk. Disclosures addressed actions taken and the impact of the 2019/20 Australian bushfires on the business, as well as expanded disclosures on future climate change risk and risk mitigation activities as required by ASIC and the ASX Corporate Governance Council.  

Nick Ridehalgh, KPMG Better Business Reporting national leader, said: “Integrated reporting helps organisations better explain their business and how they effectively use key resources and stakeholder relationships – with investors, customers, employees, regulators and others – to create value over the short, medium and long term. Our study shows how ASX companies have used these principles in their 2020 reports to demonstrate how they have adapted their business models and strategic priorities, as required, to deal with the immediate impacts of the COVID-19 crisis, while supporting medium to longer-term recovery and growth.”

“In 2020, we have seen a seismic shift in business focus and thinking, driven at pace by the various global challenges – political, economic, health, technology, social or environmental. Australian business leaders are focused on protecting the fundamentals of their business to enable them to survive, and then grow over the longer term. Investors now understand that past financial performance is not an indication of future prospects, and that ESG and other ‘pre-financial’ data provides critical insights into how the business is set up for future success.”

“Internationally, from a government and regulatory perspective, in 2020 we have seen more urgent action to drive broader-based quality business information, including ESG, than at any time in the previous ten years since the GFC. They are finally working towards a global corporate reporting system that will be fit for purpose for 21st century capitals markets.”

In the report, KPMG interviews investment managers and asset owners on the importance of broader business information, including ESG data, in making their investment decisions.

Over 60 percent of the $3.135bn professionally managed funds under management (FUM) in Australia are designated as responsible investment – that is, certain ESG screening is undertaken before an investment is made (Responsible Investment Association Australasia report 2020). Fund managers of $1.149bn (37 percent of FUM) use ‘expanded’ responsible investment techniques in investment selection, for example considering the ‘net-impact’ of the organisation on the community or environment before considering undertaking more traditional financial analysis and investment.

Nick Ridehalgh said: “From a local regulatory perspective, last year’s significant amendments to the ASX Corporate Governance Principles & Recommendations are another key influence. These changes require listed corporations to reassess their underlying non-financial value-drivers and risks, and report more transparently on their performance and future prospects. These drivers are really the fundamentals of good business, around customers and communities, as well as technology and IP, use of scarce resources and impact on the environment. They are at the heart of integrated reporting.”

The study provides an overview of the rapid international developments in 2020 to transform the global corporate reporting system, with a particular focus on implementing a governance framework to oversee development of global sustainability standards and a new conceptual framework for ‘connected’ reporting , similar to those in place for financial reporting.

Key international developments include

  • August 2020 – Joint statement of Intent to work together towards comprehensive corporate reporting issued by the Global Reporting Initiative, the Sustainability Accounting Standards Board, the Climate Disclosure Standards Board, the Carbon Disclosure Project, and the International Integrated Reporting Council – collectively these bodies now comprise the Non-Financial Information (NFI) collaboration.
  • 22 September 2020 – World Economic Forum (WEF) paper outlining the common metrics that they expect Companies to report on.
  • 30 September 2020 - IFRS Foundation Trustees (IFRSF) consultation paper released on their potential role in overseeing a new Sustainability standard-setting body with responses due in December 2020. IFRSF’s preferred model would be to build from the existing work of the NFI collaboration and other subject matter experts. If they take on this expanded role, they would start with Climate Change, including the work of the Task Force on Climate-related Financial Disclosures (TCFD).
  • 30 September 2020 – The NFI collaboration asked IOSCO (body of global regulators, including ASIC) to put its weight behind these developments to establish a comprehensive corporate reporting system.
  • 2021 – IASB will issue its revised Management Commentary Practice Statement, a global reporting framework that is closely aligned with the IIRC’s International Integrated Reporting <IR> Framework
  • 2021 – IAASB will issue guidance for assurance practitioners on Assurance over Extended External Reporting (incl. integrated reports).

For further information

Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au

©2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.

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