Integrated financial reporting is a new approach to corporate reporting which goes beyond market value variables to include non-financial issues like the environment and social impact.
The new framework was recently introduced in Kigali at a high-level meeting of financial experts championed by the International Finance Corporation (IFC) Corporate Governance Private Sector Advisory Group which found that corporate institutions were not doing enough in providing holistic information which is key for sustainability.
On the sidelines of the day-long summit to introduce the concept to local corporations, Business Times’ Simon Peter Kaliisatalked to Dr Roman Zyla, the Regional Corporate Governance Lead (Africa), who shared insights into integrated financial reporting by the corporate institutions in Africa.
Dr. Roman Zyla, the Regional Corporate Governance Lead for Africa. /Simon Peter Kaliisa
Why should companies resort to integrated financial reporting?
The business environment has changed for good since the recent global financial crisis. Consequently, investors’ interest is changing from share value to the entire process involved to register the profits. That’s why the companies have to shift from the traditional reporting to a comprehensive integrated reporting, which emphasises disclosure and transparency that involves every stakeholder.
What are some of the aspects of the new methodology of integrated financial reporting?
The traditional financial reporting is one element of the seventeen the companies have to be looking at. For instance, we are asking companies to go beyond financial figures to other aspects such as human capital, what is their approach, how do they hire, how do they compensate them?
In terms of disclosing information, what information should be disclosed and what should not?
Information is always key, so in that regard let me give an example of a bank or any other financial institution, they have to look beyond their return on capital. Part of what we are asking them to disclose the risks involved in a given portfolio. The investor will be able to understand all the risks involved in such an investment portfolio than discovering later and it could have an unprecedented negative effect on the reputation of the institution and cause share value to tumble.
However for information such as merges, takeovers that should probably not be disclosed as it may cause speculation among the investors and in most countries it is punishable if found misleading.
What has been the response in Africa regarding this new approach?
Since the official launch of the IFC toolkit for Disclosure and Transparency in January last year the reception has been good across Africa. So far, 12 countries have started the approval process, which is overwhelming. But also we appeal to individual companies to be proactive, not reactive because in my experience companies which only disclose financial data are in disarray as it becomes difficult to clear if reputation in the event of a misunderstanding.
Among the 12 countries is there any from East Africa?
In East Africa for now it’s Kenya and Rwanda. We have started working with the Capital Market Authority and other stakeholders, we are basing on the recent reforms we have witnessed in the country. The stakes are high that soon the adoption will take its course for Rwanda to show that we here to claim our global position with this sophisticated tool in financial reporting.
Talking about companies shifting the approach, how can they better engage the public?
What we ask the companies is to tell their own stories. I think this is the right time for the companies and their respective board rooms to examine what are the risks and the costs of not telling our own story to the public. As mentioned earlier, the public has been a passive actor and now the public is more engaged than ever and the companies can rely on the new innovation in communication for engagement to bridge the gap.