2019-2937-AJBE 1 A Study on Integrated Reporting Initiatives in Malaysia 2 3 The lack of coherence, transparency and accountability in traditional financial 4 reporting, led the International Integrated Reporting Council (IIRC) to developed 5 Integrated Reporting (IR) in 2010. This study draws the attention towards the top 50 6 public listed companies listed in Malaysian Stock Exchange as per asset size, and 7 their fulfilment towards voluntary IR disclosures. To achieve this research objective, 8 the extent of disclosures was examined using published annual reports, in accordance 9 to the fulfilment of ISO26000, GRI G4 Guidelines and IR Framework. 10 The findings reveal that although there were traces of the fulfilment of all 11 requirements with regard to ISO 26000, which was 32% and GRI and IR was 12% 12 respectively, there were much to be done to encourage PLCs to incorporate such 13 reporting guidelines. It was also found that, government-linked companies have 14 greater fulfilment of these requirements. 15 16 Keywords: Integrated Reporting, ISO26000, GRI G4, IR Framework. 17 18 19 Introduction 20 21 The global financial and governance crises as well as the environment 22 business changes had increased the stakeholders demand for transparency and 23 accountability reporting on the companies (Abeysekera, 2013; Krzus, 2011; 24 Flack and Douglas, 2007). In fact, traditional financial reporting model shows 25 lack of coherence to long-term objectives set by organisations, and little 26 connection between the activities undertaken by organisations. This results in 27 the event that organisations‟ activities are often being presented in separate 28 reports such as annual reports and sustainability reports (Abeysekera, 2013). 29 Therefore, old reporting model is not sufficient to satisfy the stakeholders‟ 30 information needs for evaluating company‟ past and future performance 31 (Flower, 2015). For a better corporate and environmental reporting, companies 32 need to move away from using annual reports as a compliance document but to 33 use it as a platform to communicate their respective stories. Integrated 34 Reporting (IR) was developed by International Integrated Reporting Council 35 (IIRC) in 2010 as an evolution from corporate reporting. 36 In December 2013, IIRC launched a new IR framework to accelerate the 37 adoption of IR across the world (IIRC, 2013). According to Churet, 38 RobecoSAM and Eccles (2014), IR can be understood as the convergence of 39 the sustainability report and the financial report into a single report. IR 40 communicates the sustainability issues that are material to the business and 41 long-run growth strategy (Hanks & Gardiner, 2012). Hence, stakeholders, 42 particularly the providers of capital, can use integrated report to assess whether 43 the company‟s business creates values and assist in efficient capital allocation. 44 Maria (2016) supports that IR is a useful tool which helps to measure, report 45 and communicate how a company creates value to its business by bringing 46 other important information that are not included in traditional financial 47 reporting. With IR, readers are not only able to perform independent analysis 1 2019-2937-AJBE 1 of financial and non-financial information, but also can communicate their 2 thoughts with stakeholders. 3 One of the highlights of past reporting structures were that of poor 4 transparency. IR addresses this issue; in which it creates greater transparency in 5 its reporting model. IR should be considered as a key element of market 6 reforms due to its focus on transparency (Krzus, 2011). It provides insights on 7 the strategic focus of the organisation and how the organisation responds to the 8 interests of its stakeholders. Hence, it challenges the commitment barometers 9 within organisations and establishes accountability for meeting relevant 10 objectives. The nascent practice of IR provides greater confidence and trust in 11 business and financial markets. IR enhances transparency and disclosure by 12 emphasising communication of performance, risks and opportunities and future 13 outlook of organisation (Young & Oh, 2014). Integrated thinking is 14 fundamental in the development of IR (Bouten & Hoozée, 2015), in which IR 15 is able to break down internal silos and reduce duplication in the organization 16 (ISO, 2015). In addition, IIRC (2013) states that IR actually reflects integrated 17 thinking in the process of monitoring, managing and communicating the full 18 complexity of value creation. It considers a vision of creating value on short, 19 medium and long term. 20 In Malaysia, the blueprint for capital market development in 2011 known 21 as Capital Market Masterplan 2 (CMP2) provides concerns on governance and 22 shareholder protection. These two concerns are in line with the primary 23 purpose of IR. In addition, the 2011 Corporate Governance blueprint of 24 Securities Malaysia (SC) mentions a „Disclosure and Transparency‟ section 25 which provides evidence that Malaysia is moving towards the implementation 26 of IR (Gomes, 2012; Jamal & Ghani, 2016). As IR is a relatively a new 27 reporting system in Malaysia, adoption of IR standard remains on a voluntary 28 basis. Despite its voluntary nature, there is an increasing number of companies 29 incorporating IR reporting standards to a certain degree (KPMG, 2017). IR 30 provides significant benefits for companies and may improve the companies‟ 31 performance in long run. Due to the perceived benefits, IR is gaining 32 worldwide acceptance and research interest is growing. However currently 33 there are limited empirical studies on IR in Malaysia. Hence, this study 34 endeavours to create awareness and impetus for IR in Malaysia by highlighting 35 the degree of disclosures by Malaysian Public Listed Companies (PLCs). 36 37 38 The Gap 39 40 IR is crucial for Malaysian businesses as a means of attracting capital and 41 enhancing their communication with key stakeholders (IIRC, 2017). Before IR 42 is being introduced, Malaysian companies focused more on historical 43 performance in their annual reports. The critics arise as traditional reporting is 44 past-oriented, delay in reports issuance and lack of information regarding risks. 45 In addition, stakeholders encounter difficulties in looking for the most relevant 46 information from traditional reports. Therefore, a company‟s financial report is 2 2019-2937-AJBE 1 often being questioned for its truth and fairness as it does not include 2 information regarding non-financial performance which able to determine a 3 company‟s long-term financial background (Eccles and Saltzman, 2011). 4 Magarey (2012) stressed that the information provided in the traditional annual 5 report does not give a holistic picture and understanding of a company‟s 6 business activities. Hence, it is not relevant enough to aid in decision making. 7 IR is currently being applied in over 25 countries around the world as it 8 provides various benefits to the organisations (Maniora, 2015). However, the 9 benefits of IR in developing countries such as Malaysia is still unknown. 10 According to „The State of IR in Malaysia‟ by PWC (2014), the study found 11 that Malaysian businesses have the basics reporting covered despite lack of 12 linkages and there is significant upside in improving stakeholder 13 communication. The fact is supported by the research done by Jaspal, Soh, 14 Kamaljeet (2012) and Banoo (2016) which found that a number of the top 15 PLCs have improved their corporate reporting and embed content from IR 16 framework into their businesses. Based on a survey by MIA and ACCA (2016), 17 IR is largely accepted by Malaysian PLCs and there is a significant growth and 18 prominence on the concept of IR. In addition, KPMG Survey of Corporate 19 Responsibility Reporting 2017 concludes that top companies adopt 20 sustainability reporting as a way to strengthen credibility and gain competitive 21 business advantage in the pursuit of long term business goals (KPMG, 2017). 22 The purpose of this study is to gain more insights in the IR practices 23 among the Top 50 Public Listed Companies (PLCs) by total asset in Malaysia. 24 As stated in the research done by Elzahar & Hussainey (2012), Jamal & Ghani 25 (2016) and Isiavwe (2017), total assets size of a firm will determine the 26 information disclosure to stakeholders. As such, total asset was used as a basis 27 to identify the firm size of top PLCs in this study. To achieve the research 28 objective, the extent of disclosure will be examined throughout the annual 29 reports published by the 50 companies followed the ISO26000 standards, GRI 30 G4 Guidelines and IR Framework. 31 32 33 Literature Review 34 35 From CSR and Sustainability to Integrated Reporting 36 37 After the last global financial crisis, investors started to seek the 38 connection between financial performance and sustainable development after 39 losing their trust in traditional reporting (Sofian and Dumitru, 2017). Hence, 40 the reporting framework has evolved to adopt new reporting trends which 41 connects financial and non-financial information in order to satisfy investors‟ 42 interest (Radley, 2012). The new corporate reporting reflects the disclosure of 43 how a company creates value by bringing together material information about 44 an organisation‟s strategy, governance and performance (IIRC, 2013; Ndamba, 45 2014). According to Albu et al. (2013), many companies issue Corporate 46 Social Responsibility (CSR) or Sustainability reports to complement their 3 2019-2937-AJBE 1 financial reporting. However, an empirical research which was carried out by 2 KPMG (2008) pointed out that many of the sustainability reports showed little 3 linkage with the financial performance. 4 Companies use various sustainability reporting standards or develop their 5 own reporting standards derived from the existing framework, which caused 6 lack of comparability of the sustainability reports (Hahn and Kühnen, 2013). 7 Fasan and Mio (2016) explained that, by the introduction of IR, it helped in 8 solving this issue by applying materiality principle during disclosure of 9 information.