ESSENTIALS OF

INTEGRATED REPORTING
<IR>AND SUSTAINABILITY
REPORTING FOR INTERNAL
AUDITORS

30 JULY 2023
PART I: THE VISION FOR BETTER
CORPORATE REPORTING
 CORPORATE REPORTING
LANDSCAPE
Responding to demand on information to address ESG issues including:

• Purpose • Stewardshi • Sustainable • Globalisation • Technology • Social issues

driven p and Development and inter- such as
organisation corporate Goals and connectedness human
with long governanc climate rights and
termism e change inclusivity
objectives
Trends analysis on corporate reporting
 Integrated Reporting
The Vision for Better Corporate Reporting
Different forms of corporate reporting
Statutory Regulatory Voluntary
reporting reporting reporting

Includes disclosures
Includes disclosures Integrated reporting
required by the
required such as is encouraged for large
Companies Act 2016,
reporting entities in the
Bursa Listing
requirements set by Malaysian Code of
Requirements and by
Bank Negara Malaysia Corporate Governance
extension, compliance
for financial 2017
with applicable
accounting standards institutions

Financial reporting, management discussion and Guided by the <IR>

analysis, sustainability reporting Framework
Founders
 Purpose, Vision and Mission

Purpose
To promote prosperity for all and protect the planet

Vision
A world in which capital allocation and corporate behaviour are
aligned to the wider goals of financial stability and sustainable
development through the cycle of integrated reporting and thinking

Mission
Establish integrated reporting and thinking within mainstream
business practice as the norm in the public and private sectors
Stakeholders
Investor need for integrated reporting:
Intangible Asset Market survey

This trend holds for the S&P Europe 350 index as well, albeit to a lesser extent, with an increase from 71% in 2015 to 74% in 2020.

Study on Market Value of S&P 500 Companies in 2020 by Ocean Tomo

Source: Ocean Tomo
A response to the world’s
most pressing
megatrends
• Inclusive capitalism and long termism
• Sustainable Development Goals and climate change
• Globalization and interconnectedness
• Technology
• Energy and infrastructure
• Stewardship and corporate governance.
 Global adoption

adoption in70+ countries

worldwide…

…by over 2,000 organizations...

…with support from40+ stock

exchanges.
 Development of the <IR> Framework
REVISED

Discussion Prototype
Paper Framework

2011 2012 April 2013 <IR> Framework 2017 May January

December 2013 2020 2021
 The <IR> Framework

Definition

An integrated report is a concise

communication about how an organisation’s
strategy, governance, performance and
prospects, in the context of its external
environment, lead to the creation,
preservation or erosion of value over
the short, medium and long term.

13
At A Glance

Fundamental
Concepts

Content
Elements

Guiding
Principles
 The <IR>
Framework

15
Benefits of
integrated reporting:

• Challenge the culture of short termism

• Respond to new risks
• Understand the different dimensions of value
• Drive connectivity across the organization
• Capital market rewards (as referenced on next
slides)
 BENEFITS TO VARIETY
OF STAKEHOLDERS
• Triggers Integrated
thinking • Enables efficient capital allocation
• Attracts long term • Provides insight into the quality of
investors Organisation Providers of the organisations’ management
• Effective risk • Enables effective discharging of
management tool
financial stewardship responsibilities by
• Improved workforce Other capital influencing corporate behaviour
loyalty, motivation and
innovation
stakeholders

• Shift in focus to include non-financial capitals

(nature, human, social, etc)
• The drive to provide better evidence can spur
improved practices and innovation
• Shift in role from consumer of ‘ready-made’
human capital to proactively seek out, engage
and develop peoples’ potential.
Capital market rewards
Evidence from research

Lower cost of capital

Nanyang Business School

Stock liquidity and firm value

Stanford University

Higher share price performance

University of Singapore

Longer term investors

Harvard Business School
 TRENDS FROM <IR> BUSINESS
NETWORK PARTICIPANTS

Strengths Challenges
• Integrated reports are • Reliability and
becoming more completeness
concise
• Forecasting
• Sharper focus on performance
material issues
• Being specific
• Reporting on SDG about future risks
commitments through
their integrated report and opportunities
• Advances in
assurance
The IIRC and SASB merged in 2021
Consolidation

22
<IR>IN MALAYSIA
 MALAYSIAN CODE OF
CORPORATE GOVERNANCE
(REVISION IN 2017)

<IR> was incorporated in the

Malaysian Code on Corporate
Governance (“MCCG”). Large
companies are encouraged to
adopt <IR>
 STATUS OF
ADOPTION
IN 2021

• 268 out of 285

Large Companies
have adopted
Integrated reporting
Framework
From Investors point of view

Principle 2 – Monitoring Investee

Companies – Guidance 2.2
✓ Institutional investors should monitor their
investee companies
✓ The monitoring process should be
conducted in an active manner which
include but not limited to monitoring the
investee companies for the following :-
Adherence to the form and spirit of the
Malaysian Code on Corporate Governance
2012 (CG Code)

26
From Investors point of view

They confirm their belief that better reporting

on the key resources of a business, which
integrated reporting can deliver, is
important to their understanding of businesses
and their allocation of capital. They also
believe that the management processes
reflected in this reporting can drive the
development of more sustainable and
stable businesses in the longer term
- Larry Fink at BlackRock, Norges Bank Investment Management and
the International Corporate Governance Network

27
Wider reporting system

integrated reporting

standards for financial standards for ESG

disclosure and other disclosure
capitals
Sustainability reporting requirements
• Overview of environmental, social and governance within
sustainability framework
• Governance, strategies, risk management and metrics
• Bursa Malaysia Listing Requirement on sustainability
statement
Disclosure Requirements
LOCAL GUIDELINES
 KEY SUSTAINABILITY RELATED
REQUIREMENTS – AMENDMENTS
TO BMLR ( SEPT 2022)
The climate-related disclosures which
are aligned with the Recommendations of A statement on whether the
the Task Force on Climate-Related listed issuer has subjected the
Data for the last 3 Sustainability Statement to –
financial years, and Financial Disclosures (“TCFD
performance target(s) in Recommendations”), covering all four • (i) internal review by its
relation to the indicators pillars: governance, strategy, risk internal auditor; or
(if such targets are set). management, and metrics and targets, in • (ii) independent assurance
a dedicated section within the performed in accordance
Sustainability Statement with recognised assurance
standards,

To strengthen the credibility of the Sustainability

A summary of the data and performance targets
Statement, and if so, the subject matter(s) and scope
disclosed in the Sustainability Statement, in a
covered. In addition, for independent assurance, the
prescribed format.
conclusions must also be disclosed
 Detail disclosure requirements
Disclosure Requirements by Bursa Malaysia
Common Sustainability
Matters

1 Anti-corruption (a) Percentage of employees who have received training on anti-corruption by employee
category
(b) Percentage of operations assessed for corruption-related risks
(c) Confirmed incidents of corruption and action taken

2 Community / Society (a) Total amount invested in the community where the target beneficiaries are external to the
listed issuer
(b) Total number of beneficiaries of the investment in communities

3 Diversity Data on diversity

4 Energy management a) Total energy consumption

5 Health and safety (a) Number of work-related fatalities

(b) Lost time incident rate
(c) Number of employees trained on health and safety standards

BMLR ANNEXURE PN9-A

Disclosure Requirements by Bursa Malaysia (Con’t)
Common Sustainability
BMLR ABMLR ANNEXURE PN9-A (CON’T)
Matters

6
NNEXURE PN9-A (CON’T)
Labour practices and
(a) Total hours of training by employee category
standards (b) Percentage of employees that are contractors or temporary staff
(c) Total number of employee turnover by employee category
(d) Number of substantiated complaints concerning human rights violations

7 Supply chain management (a) Proportion of spending on local suppliers

8. Data privacy and security (a) Number of substantiated complaints concerning breaches of customer
privacy and losses of customer data

9. Water (a) Total volume of water used

10. Waste management (a) Total waste generated, and a breakdown of the following:

(i) total waste diverted from disposal

(ii) total waste directed to disposal

11 Emissions management (a) Scope 1 emissions in tonnes of CO2e

(b) Scope 2 emissions in tonnes of CO2e
(c) Scope 3 emissions in tonnes of CO2e (at least for the categories of business
travel and employee commuting)
TRENDS IN
CORPORATE
REPORTING &
EXAMPLES
Example:
Petronas Integrated Annual Report 2022

36
https://insights.techmahindra.com/investors/annual-report-20-21.pdf
Example:
Axiata Reports 2022

37
https://insights.techmahindra.com/investors/annual-report-20-21.pdf
Example:
Petronas Chemical Reports 2022
Example:
Ecoworld Reports 2022

39
https://insights.techmahindra.com/investors/annual-report-20-21.pdf
 We encourage regulators and
standard-setters to use the
International Integrated Reporting
Framework as a foundation for
incorporating and organising
information about value creation and
impacts, including narrative reporting
and metrics from the various standard-
setting initiatives.
INTERNATIONAL FEDERATION OF ACCOUNTANTS
PART II: THE ROLE OF
INTERNAL AUDITORS IN
THE VALUE CREATION
JOURNEY
Internal audit must understand the organization’s purpose,
values, governance, value creation strategy, and related
risks and opportunities. It is ideally positioned to see
throughout an organization how strategy is being enacted
and how that work creates value. Internal audit’s role is to
provide objective insight and assurance, and to advise
management and the board of directors (governing body)
on better decision-making, which requires contemplating
short- and long-term value creation.
 Implications for the
Contribution of Internal Audit
to Integrated Reporting
Assurance
• Internal audit is a component of The Capitals

• Integrated reporting involves tapping into all the drivers of

enterprise value creation, and internal audit’s holistic
organizational view allows it to connect the various strands.
(Connectivity Guiding Principle of the <IR> Framework).
Organizations should recognize that extended external reporting,
including integrated reporting, must be built on a strategically
crafted system of internal controls including assurance, and
accurately reflect how an organization’s value creation efforts relate
to each other, the organization’s finances, and enterprise value
creation.
 Implications for the
Contribution of Internal Audit
to Integrated Reporting
Assurance
• Achieving the organization’s objectives is the ultimate
goal of everything internal audit does, particularly as a
governance role independent of management, which
ultimately affects all stakeholders. Value creation
initiatives and reporting, as with the creation and
protection of enterprise value overall, require the board,
management, and internal audit to work collectively to
align with each other and the prioritized interests of
stakeholders
ENSURING THE REQUIREMENTS ARE MET
ENSURING THE
REQUIREMENTS
ARE MET
 KEY SUSTAINABILITY RELATED
REQUIREMENTS – AMENDMENTS
TO BMLR ( SEPT 2022)

A statement on whether the listed issuer has subjected

the Sustainability Statement to –
• (i) internal review by its internal auditor; or
• (ii) independent assurance performed in accordance
with recognised assurance standards,
EXAMPLE
PETRONAS
CHEMICAL
SUSTAINABILITY
REPORT 2022
PAGE 86
 PART III:
THE INTEGRATED
REPORTING
PROCESS
 HOW INTEGRATED THINKING
TRANSLATES INTO AN INTEGRATED
REPORT

Integrated
Integrated Integrated Report
Thinking Reporting

❖ An active or affects. consideration by an organisation of the relationships between its various

operating and functional units and the capitals the organisation uses
❖ Leads to integrated decision making and actions that consider the creation of value over the short,
medium and long term.
❖ Results in a periodic integrated report about value creation over time.
❖ A concise communication about how an organisation’s strategy, governance, performance and
prospects lead to the creation of value in the short, medium and long term.
 The
Framework

Fundamental
Concepts

Content
Elements

Guiding
Principles
Fundamental
concept of
Value
Creation
Value Creation

Value created, preserved or eroded for

the organisation over time manifests
itself in increases, decreases or
transformations of the capitals caused
by the organisation’s business activities
and outputs. That value has two
interrelated aspects.
.
Value created preserved or eroded for:
• The organisation itself, which enables
financial returns to the providers of
financial capital
• Others (i.e., stakeholders and society at
large).
The capitals and value
creation process

The Organization
Inside the organization
The Framework of <IR>: The Complete
Picture
Value Creation

Example 1
Petronas <IR> 2022
61
61
Value Creation

Example 2
FGV Berhad Integrated
Annual Report 2022
Value
Creation

Example 3
Transnet Annual
Report 2021
 Value creation –
for Transnet

Value creation –
for others
 Financial
Capital

Fundamental
Natural
Concepts Capital Manufacture
d Capital
-The Capitals
Capitals

Social &
Intellectual
Relationshi
Capital
p Capital

Human
Capital
 Value Creation

EXAMPLE 4
PETRONAS CHEMICALS GR0UP
BERHAD INTEGRATED ANNUAL
REPORT 2022
 The Capitals

Capitals

Petronas Example 4
Chemicals Petronas Chemicals Grup
articulation of the Berhad Integrated Annual
6 Capitals Report 2022
 1
The
Financial
Capital Capitals
1 Financial Capital
Natural Manufacture
Capital d Capital The pool of funds that is:
• available to an
organisation for use in
Capitals the production of goods
or the provision of
Social &
services.
Intellectual • obtained through
Relationshi
Capital financing, such as debt,
p Capital
equity or grants, or
Human generated through
Capital operations or
investments.
 Financial The Capitals
Capital
2 Manufactured Capital
Natural 2
Manufacture Manufactured physical
Capital d Capital objects (as distinct from
natural physical objects) that
are available to an
Capitals organisation for use in the
production of goods or the
provision of services
Social &
Intellectual
Relationshi Manufactured capital is often
Capital
p Capital created by other
organisations, but includes
assets manufactured by the
Human
Capital reporting organisation for sale
or when they are retained for
its own use.
 Financial
Capital

Natural The Capitals

Capital Manufacture
d Capital 3 Intellectual Capital
Organisational,
Capitals knowledge-based
intangibles , including:
• intellectual property -
Social & 3 such as patents,
Intellectual
Relationship copyrights, software,
Capital
Capital
rights and licenses; and
• “organisational
Human capital” - tacit
Capital knowledge, systems
 Financial
Capital

Natural
Manufacture
The Capitals
Capital
d Capital
4 Human Capital
Capitals People’s
competencies,
capabilities and
Social &
Relationshi
Intellectual experience, and
Capital their motivations to
p Capital
innovate
4 Human
Capital
 Financial
Capital The Capitals
5 Social and Relationship
Natural
Capital Manufacture Capital
d Capital
The institutions and the
relationships within and
Capitals between communities,
groups of stakeholders
5Social &
Intellectual and other networks, and
Relationshi the ability to share
Capital
p Capital
information to enhance
individual and collective
Human well shared norms, and
Capital
common values and
behaviors
 Financial
Capital The Capitals
6
Natural
Capital Manufacture
d Capital
6 Natural Capital
Capitals All renewable and
nonrenewable
Social & environmental resources
Intellectual
Relationshi and processes
Capital
p Capital

Human
Capital
The Framework

Fundamental
Concepts

Content
Elements

Guiding
Principles
 Strategic focus and
future orientation
GUIDING Connectivity of
PRINCIPLES information
Stakeholder
relationships
The Guiding Principles underpin
the preparation and Materiality
presentation of an integrated
report, informing the content of Conciseness
the report and how the report is
presented Reliability and
completeness
Consistency and
comparability
 CONTENT ELEMENTS
Organisational
overview and
Governance Business Model
external
environment

Strategy and
Risk and
resource Performance
opportunities
allocation

Basis of
Outlook preparation and
presentation
Guiding principles and
Content Elements

Example 5
Petronas Chemical
Integrated Annual
Report 2022
Strategic focus and • Page 36-37
future orientation
Connectivity of • Whole report
information
Stakeholder • Page 38 &39
relationships

Materiality • Page 40-42

Conciseness • Whole report

Reliability and • Whole report

completeness
Consistency and • Whole report
comparability
Guiding principles and
content Element

Example 6
Sime Darby Berhad
Integrated Annual
Report 2022
CONTENT ELEMENTS
The Content Elements are
fundamentally linked to each other
and are not mutually exclusive.

The Framework expresses these Content

Elements as questions to offer flexibility
in telling an organisations’ story
Tell your own, unique story
 Implementing an information management
system for integrated reporting

Forming a
Establishing a
Communicating Creating a powerful
sense of
the vision vision guiding
urgency
coalition

Consolidating
Empowering Planning for improvements Institutionalising
others to act on and creating and producing new
the vision short- term wins even more approaches
change
 Factors for a successful
implementation of <IR>
Setting the tone Infrastructure Formal processes for
Top management must be • Information systems that
collation of information
committed to the process and accurately capture financial The process of collation should be
adequately demonstrate and and non-financial documented and should include
communicate the commitment to information detailed management review
the implementation of integrated • Information systems that (evidenced in the form of sign-offs) to
reporting facilitate easy sharing promote accountability for the
across different functions information reported.
• Adequately trained staff to
facilitate the process
Internal audit review of
the data and information
Aligning internal & external Regular monitoring collection process
reporting Regular review of
information ( including the The independent reviews will
Regular reporting will improve assist in the identification of
data collection and information collation process) to
ensure that information is gaps. The continuous
processes throughout the year identification of gaps will
and lead to more accurate relevant and complete.
facilitate the continuous
information annually improvement of the
processes.
 In including information about material
matters dealing with competitive advantage,
an organisation considers how to describe the
essence of the matter without identifying
Balancing the specific information that might cause a
significant loss of competitive advantage.
disclosure of
information

Accordingly, the
organisation considers
While the Framework
what advantage a
advocates transparency
competitor could
of disclosure, the
actually gain from
Framework does not
information in an
require disclosures to the
integrated report, and
point where an
balances this against
organisations’
the need for the
competitive advantage
integrated report to
is affected.
achieve its purposes.
 Challenges

02 FRAGMENTATION
Regulators and
FEAR stakeholders may push for
Organisations will developments in different
always be more
comfortable disclosing
01 Fragmentation directions.

backward-looking
financial information
rather than forward Fear
looking non-financial
information.

03
“SOUNDS LIKE MORE WORK”
Implementing <IR> involves setting aside old “Sounds like
processes and starting afresh. The process more works”
involves ensuring a robust engagement
programme both within and outside the
organisation and deciding what is important.
 Integrated Thinking

SLAID INI UNTUK TUJUAN MENDAPAT KELULUSAN. BUKAN UNTUK EDARAN 87

 Integrated Thinking
Achieving integrated thinking

SLAID INI UNTUK TUJUAN MENDAPAT KELULUSAN. BUKAN UNTUK EDARAN 88

 Implementing Integrated Reporting
Integrated thinking

People Processes Technology

Higher motivation Less duplication of Infrastructure that

as employees processes enables easy
understand how communication of
Identification of
they fit in the information
bottlenecks in
organisation’s value
systems Enables seamless
creation process
workflows
Identification of
Better cooperation workstreams that
due to better do not create value
communication

SLAID INI UNTUK TUJUAN MENDAPAT KELULUSAN. BUKAN UNTUK EDARAN 89

 Questions
&
Answers

91 SLAID INI UNTUK TUJUAN MENDAPAT KELULUSAN. BUKAN UNTUK EDARAN

THANK YOU
@Dr-Nurmazilah-Mahzan

@nurmazilah

nurmazilah@gmail.com

92