The State of In Malaysia (2021): - MIA

The State of <IR> In Malaysia (2021): An analysis of the constituents of the FTSE Bursa Malaysia KLCI Index

ii | The State of <IR> In Malaysia (2021): An Analysis of The Constituents of the FTSE Bursa Malaysia KLCI Index

Disclaimer: Neither the authors nor anyone else involved in creating, producing or delivering The State of <IR> in Malaysia (2021): An Analysis of the Constituents of the FTSE Bursa Malaysia KLCI Index or the materials contained herein assume any liability or responsibility for any direct, indirect, incidental, special, consequential or punitive damages arising out of the use of The State of <IR> in Malaysia (2021): An Analysis of the Constituents of the FTSE Bursa Malaysia KLCI Index. Whilst the information in this report is believed to be true and accurate on the date of the report’s publication, neither the authors nor anyone else involved in creating, producing or delivering The State of <IR> in Malaysia (2021): An Analysis of the Constituents of the FTSE Bursa Malaysia KLCI Index can accept any legal responsibility for any errors or omissions that may be made or for the results obtained from the use of such material.

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Foreword — The state of <IR> (2021): An analysis of the constituents of the FTSE Bursa Malaysia KLCI Index

As the regulator and developer of the national accountancy profession, the Malaysian Institute of Accountants (MIA) is delighted to collaborate on this report that documents the milestones and best practices of the <IR> journey in Malaysia.

In our capacity as the national advocate for <IR> and an <IR> trainer accredited by the International Integrated Reporting Council — recently merged with the Sustainability Accounting Standards Board to become the Value Reporting Foundation (VRF) — MIA has spearheaded the growth of <IR> in Malaysia, starting with establishing the Integrated Reporting Steering Committee (IRSC) in 2012 and our extensive <IR> advocacy targeting boards and senior management of corporates as well as investors. To date, MIA has trained nearly 600 participants in <IR>. MIA’s efforts will be further supported by the recent appointment of the MIA CEO, Dr. Nurmazilah Dato’ Mahzan as a VRF Integrating Reporting framework board member.

Today, more PLCs in Malaysia are beginning to produce integrated reports compared to just a few when the integrated report was initially introduced. This could not have been achieved without the collaboration and support of the IIRC, our fellow regulators, leading PLCs that pioneered the practice of <IR> and other Professional Accountancy Organisations (PAOs). The Securities Commission’s inclusion of <IR> in the Malaysian Code of Corporate Governance and SC’s Corporate Governance Strategic Priorities (2017–20) and (2021–23) has been a key <IR> adoption driver. The inclusion of <IR> elements into the National Annual Corporate Reporting Awards (NACRA), a joint initiative by MIA, Bursa Malaysia and the Malaysian Institute of Certified Public Accountants (MICPA), has also facilitated <IR> adoption.

MIA is confident that this publication will further scale up <IR> practices in Malaysia and pave the way for better value reporting. We would like to thank the Association of International Certified Professional Accountants for collaborating with us on this joint report, as well as the authors and everyone who was involved in the research, analysis and publication of this report.

As the voice of this progressive profession, MIA is committed to further enhancing the practice of <IR> to improve the quality of corporate reporting and strengthen the future relevance of the accountancy profession in business and nation-building.

Dr. Veerinderjeet Singh Ong Chee Wai President Chairman Malaysian Institute of Accountants Integrated Reporting Steering Committee, Malaysian Institute of Accountants

Message by Barry Melancon

I am proud to acknowledge the work of the Malaysian Institute of Accountants (MIA) to promote Integrated Reporting (<IR>) in Malaysia. The strong support in the adoption of <IR> by the Securities Commission of Malaysia and Bursa Malaysia is commendable and the outcome can be seen in Malaysia being one of the leaders around the world in adopting <IR>. This is indeed a great achievement for the country.

The <IR> Framework of multiple capitals eloquently demonstrates that business does not operate with a singular focus. It is about integrated thinking and ultimately transparent reporting and reliable information that shows the business’ relationships with wider society. The pandemic brought this into sharp focus, and perhaps the one silver lining of the calamity is the accelerated emphasis on sustainability and the opportunity for us to build back better for society and the economy. There is now an increasing momentum worldwide for new approaches to reporting to become the norm within mainstream business practices. It is developing with climate reporting as a first phase which leads to the broader capitals concepts in the integrated reporting framework.

I wish to congratulate the MIA on the launch of this report on the state of <IR> in Malaysia. I am sure it will serve as an inspiration to further increase the adoption of <IR> among companies in this country.

My sincere best wishes for your continuing comprehensive reporting journey.

Barry Melancon, CPA, CGMA CEO, Association of International Certified Professional Accountants President & CEO, AICPA Chair, International Integrated Reporting Council (IIRC) Board

The State of <IR> In Malaysia (2021): An Analysis of The Constituents of the FTSE Bursa Malaysia KLCI Index | 1

3 List of tables

3 Listoffigures

3 Appendix

4 1 Introduction 1.1 Overview of <IR>1.2 <IR> Value Creation Framework1.3 <IR> Key Requirements

8 2 Development of <IR> in Malaysia2.1 Role of the Securities Commission (SC) and the Integrated Reporting Steering Committee (IRSC)2.2 MIA’s role in promoting the implementation of <IR>

11 3 TheStateofIntegratedReportingAmongstthe Constituents of The FTSE Bursa Malaysia KLCI Index3.1 Overview of research methodology3.2 Results on adoption of <IR> amongst the constituents of the FTSE Bursa Malaysia KLCI Index3.3 Commendable <IR> practice: Insightful examples from selected constituents of the FTSE Bursa

Malaysia KLCI Index

18 4 CommendableExamplefor<IR>ContentElement(1)OrganisationalOverviewAndExternalEnvironment—MalaysiaInternationalShippingCorporation(MISC)Berhad4.1 Criteria and IIRC Guidelines for Organisational Overview and External Environment4.2 Explanation for commendable example selection — Malaysia International Shipping

Corporation (MISC) Berhad4.3 Commendable example illustration — Malaysia International Shipping Corporation (MISC) Berhad

21 5 Commendable Example for <IR> Content Element (2) Governance — Sime Darby Berhad5.1 Criteria and IIRC Guidelines for Governance5.2 Explanation for commendable example selection — Sime Darby Berhad5.3 Commendable example illustration — Sime Darby Berhad

24 6 Commendable Example for <IR> Content Element (3) Business Model — Petronas Gas Berhad6.1 Criteria and IIRC guidelines for Business Model6.2 Explanation for commendable example selection — Petronas Gas Berhad6.3 Commendable example illustration — Petronas Gas Berhad

27 7 Commendable Example for <IR> Content Element (4) Risks And Opportunities — MalayanBankingBerhad7.1 Criteria and IIRC guidelines for Risks and Opportunities7.2 Explanation for commendable example selection — Malayan Banking Berhad7.3 Commendable example illustration — Malayan Banking Berhad

Contents

2 | The State of <IR> In Malaysia (2021): An Analysis of The Constituents of the FTSE Bursa Malaysia KLCI Index

29 8 CommendableExamplefor<IR>ContentElement(5)StrategyandResourceAllocation— IOI Corporation Berhad8.1 Criteria and IIRC guidelines for Strategy and Resource Allocation 8.2 Explanation for commendable example selection — IOI Corporation Berhad8.3 Commendable example illustration — IOI Corporation Berhad

31 9 Commendable Example for <IR> Content Element (6) Performance — Nestle Berhad9.1 Criteria and IIRC guidelines for Performance9.2 Explanation for commendable example selection — Nestle Berhad9.3 Commendable example illustration — Nestle Berhad

34 10 Commendable Example for <IR> Content Element (7) Outlook — IHH Healthcare Berhad10.1 Criteria and IIRC guidelines for Outlook10.2 Explanation for Commendable Example Selection — IHH Healthcare Berhad10.3 Commendable Example Illustration — IHH Healthcare Berhad

36 11 Commendable Example for <IR> Content Element (8) Basis of Presentation and Preparation — Telekom Malaysia Berhad11.1 Criteria and IIRC Guidelines for Basis of Presentation and Preparation11.2 Explanation for Commendable Example Selection — Telekom Malaysia Berhad11.3 Commendable example illustration — Telekom Malaysia Berhad

39 12 Implementing<IR>inMalaysia—ChallengesandSuggestedSolutions12.1 The challenge of coordinating reporting frameworks and standards12.2 Accounting bodies to lead in promotion, implementation, and capability and capacity

building of <IR> 12.3 Accounting professionals’ role in assisting organisations to manage complex ESG issues

and improve decision-making12.4 Organisation’s role in making <IR> a success

41 13 Conclusion

42 Bibliography

45 Acknowledgements

46 AppendixA IntegratedReportingSteeringCommitteeMembersandObservers

Contents


List of tables Table 1 <IR> Framework Guiding Principles

Table 2 <IR> Framework Content Elements

Table 3 Practice 11.2 — Adoption of <IR> Based on a Globally Recognised Framework (2018 and 2019)

Table 4 Constituents of the FTSE Bursa Malaysia KLCI Index (by alphabetical order) as of 21 June 2021

Table 5 Disclosure Indicators for each of 8 Content Elements

Table 6 List of 18 PLCs (arranged by business sectors) that reported adoption of Malaysian Code on Corporate Governance, Practice 11.2

Table 7 Showcase of Commendable Integrated Reporting Practice for Each <IR> Content Element

Table 8 Requirement and Criteria Based on IIRC Guidelines for Content Element (1) Organisational Overview and External Environment

Table 9 Requirement and Criteria Based on IIRC Guidelines for Content Element (2) Governance

Table 10 Requirement and Criteria Based on IIRC Guidelines for Content Element (3) Business Model

Table 11 Requirement and Criteria based on IIRC Guidelines for Content Element (4) Risks and Opportunities

Table 12 Requirement and Criteria Based on IIRC Guidelines for Content Element (5) Strategy and Resource Allocation

Table 13 Requirement and Criteria Based on IIRC Guidelines for Content Element (6) Performance

Table 14 Requirement and Criteria Based on IIRC Guidelines for Content Element (7) Outlook

Table 15 Requirement and Criteria based on IIRC Guidelines for Content Element (8) Basis of Presentation and Preparation

List of figuresFigure1 Integrated Reporting

Figure2 Value Creation, Preservation, or Erosion Over Time

Figure3 The Reporting Boundary

Figure4 MIA’s Implementation of <IR> in Malaysia — Key Milestones

Figure5 Overview of Research Questions (Q) and Methods (M)

Figure6 Adoption of <IR> in FY2020 by the Constituents of the FTSE Bursa Malaysia KLCI Index

Figure7 MISC Berhad’s Organisational Overview Model

Figure8 Sime Darby Berhad’s Corporate Structure

Figure9 Sime Darby Berhad’s Board Expertise

Figure10 Sime Darby Berhad’s Risk Appetite Statement

Figure11 Sime Darby Berhad’s Governance Framework

Figure12 Petronas Gas Berhad’s Business Model

Figure13 Petronas Gas Berhad’s Points of Differentiation

Figure14 Petronas Gas Berhad’s Business Model

Figure15 Malayan Banking Berhad’s Risks

Figure16 Malayan Banking Berhad’s Opportunities

Figure17 IOI Corporation Berhad’s Strategy

Figure18 IOI Corporation Berhad’s Strategy

Figure19 Nestle Berhad’s Performance



Figure22 Nestle Berhad’s Stance on Regulation

Figure23 IHH Healthcare Bhd’s Market Outlook

Figure24 IHH Healthcare Bhd’s General Outlook

Figure25 Telekom Malaysia Berhad’s Materiality Process

Figure26 Telekom Malaysia Berhad’s Enterprise Risk Management Framework

Figure27 Telekom Malaysia Berhad’s Management Approach

Figure28 Telekom Malaysia Berhad’s Enterprise Risk Management Framework

Appendix Appendix A Integrated Reporting Steering Committee Members and Observers


1 Introduction

This section provides an overview of integrated reporting (<IR>). The <IR> value creation framework and the key requirements of <IR> are also explained in the section.

1.1 Overviewof<IR>In June 2021, the International Integrated Reporting Council (IIRC)¹ merged with the Sustainability Accounting Standards Board (SASB) to become the Value Reporting Foundation.² The Value Reporting Foundation, a merged entity, defines integrated reporting

<IR> as a concise communication about how an organisation creates, preserves, or erodes value over time³. Integrated reporting enables businesses to share a holistic view with stakeholders on how their strategy, performance, and assets create value. See Figure 1.

Figure 1: Integrated reporting

Note. Elements that are synthesised to achieve integrated reporting. From (International Integrated Reporting Council, 2021d).

¹ As stated on their website, “[t]he IIRC is a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia, and NGOs” (International Integrated Reporting Council, 2021c).

² For more information, please refer to https://www.valuereportingfoundation.org/

³ The International <IR> Framework was developed by the IIRC to meet a need for communication about value creation, preservation, or erosion in corporate reporting (International Integrated Reporting Council, 2021b).

https://www.valuereportingfoundation.org/


<IR> focuses on investment decisions, corporate behaviour, and reporting. It facilitates a shared understanding of a corporate reporting system and enables material information from integrated thinking to inform effective long-term allocation decisions (International Integrated Reporting Council, 2016). This transparency makes clear what is relevant to an organisation and its future success, which allows investors to make more effective capital4 allocation decisions in the long term (International Integrated Reporting Council, 2021d).

Research from Stanford University shows that organisations applying <IR> principles can increase access to capital at a lower cost and improve cash flows over time (Barth et al., 2017).

Most companies now report on sustainability, and <IR> implementation has become a global movement. Over 2,500 businesses in more than 75 countries implement integrated reporting (International Integrated Reporting Council, 2021e).

1.2 <IR>ValueCreationFrameworkIntegrated reporting emerged in 2013 as a new form of sustainability reporting. While traditional sustainability reporting typically separates financial and non-financial measures into two separate reports, <IR> revolutionises sustainability reporting by emphasising connection between non-financial and financial measures (International Integrated Reporting Council, 2021a).

Using the <IR> framework, organisations report their value creation to reflect whether the capitals they

incorporated have increased or decreased over time. As such, the <IR> framework positions organisations to be more future-oriented and think about their business strategy within the context of the external environment. This results in better-informed decisions, management of risks, and identification of opportunities (Topazio, 2018). The joint approach of holistic and focused considerations creates a transparent picture of the organisation’s model. See Figure 2.

Figure 2: Value creation, preservation, or erosion over time

Note. Integrated reporting encourages a holistic view of value creation. From (International Integrated Reporting Council, 2021b, p. 22).

www.integratedreporting.org 22

Contents NextBack PreviousPART 1 INTRODUCTION

OUTCOMES (POSITIVE AND

NEGATIVE OVER THE SHORT, MEDIUM AND LONG TERM)

OUTPUTS

BUSINESSACTIVITIES

INPUTS

FINANCIAL

MANUFACTURED

INTELLECTUAL

HUMAN

SOCIAL ANDRELATIONSHIP

NATURAL

GOVERNANCE

STRATEGY ANDRESOURCE ALLOCATION

EXTERNAL ENVIRONMENT

PURPOSE, MISSION, VISION

BUSINESS MODEL

VALUE CREATION, PRESERVATION OR EROSION OVER TIME

RISKS AND OPPORTUNITIES

PERFORMANCE OUTLOOK

FINANCIAL

MANUFACTURED

INTELLECTUAL

HUMAN

SOCIAL ANDRELATIONSHIP

NATURAL

Figure 2. Process through which value is created, preserved or eroded

4 The <IR> Framework defines capital as “stocks of value on which all organisations depend for their success as inputs to their business model, and which are increased, decreased, or transformed through the organisation’s business activities and outputs. The capitals are categorised in the <IR> Framework as financial, manufactured, intellectual, human, social and relationship, and natural” (International Integrated Reporting Council, 2021a, p. 53). This report refers to these categorised capitals as the six capitals.


At the same time, integrated reporting emphasises a focus on materiality5. It encourages organisations only to report relevant matters that are sufficiently important in terms of their known or potential effects on value creation. Organisations are required to define a reporting

boundary6 that determines which matters are materials and should be reported. This ensures that the only information delivered in an integrated report is valuable information for decision-making by investors. See Figure 3.

Figure 3: The reporting boundary

Note. Entities and stakeholders that are considered in determining the reporting boundary. From (International Integrated Reporting Council, 2021b, p. 32).

www.integratedreporting.org 32

Contents NextBack Previous

FINANCIAL REPORTING ENTITY(CONTROL AND SIGNIFICANT INFLUENCE)

PARENT

SUBSIDIARIES

EMPLOYEES CUSTOMERS SUPPLIERS BUSINESSPARTNERS COMMUNITIES OTHERS

REPORTING BOUNDARY FOR THE INTEGRATED REPORT(RISKS , OPPORTUNITIES AND OUTCOMES)

INVESTMENTS (OTHER FORMS)JOINT ARRANGEMENTS

PART 2 THE INTEGRATED REPORT

Figure 3. Entities/stakeholders considered in determining the reporting boundary

5 The <IR> Framework defines a matter as material “if it could substantively affect the organisation’s ability to create value in the short, medium or long term” (International Integrated Reporting Council, 2021b, p. 53).

6 The <IR> Framework defines reporting boundary as “[t]he boundary within which matters are considered relevant for inclusion in an organisation’s integrated report” (International Integrated Reporting Council, 2021b, p. 54).


1.3 <IR> Key requirementsAn integrated report is generated by an organisation periodically, to explain how its strategy, governance, performance, and prospects affect value in the short and long term. To be considered an integrated report, the report must meet specific requirements, namely

the <IR> Framework’s Guiding Principles and the <IR> Framework’s Content Elements. A summary of these requirements is provided as follows:

An integrated report follows the <IR> Framework’s Guiding Principles.7 See Table 1.

Table 1: <IR> Framework guiding principles

Integrated Reporting Guiding Principles

(1) Strategic Focus and Future Orientation

(2) Connectivity of Information

(3) Stakeholder Relationships

(4) Materiality

(5) Conciseness

(6) Reliability and Completeness

(7) Consistency and Comparability

Lastly, an integrated report discloses information in eight Content Element areas.8 See Table 2.

Table 2: <IR> Framework content elements

Integrated Reporting Content Elements

Content Element (1) Organisational Overview and External Environment

Content Element (2) Governance

Content Element (3) Business Model

Content Element (4) Risks and Opportunities

Content Element (5) Strategy and Resource Allocation

Content Element (6) Performance

Content Element (7) Outlook

Content Element (8) Basis of Preparation and Presentation

7 Detailed descriptions are in the <IR> Framework (International Integrated Reporting Council, 2021b, p. 56).

8 Detailed descriptions are in the <IR> Framework (International Integrated Reporting Council, 2021b, p. 56).


2 Development of <IR> in Malaysia

This section examines the development of <IR> in Malaysia. It provides the background on the role of the Securities Commission (SC) and the Integrated Reporting Steering Committee (IRSC) in promoting <IR>, and MIA’s role in promoting the implementation of <IR>.

2.1 RoleoftheSecuritiesCommission(SC)andtheIntegratedReporting SteeringCommittee(IRSC)

Regulators and professional accountancy bodies play important roles in promoting the adoption of <IR>. In particular, the Securities Commission (SC)9 and the Malaysian Institute of Accountants (MIA) have played a pivotal role in advocating and promoting <IR>, in order to drive integrated thinking into the DNA of Malaysian organisations (Malaysian Institute of Accountants, 2020).

In December 2013, the International Integrated Reporting Council’s (IIRC) <IR> Framework was issued to provide companies with a starting point for driving integrated thinking and reporting. In Malaysia, the Integrated Reporting Steering Committee (IRSC) was established within MIA in 2014.

The IRSC10 is made up of industry representatives including those from the accounting and auditing fraternity. The IRSC is responsible for advocating for

<IR> adoption in Malaysia. It engages with various stakeholders to shape the continued development of integrated reporting (Hamad et al., 2020).

While the implementation of <IR> is not mandatory, the Malaysian Code on Corporate Governance (2017)11 encourages Large Companies12 to adopt integrated reporting based on a globally recognised framework (Hamad et al., 2020). Large Companies must disclose whether they have adopted <IR> in Practice 12.2 of the Malaysian Code on Corporate Governance 2021. If they have not adopted <IR>, they must explain the reason for non-adoption.

The Corporate Governance Monitor 202013 highlights an increase in the number of Public Listed Companies (PLCs) reporting adoption of <IR>.14 In 2019, 105 PLCs reported adoption of <IR> compared to 97 PLCs in 2018. See Table 3.

Table 3: Practice 11.2 — Adoption of <IR> Based on a Globally Recognised Framework (2018 and 2019)

Year Total Large Companies Mid-cap Companies Small-cap Companies

2018 97 33 7 57

2019 105 40 9 56

Note. Practice 11.2 of the Malaysian Code of Corporate Governance 2017 states that large companies are encouraged to adopt integrated reporting based on a globally recognised framework. This is now Practice 12.2 of the Malaysian Code of Corporate Governance 2021.

9 The Securities Commission is a “self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market” (Securities Commission Malaysia, 2021a).

10 See Appendix A for the list of IRSC members and observers.11 The Malaysian Code of Corporate Governance is a tool for corporate governance reform that “reflects globally accepted principles practices of corporate governance”

(Securities Commission Malaysia, 2021).12 Large Companies are companies on the the FTSE Bursa Malaysia Top 100 Index; or companies with a market capitalization of RM2billion and above, at the start of the companies’

financial year. 13 Retrieved from Securities Commission Malaysia. (2020). Corporate Governance Monitor 2020. (pp. 15-17). Securities Commission Malaysia 14 Practice 11.2 of the Malaysian Code of Corporate Governance 2017 states that large companies are encouraged to adopt integrated reporting based on a globally recognised framework.

This has become Practice 12.2 in the Malaysian Code of Corporate Governance 2021.


2.2 MIA’sroleinpromotingtheimplementationof<IR>Since 2014, MIA has played an important role in promoting the implementation of <IR> in Malaysia. MIA’s goal is to ingrain integrated thinking and reporting into the DNA of Malaysian organisations, to enable them to align and optimise their organisations’ value creation activities (Malaysian Institute of Accountants, 2020a).

Over the years, MIA has carried out <IR> advocacy activities by engaging diverse stakeholders. These stakeholders include directors, audit committee members, corporates, accountancy professionals, investors, fellow regulators, public sector entities and academicians.

The advocacy activities have made a significant and tangible impact on <IR> adoption. To build <IR> competency, MIA has been conducting <IR> training such as introductory and preparers’ workshops. MIA has also carried out activities to promote <IR> by showcasing local best practices. These activities include reviews of integrated reports of early adopters, as well as showcasing exemplary <IR> practices through publication of articles.

Details of MIA’s role in promoting and implementing <IR> in Malaysia are summarised as follows:

(1) International engagement and outreachMIA is a member of the IIRC business network and an IIRC-certified trainer for ASEAN (Malaysian Institute of Accountants, 2020a). As an internationally recognised voice for the accountancy profession and Malaysia, MIA has compiled and provided feedback on the IIRC’s revised International <IR> Framework as well as hosted the virtual Regional Focus Group Roundtable on Consultation Draft in 2020 (Malaysian Institute of Accountants, 2020a).

(2) Local market engagement and outreachWithin Malaysia, MIA has organised numerous <IR> outreach events for various stakeholders and incorporated <IR> topics into engagements and events with Chief Financial Officers. It seeks to create value for Malaysian companies by helping build competencies in <IR>, supporting transparency, and strengthening good governance through better corporate reporting (Malaysian Institute of Accountants, 2020a).

(3) Education and trainingTo drive capacity and capability building for <IR>, MIA has been conducting training workshops that are accredited by the Value Reporting Foundation. Thus far, over 600 participants from Malaysian companies have attended these workshops. Through its education and training initiatives, MIA seeks to create value for Malaysian companies by helping build their competencies in <IR>, diminishing fears to adoption and disseminating <IR> best practices for preparers at the introductory level (Malaysian Institute of Accountants, 2020a).

(4) Local awards and recognition<IR> was featured as a separate award category in the National Annual Corporate Report Awards (NACRA) in 2018 and 2019 (Malaysian Institute of Accountants, 2020a). In 2020, <IR> elements were included as part of the overall assessment criteria for NACRA. Through the awards, the recognition of transparency and better corporate reporting has been a source of encouragement for <IR> adoption in the market.

(5) Surveys and publicationsIn 2016, MIA conducted and published the MIA-ACCA Integrated Reporting Survey. Amongst 330 responses, the results demonstrated, amongst other insights, that 97% of investors and 85% of preparers were of the view that <IR> improves transparency and governance reporting and 81% of both investors and preparers believed that <IR> improves communications with stakeholders (MIA-ACCA Integrated Reporting Survey).

(6) Improvements in reporting qualityTo improve the reporting quality amongst Malaysian firms, MIA disseminates best practices to aid preparers in their <IR> journey. In a review of companies that adopted <IR> in 2019, MIA found, other insights, that there was an increased use of diagrams and pictures for better clarity and understanding of their reports, better disclosures of key risks, impacts and how they are managed, and a shift from boilerplate reporting to telling their value creation story. The improvements have helped foster improved transparency and stakeholder communication, stronger integrated thinking, and breakdown of internal silos (Malaysian Institute of Accountants, 2020a).


The key milestones in MIA’s Advocacy for <IR> in Malaysia, have been summarised in Figure 4.

Figure 4: MIA’s Advocacy for <IR> in Malaysia — Key Milestones

2014

2015

2016

2017

2018

2019

2020

2021

In 2014, the Integrated Reporting Steering Committee (IRSC) was established within the Malaysian Institute of Accountants (MIA), upon the recommendation of the Securities Commission (SC) of Malaysia. In 2015, MIA held an

Investors’ Roundtable and an Engagement Session.

In 2016, MIA conducted and published the MIA-ACCA Integrated Reporting Survey and held its first <IR> Conference.

In 2017, MIA issued its first Integrated Annual Report.

In 2018, <IR> was featured as a separate award category in the National Annual Corporate Reports Awards (NACRA).

In 2020, MIA hosted a virtual Regional Focus Group Roundtable on the Revision of the International <IR> Framework and provided comments on the Consultation Paper.

In 2019, MIA conducted a review of companies that have adopted

<IR> and commenced Integrated Reporting Training Workshops

accredited by the IIRC.

In 2021, a webcast was held byMIA in collaboration with the ASEAN

Federation of Accountants (AFA) and CPAAustralia on the ASEAN experience of <IR>

for participants in ASEAN countries.


3 The state of integrated reporting amongst the constituents of the FTSE Bursa Malaysia KLCI Index

This section explores the state of integrated reporting amongst the constituents of the FTSE Bursa Malaysia KLCI Index. An overview of the research methodology is provided. Results on the adoption <IR> are reported and further analysis on the completeness of the <IR> framework’s eight Content Elements is carried out. Finally, selected Public Listed Companies (PLCs) from different industries are chosen as examples to showcase commendable <IR> practices; one organisation for each Content Element.

3.1 OverviewofresearchmethodologyThe study aims to examine the extent of <IR> adoption amongst the constituents of the FTSE Bursa Malaysia KLCI Index. This list of the constituents of the FTSE

Bursa Malaysia KLCI Index has been obtained as of 21 June 2021 (Bursa Malaysia, 2021).15

Table 4: Constituents of the FTSE Bursa Malaysia KLCI index (by alphabetical order), as of 21 June 2021

No. Name Stock code

1 Axiata Group Berhad 6888

2 CIMB Group Holdings Berhad 1023

3 Dialog Group Berhad 7277

4 DiGi.Com Berhad 6947

5 Genting Berhad 3182

6 Genting Malaysia Berhad 4715

7 Hap Seng Consolidated Berhad 3034

8 Hartalega Holdings Berhad 5168

9 Hong Leong Bank Berhad 5819

10 Hong Leong Financial Group Berhad 1082

15 Source: https://www.bursamalaysia.com/sites/5d809dcf39fba22790cad230/assets/60cc666439fba26c355d5eae/FBMKLCI_Constituents_List_Jun2021.pdf


No. Name Stock code

11 IHH Healthcare Berhad 5225

12 IOI Corporation Berhad 1961

13 Kuala Lumpur Kepong Berhad 2445

14 Malayan Banking Berhad 1155

15 Maxis Berhad 6012

16 Malaysia International Shipping Corporation (MISC) Berhad 3816

17 MR D.I.Y Group (M) Berhad 5296

18 Nestle (Malaysia) Berhad 4707

19 Petronas Chemicals Group Berhad 5183

20 Petronas Dagangan Bhd 5681

21 Petronas Gas Berhad 6033

22 PPB Group Berhad 4065

23 Press Metal Aluminum Holdings Berhad 8869

24 Public Bank Berhad 1295

25 RHB Bank Berhad 1066

26 Sime Darby Berhad 4197

27 Sime Darby Plantation Berhad 5285

28 Telekom Malaysia Berhad 4863

29 Tenaga Nasional Berhad 5347

30 Top Glove Corporation Berhad 7113

Note. The names and stock codes of the constituents of the FTSE Bursa Malaysia KLCI Index are downloaded from the Bursa Malaysia website.


The research questions, sample, and methodology used in this study are summarised. See Figure 5.

Figure 5: Overview of research questions (Q) and methods (M)

Q ResearchQuestion:ExaminethestateofintegratedreportingamongstconstituentsoftheFTSEBursa Malaysia KLCI Index (as at 21 June 2021)

Step 1

M Data collection: Collect constituents of the FTSE Bursa Malaysia KLCI Index’s latest annual reports and financial statements (FY2020)

Step 2

M Data Analysis: Examine constituents of the FTSE Bursa Malaysia KLCI Index’s Corporate Governance Report to determine the number of PLCs that has adopted <IR>

Step 3

M Data Analysis: Analyse the completeness of the eight <IR> Content Elements reported by PLCs that have adopted <IR>

Step 4

M Results: Showcase commendable <IR> practice: One PLC per <IR> Content Element

The first step of the research process was to collect the latest annual report and financial statements. The corporate

Organisational Overview and External

Environment

Governance Business Model Risks and Opportunities

Strategy and Resource

Allocation

Performance Outlook Basis of Preparation and Presentation

1 2 3 4

5 6 7 8


reports used for this study are the latest publicly available annual reports found on the PLCs’ corporate website. In this case, only Financial Year (FY) 2020 annual reports were used.

The next step was to identify which of the constituents of the FTSE Bursa Malaysia KLCI Index reported adoption of Practice 11.2 of the Malaysian Code on Corporate Governance which recommends Large Companies to adopt integrated reporting.

The third step of the research process was to examine the PLCs that have adopted <IR>, on the completeness of their coverage for each of the <IR> Content Elements. To examine the completeness of <IR> report is to find out if the identified integrated reports adhere to the principles, content elements, and requirements of the <IR> Framework. The study used the similar approach used by KPMG and NUS (2015) study16 by examining how Content Elements were included in the integrated report by going through the list of disclosure indicators. See Table 5.

Table 5: Disclosure indicators for each of 8 content elements

Content elements Disclosure indicators

ContentElement(1)Organisationaloverview and external environment

Mission and vision; Principle activities; Competitive landscape; Macro environment

Content Element (2) Governance Board structure; Compliance of CG code; Board and Executive Compensation; Shareholders; Related party transactions

Content Element (3) Business model Key inputs and outputs; Business activities; Outcomes

Content Element (4) Risks and opportunities Risk management philosophy; Risk and opportunity identification; Risk and opportunity assessment; Risk mitigation

ContentElement(5)Strategyand resource allocation

Strategic objectives; Strategies to achieve goals; Resource allocation; Progress measures

Content Element (6) Performance Financial capital; Social and relationship capital; Human capital; Intellectual capital; Manufactured capital; Natural capital

Content Element (7) Outlook Expected future trends; Impact of trends; Contingencies

Content Element (8) Basis of preparation and presentation

Reporting boundary; Materiality rule; Preparers and internal processes

Source: Disclosure indicators for the <IR> Content Elements. From “KPMG and NUS: Towards Better Business Reporting” (KPMG and NUS, 2015, p. 15).

The final step of the research process was to select PLCs as commendable examples, for each of the eight Content Elements. The objective of the exercise is to provide insights on how commendable <IR> practices

are implemented in Malaysia. The result from the study of completeness is used as the basis for the selection.

16 See “KPMG and NUS: Towards Better Business Reporting”. Retrieved from https://www.researchgate.net/publication/307890433_Towards_better_business_reporting


3.2 Resultsonadoptionof<IR>amongsttheconstituentsoftheFTSE Bursa Malaysia KLCI Index

The results show that out of the 30 constituents of the FTSE Bursa Malaysia KLCI Index (as of 21 June 2021), 18 listed companies reported adoption of Practice 11.2, as disclosed in their respective Corporate Governance Reports

for FY2020. The 18 companies are categorised into 8 different sectors, based on their respective stock listings in the Bursa Malaysia directory (Bursa Malaysia, 2021). See Table 6.

Table 6: List of 18 PLCs (arranged by business sectors) that reported adoption of Malaysian Code on Corporate Governance Practice 11.2

Sector: Consumer products and services

No. Name Stock Code

1 Nestle (Malaysia) Berhad 4707

2 Petronas Dagangan Bhd 5681

3 Sime Darby Berhad 4197

Sector: Financial services

No. Name Stock Code

4 CIMB Group Holdings Berhad 1023

5 Malayan Banking Berhad 1155

6 RHB Bank Berhad 1066

Sector: Health care

No. Name Stock Code

7 IHH Healthcare Berhad 5225

8 Top Glove Corporation Berhad 7113

Sector: Industrial products and services

No. Name Stock Code

9 Petronas Chemicals Group Berhad 5183

Sector: Plantation

No. Name Stock Code

10 IOI Corporation Berhad 1961

11 Sime Darby Plantation Berhad 5285


Sector: Telecommunications

No. Name Stock Code

12 Axiata Group Berhad 6888

13 DiGi.Com Berhad 6947

14 Maxis Berhad 6012

15 Telekom Malaysia Berhad 4863

Sector: Transportation and logistics

No. Name Stock Code

16 Malaysia International Shipping Corporation (MISC) Berhad 3816

Sector: Utilities

No. Name Stock Code

17 Petronas Gas Berhad 6033

18 Tenaga Nasional Berhad 5347

Based on the information provided in their FY2020’s corporate governance report under Practice 11.2 under the Malaysian Code of Corporate Governance, 12 out of the 30 PLCs did not adopt <IR>. Out of the 12 PLCs that

did not adopt <IR>, two PLCs reported that they had already incorporated certain elements of <IR> while the other ten PLCs indicated initiatives to adopt it. See Figure 6.

Figure 6: Adoption of <IR> in FY2020 by the constituents of the FTSE Bursa Malaysia KLCI Index


3.3 Commendable<IR>practice:Insightfulexamplesfromselectedconstituents of the FTSE Bursa Malaysia KLCI Index

The rest of the research examined how the 18 constituents of the FTSE Bursa Malaysia KLCI Index which adopted <IR>, have effectively communicated their particular value creation story. In studying the completeness of their <IR> practices, the study found that the majority of the PLCs disclose most of the contents within each of the eight <IR> Content Elements. However, there are opportunities for improvements, in terms of better integration, to improve the connectivity between the different Content Elements.

The results on the completeness of <IR> practices of the 18 PLCs are used to shortlist PLCs with commendable

practice. The purpose of the exercise is to showcase PLCs with commendable <IR> practice, one PLC per Content Element. They are selected so that they can be used as a reference, on what effective integrated reporting looks like.

There are altogether eight different PLCs that were selected as commendable examples. The PLCs with commendable practice are chosen from different industries, to illustrate how <IR> is applicable in numerous ways. The commendable examples for each Content Element of the <IR> Framework, are listed in Table 7.

Table 7: Showcase of commendable integrated reporting practice for each <IR> content element*

<IR> Content element Name of PLC with commendable <IR> practice

Content Element (1) Organisational Overview and External Environment

Malaysia International Shipping Corporation (MISC) Berhad (Transportation and Logistics)

Content Element (2) Governance

Sime Darby Berhad (Consumer Products and Services)

Content Element (3) Business Model

Petronas Gas Berhad (Utilities)

Content Element (4) Risks and Opportunities

Malayan Banking Berhad (Financial Services)

Content Element (5) Strategy and Resource Allocation

IOI Corporation Berhad (Plantation)

Content Element (6) Performance

Nestle Berhad (Consumer Products and Services)

Content Element (7) Outlook

IHH Healthcare Berhad (Healthcare)

Content Element (8) Basis of Preparation and Presentation

Telekom Malaysia Berhad (Telecommunications)

Note. *The PLCs are selected from the 18 PLCs that practice <IR>. **The Content Elements are fundamentally linked to each other and are not mutually exclusive.


4 Commendable example for <IR> Content Element (1) Organisational Overview and External Environment — Malaysia International Shipping Corporation (MISC) Berhad

For <IR> Content Element (1) Organisational Overview and External Environment, an organisation needs to fulfil <IR> framework requirement “What does the organisation do and what are the circumstances under which it operates?” (International Integrated Reporting Council, 2021c). There are six suggested criteria for Content Element (1) and the requirement for each of these criteria are shown Table 8.

A commendable example for the reporting of Content Element (1) Organisational Overview and External Environment is Malaysia International Shipping Corporation (MISC) Berhad. Extracts from MISC (FY 2020) will be used to showcase how the PLC has reported on “Organisational Overview and External Environment”.

4.1 CriteriaandIIRCGuidelineforOrganisationalOverview and External Environment

Table 8: Requirement and Criteria Based on IIRC Guidelines for Organisational Overview and External Environment17

<IR> Framework Requirement: Organisational Overview and External Environment

4A, Paragraph 4.4 An integrated report should answer the question: What does the organisation do and what are the circumstances under which it operates?

Criteria # IIRC Guideline Criteria Description

1

4.5

The <IR> identifies the organisation’s culture, ethics and values.

2 The <IR> identifies the organisation’s ownership and operating structure.

17 See “International <IR> Framework”. Retrieved from https://integratedreporting.org/wp-content/uploads/2021/01/InternationalIntegratedReportingFramework.pdf

https://integratedreporting.org/wp-content/uploads/2021/01/InternationalIntegratedReportingFramework



3

4.5

The <IR> identifies the organisation’s principal activities and markets.

4 The <IR> identifies the organisation’s position within the value chain.

5 The <IR> identifies key quantitative information, in particular, significant changes from prior periods.

6 4.6 The <IR> identifies significant factors affecting the external environment, including PESTLE Factors.18

4.2 Explanation for commendable example selection — Malaysia International ShippingCorporation(MISC)Berhad

MISC19 provided an illustration for its organisational overview model (MISC, 2021b, p. 17). The infographics provided information on the organisation’s operating

structure alongside key quantitative information. Its principal activities, markets as well as its position in the value chain were identified and explained.

18 PESTLE refers to Political, Economic, Social, Technological, Legal and Environmental factors19 Malaysia International Shipping Corporation (MISC) Berhad was incorporated in 1968. It provides international energy related maritime solutions and services. Principle businesses

include energy shipping, operating offshore floating solutions, and port management (Malaysia International Shipping Corporation Berhad [MISC], 2021).


4.3 Commendableexampleillustration—MalaysiaInternationalShippingCorporation (MISC) Berhad

Figure 7: MISC Bhd’s Organisational Overview Model

Note. From (MISC, 2021, p. 17)

Criteria 3 & 4: Identifies the organisation’s activities in the value chain. Criteria 2: Identifies the

organisation’s operating structure for each of its various business units.

Criteria 5: Identifies key quantitative information including the number of employees for each of its various buiness units.


5 Commendable example for <IR> Content Element (2) Governance — Sime Darby Berhad

For Content Element (2) Governance, the organisation needs to fulfil <IR> framework “How does the organisation’s governance structure support its ability to create value in the short, medium and long term?” (International Integrated Reporting Council, 2021c). There are four suggested criteria for Content Element (2) and the requirement for each of these criteria are shown in Table 9.

A commendable example for the reporting of Content Element (2) Governance is Sime Darby Berhad. Extracts from Sime Darby Berhad (FY 2020) will be used to showcase how the PLC has reported on “Governance”.

5.1 Criteria and IIRC Guidelines for Governance

Table 9: Requirement and Criteria Based on IIRC Guidelines for Governance20

<IR> Framework Requirement: Governance

4B, Paragraph 4.8 An integrated report should answer the question: How does the organisation’s governance structure support its ability to create value in the short, medium and long term?


1

4.9

The <IR> provides insights linked to its ability to create value through the organisation’s leadership structure.

2 The <IR> provides insights linked to specific processes used to make strategic decisions.

3 The <IR> provides insights linked to its approach to risk management.

4 The <IR> provides insights linked to its relationships with key stakeholders.



5.2 Explanation for commendable example selection — Sime Darby BerhadSime Darby Berhad21 (Sime Darby) provided a commendable integrated report for its Content Element (6) Corporate Governance. Sime Darby shared insights on how the firm creates value through its board expertise. It provided details on the link between its organisation structure, the skills and diversity of its board members. It further elaborated on the organisation’s decision-making processes, its monitoring corporate culture and how their corporate culture is reflected through its stakeholder relationship.

Other commendable practices include updates on the board’s follow-up action to address the areas of improvement identified the year before. An example of measures taken to improve its governance is to conduct reviews of its board effectiveness. In addition, it was also transparent and linked its remuneration practices to value creation.

5.3 Commendable example illustration — Sime Darby Berhad

21 Sime Darby Berhad (Sime Darby) is a Malaysian trading conglomerate founded in 2007 through a series of mergers. Its core business operates and serves in the industrial, motors and logistics sectors, as well as the healthcare and insurance segments (Sime Darby, 2019).

Criteria 1: Sheds insight on how the firm creates value through the skills and expertise of its individual board members, and the corporate structure by which it operates in.

Figure 8: Sime Darby Bhd’s Corporate Structure Figure 9: Sime Darby Bhd’s Board Expertise

Note. From (Sime Darby Berhad, 2021, p. 119)

Note. From (Sime Darby Berhad, 2021, p. 107)Criteria 2: Sheds insight on the processes for decision making and monitoring corporate culture.


Criteria 3: Sheds insight on its approach to risk management and ethical issues.


Criteria 4: Sheds insight on how corporate culture is reflected through stakeholder relationships.

Figure 10: Sime Darby Bhd’s Risk Appetite Statement

Figure 11: Sime Darby Bhd’s Governance Framework


5.3 Commendable example illustration — Sime Darby Berhad (continued)


6 Commendable example for <IR> Content Element (3) Business Model — Petronas Gas Berhad

For Content Element (3) Business Model, the organisation needs to fulfil <IR> framework “What is the organisation’s business model?” (International Integrated Reporting Council, 2021c). There are eight suggested criteria for Content Element (3) and the requirement for each of these criteria are shown in Table 10.

A commendable example for the reporting of Content Element (3) Business Model is Petronas Gas Berhad. Extracts from Petronas Gas Berhad (FY 2020) will be used to showcase how the PLC has reported on “What is the organisation’s business model?”.

6.1CriteriaandIIRCguidelinesforbusinessmodel

Table 10: Requirement and Criteria Based on IIRC Guidelines for Business Model22

<IR> Framework Requirement: Business Model

4C, Paragraph 4.10 An integrated report should answer the question: What is the organisation’s business model?

Criteria # IIRC Suggestions Criteria Description

1 4.14 The <IR> shows how key inputs relate to the capitals on which the organisation depends.

2 4.15 The <IR> focuses on inputs that have material bearing on the ability to create value in the short, medium and long term.

3

4.16

The <IR> describes how the organisation differentiates itself in the marketplace.

4 The <IR> describes how the business model has been designed to adapt to change.

5 4.17The <IR> discusses the contributions made to the organisation’s long-term success by initiatives such as process improvement.



Criteria # IIRC Suggestions Criteria Description

6 4.18The <IR> identifies an organisation’s key products and services, or other outputs, such as by-products depending on their materiality.

7

4.19

The <IR> describes both internal and external outcomes of the organisation’s business activities.

8The <IR> describes both positive and negative outcomes, resulting in a net increase or decrease in the capitals.

6.2 Explanation for commendable example selection — Petronas Gas BerhadIn its report, Petronas Gas Berhad23 (Petronas Gas) has an informative, noticeable infographic that explains its business model. It provides a succinct set of inputs that are material and clearly shows how its inputs relate to its capitals and value creation.

Petronas Gas is one of the few companies that mentions trade-offs influencing its selection of inputs. It offers four ways that it differentiates itself in the marketplace. It identifies its key products and outputs as well as its internal, external, positive, and negative outcomes.

Petronas Gas has a future-oriented approach. It mentions plans to adopt digitalisation to be a driver of innovation. It details how its business model has been designed to adapt to change by identifying uncertainties and explained how it will respond. It states the improvements that are being taken and its commitment to maintaining strong relationships to create long-term value.

23 Petronas Gas Berhad (Petronas Gas) was incorporated in 1983 as a wholly-owned subsidiary of Petronas Nasional Berhad. The group is the incumbent leader of Malaysia’s Gas Infrastructure and Utilities company with core businesses in Gas processing, Gas Transmission and Regasification (Petronas Gas Berhad, 2016).


Figure 14: Petronas Gas Bhd’s Business ModelCriteria 7: Quantifies the internal and external outcomes of the organisation’s business activities relative to those of its previous year.

Criteria 4: Describers how the organisation adapts to change through initiatives for process improvement.

Criteria 8: Identifies both positive and negative outcomes, describing its tradeoffs.

Figure 12: Petronas Gas Bhd’s Business Model

Criteria 1: Links inputs with material bearing to its respective capitals.

Criteria 6: Identifies its key products and services clearly.

Note. From (Petronas Gas Berhad, 2021, p. 38)


Figure 13: Petronas Gas Bhd’s Points of Differentiation

Criteria 3: Describes succinctly how the organisation differentiates itself in the marketplace


6.3 Commendable example illustration — Petronas Gas Berhad


7 Commendable example for <IR> Content Element (4) Risks and Opportunities — Malayan Banking Berhad

For Content Element (4) Risks and Opportunities, the organisation needs to fulfil <IR> framework “What are the specific risks and opportunities that affect the organisation’s ability to create value over the short, medium and long term, and how is the organisation dealing with them?” (International Integrated Reporting Council, 2021c). There are three suggested criteria for Content Element (4) and the requirement for each of these criteria are shown in Table 11.

A commendable example for the reporting of Content Element (4) Risks and Opportunities is Malayan Banking Berhad. Extracts from Malayan Banking Berhad (FY 2020) will be used to showcase how the PLC has reported on “Risks and Opportunities”.

7.1 CriteriaandIIRCguidelinesforrisksandopportunities

Table 11: Requirement and Criteria based on IIRC guidelines for risks and opportunities24

<IR> Framework Requirement: Risks and Opportunities

4D, Paragraph 4.24 An integrated report should answer the question: What are the specific risks and opportunities that affect the organisation’s ability to create value over the short, medium and long term, and how is the organisation dealing with them?


1

4.26

The <IR> specifies the internal and/or external sources of risks and opportunities.

2 The <IR> assesses the likelihood and magnitude of the risks and opportunities.

3 The <IR> highlights specific steps taken to mitigate key risks or to create value from key opportunities.



7.2Explanationforcommendableexampleselection—MalayanBankingBerhadIn its report, Malayan Banking Berhad25 (Maybank) identifies sources of risk. It then puts its risks in a specific context and links an opportunity to the contextualised risk. Malayan Banking Berhad was transparent about the impact of risks if they were to

come to fruition. It provided the circumstances where the risks could arise and explained the steps to mitigate risk and how it can create value from opportunities.

7.3Commendableexampleillustration—MalayanBankingBerhad

25 Malayan Banking Berhad (Maybank) is a Malaysian universal bank with key operating home markets of Malaysia, Singapore, and Indonesia. Malayan Banking Berhad was established in 1960 and is currently the largest company by market capitalisation on the Bursa Malaysia. It offers a comprehensive range of products and services, including commercial banking (Maybank Berhad, 2020).

Criteria 1: Specifies the key external drivers of risks the organisation faces and its impact on the market, contextualising various risks and opportunities in Figure 16.

Note. From (Maybank Berhad, 2021, p. 33)

Figure 15: Malayan Banking Berhad’s Risks

Criteria 2: Assesses the increase in likelihood of risk, relative to the previous year.

Criteria 3: Highlights specific actions to mitigate risks, with its response to creative value from contextualized opportunities in the figure below.

Figure 16: Malayan Banking Berhad’s Opportunities

Note. From (Maybank Berhad, 2021, p. pp. 36–37)


8 Commendable example for <IR> Content Element (5) Strategy and Resource Allocation — IOI Corporation Berhad

For Content Element (5) Strategy and Resource Allocation, the organisation needs to fulfil <IR> framework “Where does the organisation want to go and how does it intend to get there? (International Integrated Reporting Council, 2021c). There are four suggested criteria for Content Element (5) and the requirement for each of these criteria are shown in Table 12.

A commendable example for the reporting of Content Element (5) Strategy and Resource Allocation is IOI Corporation Berhad. Extracts from IOI Corporation Berhad (FY 2020) will be used to showcase how the PLC has reported on “Strategy and Resource Allocation”.

8.1CriteriaandIIRCguidelinesforstrategyandresourceallocation

Table 12: Requirement and Criteria Based on IIRC Guidelines for Strategy and Resource Allocation26

<IR> Framework Requirement: Strategy and Resource Allocation

4E, Paragraph 4.28 Anintegratedreportshouldanswerthequestion:Wheredoestheorganisationwant togoandhowdoesitintendtogetthere?


1

4.29

The <IR> identifies the organisation’s short, medium- and long-term strategic objectives.

2 The <IR> identifies the strategies it has in place, or intends to implement, to achieve its strategic objectives.

3 The <IR> identifies the resource allocation plans it has to implement its strategy.

4 The <IR> identifies how it will measure achievements and target outcomes for the short, medium and long term.



8.2 Explanation for commendable example selection — IOI Corporation BerhadIOI Corporation Berhad’s27 (IOI) describes the organisation’s short-term strategy for 2021 and the impact of its short-term initiatives on stakeholders and capitals.

It identified its medium-term strategic objectives and presented clear infographics to communicate its strategy

for 2020 to 2024. Details of the strategic initiatives including KPI’s measurements were provided.

In addition, IOI provided clear linkages on how the implementation of strategic objectives affects the organisation’s stakeholders, capitals, risk and opportunities.

8.3 Commendable example illustration — IOI Corporation Berhad

25 IOI Group, “About Us,” n.d., https://www.ioigroup.com/Content/CI/Corp_About. IOI Corporation Berhad (IOI) is a Malaysian conglomerate established in 1969. IOI is a major player in the palm oil sector, with upstream plantations in Malaysia and Indonesia, and downstream resource-based manufacturing businesses.

Criteria 1: Identifies the organisation’s medium-term strategic objectives as part of their strategic priorities for 2020–2024.

Figure 17: IOI Corporation Bhd’s Strategy

Criteria 2: Identifies the initiatives in place to meet specific strategic objectives.

Criteria 4: Clearly identifies how it measures target outcomes through KPIs

Note. From (IOI Corporation Berhad, 2021b, p. 38)

Figure 18: IOI Corporation Bhd’s Strategy

Note. From (IOI Corporation Berhad, 2021b, p. 38)

Criteria 3: Clearly links how the implementation of strategic objectives affects the organisation’s stakeholders, capitals, risks and opportunities.

Criteria 1: Identifies the organisation’s short-term strategic objectives for 2021.


9 Commendable example for <IR> Content Element (6) Performance — Nestle Berhad

For Content Element (6) Performance, the organisation needs to fulfil <IR> framework “To what extent has the organisation achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?” (International Integrated Reporting Council, 2021c). There are five suggested criteria for Content Element (6) and the requirement for each of these criteria are shown in Table 13.

A commendable example for the reporting of Content Element (6) Performance is Nestle Berhad. Extracts from Nestle Berhad (FY 2020) will be used to showcase how the PLC has reported on “Performance”.

9.1 CriteriaandIIRCguidelinesforperformance

Table 13: Requirement and Criteria Based on IIRC Guidelines for Performance28

<IR> Framework Requirement: Performance

4F, Paragraph 4.31 An integrated report should answer the question: To what extent has the organisation achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?


1

4.32

The <IR> includes quantitative indicators with respect to targets, risks and opportunities, explaining its implications and or assumptions.

2The <IR> includes the organisations positive and negative effects on its capitals.

3The <IR> draws linkages between past and current financial and non-financial performance.

4 4.33The <IR> uses KPI’s that combine financial measures with non-financial measures.

5 4.34The <IR> discusses the impact of regulations, if significant, on performance.



9.2 Explanation for commendable example selection — Nestle BerhadBetween its annual report and society report, Nestle Berhad29 (Nestle) provides quantitative climate targets. It provided quantitative outcomes linked to their effect on Nestle’s capitals.

Nestle links its past and current performance in both financial and non-financial terms. It shows how it has created value for stakeholders, how it understands

its stakeholders’ concerns, and how it responds to stakeholder needs and interests. Nestle’s reporting stands out as it has described its non-financial performance metrics and how these non-financial performances relate to and impact financial performance.

9.3 Commendable example illustration — Nestle Berhad

29 Nestle Berhad (Nestle) is a Malaysia-based nutrition, health and wellness company founded in 1912. The company’s segments include Food & Beverages, for which many of its key brands have become household names in Malaysia (sioReuters, 2021).

Criteria 1: Includes quantitative indicators for spedific targets.

Figure 19: Nestle Bhd’s Performance

Note. From (Nestle Berhad, 2021b, p. 91)

Criteria 2: Positive and negative impact on nature capital.



Criteria 3: Identifies the legitimate needs of various stakeholders.


9.3 Commendable example illustration — Nestle Berhad (continued)



Criteria 4: Presents the track record of financial and non-financial performance.

In order to clearly draw linkages between past and current performance, organisations can supplement information with a narrative on historical performance and the action plan in place for that financial year, with its impact on the latest performance.

Figure 22: Nestle Bhd’s Stance on Regulation

Criteria 6: Includes a brief description of how the organisation works alongside regulations to create value.

Note. From (Nestle Berhad, 2021a, p. 9)


10 Commendable example for <IR> Content Element (7) Outlook — IHH Healthcare Berhad

For Content Element (7) Outlook, the organisation needs to fulfil <IR> framework “What challenges and uncertainties are the organisation likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?” (International Integrated Reporting Council, 2021c). There are four suggested criteria for Content Element (7) and the requirement for each of these criteria are shown below (Table 14).

A commendable example for the reporting of Content Element (7) Outlook is IHH Healthcare Berhad. Extracts from IHH Healthcare Berhad (FY 2020) will be used to showcase how the PLC has reported on “Outlook”.

10.1CriteriaandIIRCguidelinesforoutlook

Table 14: Requirement and Criteria Based on IIRC Guidelines for Outlook30

<IR> Framework Requirement: Outlook

4G, Paragraph 4.35 An integrated report should answer the question: What challenges and uncertainties is the organisation likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?


1

4.36

The <IR> provides information on the organisation’s expectations about the external environment in the short, medium and long term.

2 The <IR> provides information on how the external environment will affect the organisation transparently.

3The <IR> provides information on how the organisation is currently equipped to respond to critical challenges and uncertainties.

4The <IR> provides a discussion on the potential implications of the external environment on financial performance.



10.2 Explanation for Commendable Example Selection — IHH Healthcare BerhadIHH Healthcare Berhad31 (IHH) provided information on current and long-term trends in its <IR>. Their report provided context about the external environment it faces or will face. It explained the impact of each trend on its organisation and provided its response to the uncertainties.

Their <IR> stated how the organisation is equipping itself to respond to these challenges. Lastly, they discussed about their outlook based on their external environment, its potential implications, including the impact on future financial performance. Key performance indicators were also provided.

10.3 Commendable Example Illustration — IHH Healthcare Berhad

31 IHH Healthcare Berhad is a Malaysian-Singaporean private healthcare group founded in 1974. The group is a leading premium healthcare provider with operations in the home markets of Malaysia, Singapore, Turkey, and India (IHH Healthcare, 2021b).

Figure 23: IHH Healthcare Bhd’s Market Outlook

Criteria 1: Clearly differentiates between current and long term trends.

Note. From (IHH Healthcare Berhad, 2021a, p. 32)

Criteria 2: Clearly identifies the impact of each trend on the firm.

Criteria 3: Clearly shows how the organisation is equipping itself to respond to challenges.

Note. From (IHH Healthcare Berhad, 2021a, p. 50)

Figure 24: IHH Healthcare Bhd’s General Outlook

Criteria 4: Discuss their oulook based on the external environment, and its impact on financial performance.


11 Commendable example for <IR> Content Element (8) Basis of Presentation and Preparation — Telekom Malaysia Berhad

For Content Element (8) Basis of Presentation and Preparation, the organisation needs to fulfil <IR> framework “How does the organisation determine what matters to include in the integrated report and how are such matters quantified or evaluated?” (International Integrated Reporting Council, 2021c). There are three suggested criteria for Content Element (8) and the requirement for each of these criteria are shown in Table 15.

A commendable example for the reporting of Content Element (8) Basis of Presentation and Preparation is Telekom Malaysia Berhad. Extracts from Telekom Malaysia Berhad (FY 2020) will be used to showcase how the PLC has reported on “Basis of Presentation and Preparation”.

11.1 Criteria and IIRC Guidelines for Basis of Presentation and Preparation

Table 15: Requirement and Criteria based on IIRC Guidelines for Basis of Presentation and Preparation32

<IR> Framework Requirement: Basis of Presentation and Preparation

4H, Paragraph 4.41 Anintegratedreportshouldanswerthequestion:Howdoestheorganisationdeterminewhatmatterstoincludeintheintegratedreportandhowaresuch mattersquantifiedorevaluated?


1

4.42

The <IR> includes a summary of the organisation’s materiality determination process.

2 The <IR> includes a description of the reporting boundary and how it has been determined.

3The <IR> includes a summary of the significant frameworks and methods used to quantify or evaluate material matters.



11.2 Explanation for Commendable Example Selection — Telekom Malaysia Berhad

Telekom Malaysia Berhad33 (Telekom Malaysia) explained its process for determining materiality. It provided the reporting boundary as well as the process for defining the reporting boundary. In particular,

Telekom Malaysia was clear and provided the specific frameworks and methods that it uses for the basis of presentation.

11.3 Commendable example illustration — Telekom Malaysia Berhad

33 Telekom Malaysia Berhad (Telekom Malaysia) is a Malaysian telecommunications company founded in 1984. It is a market leader, offering a comprehensive range of communication services and solutions in broadband, data, and fixed line (Telekom Malaysia, 2021a).

Figure 25: Telekom Malaysia Bhd’s Materiality Process

Note. From (Telekom Malaysia Berhad, 2021b, p. 43)

Criteria 1: Summarises the process used to identify relevant matter, evaluate their importance, and narrow down to material matters.

Figure 26: Telekom Malaysia Bhd’s Enterprise Risk Management Framework


Criteria 3: Highlights the Enterprise Risk Management (ERM) Framework to evaluate and quantify material matters.


11.3 Commendable example illustration — Telekom Malaysia Berhad (continued)

Figure 27: Telekom Malaysia Bhd’s Management Approach


Criteria 2: Identifies the material risks and opportunities associated with other stakeholders.

Figure 28: Telekom Malaysia Bhd’s Enterprise Risk Management Framework


Criteria 3: Highlights the Enterprise Risk Management (ERM) Framework to evaluate and quantify material matters.


12 Implementing <IR> in Malaysia — Challenges and Suggested Solutions

This section examines the challenges of promoting and implementing <IR> in Malaysia. The discussions covered include (i) the challenge of coordinating multiple reporting frameworks and the recent developments to mitigate this challenge, (ii) accounting bodies’ role in promoting, implementing, capacity and capability building for <IR>, (iii) accounting professionals’ role in managing complex ESG issues to improve decision-making, (iv) the key success factors in implementing <IR> at the organisational level.

12.1ThechallengeofcoordinatingreportingframeworksandstandardsCurrently, there are multiple frameworks, standards, and benchmarks for sustainability. Some notable examples include the Integrated Reporting <IR> Framework, the Dow Jones Sustainability Index (DJSI), the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the UN Sustainable Development Goals (SDGs).

Given the lack of transparency on how the various reporting frameworks overlap or diverge, it is challenging for stakeholders to coordinate multiple frameworks for their reporting purposes. Moreover, studies show that complying with one standard does not necessarily lead to greater corporate responsibility because the standards are intended to be used in conjunction with others (Vigneau et al., 2015).

Governing bodies of frameworks recognise the difficulty faced by stakeholders. In November 2020, SASB and the IIRC announced plans to merge into the Value Reporting

Foundation by mid-2021. The SASB standards and the Integrated Reporting Framework had long been complementary tools and many companies already used them in conjunction. Together, the International <IR> Framework and SASB Standards provide a more complete picture of long-term enterprise value creation, while meeting investor needs for comparable, consistent and reliable information (Guillot, 2021).

The merger into the new Value Reporting Foundation will allow joint efforts to advance initiatives by SASB, the IIRC, the CDP charity, the Climate Disclosure Standards Board (CDSB) and the Global Reporting Initiative (GRI) (Byrne, 2020). They aim to develop a more comprehensive corporate reporting system that contains what each reporting framework offers under a single, simplified system. This is a significant development in helping stakeholders overcome the challenge of multiple reporting frameworks.

12.2 Accountingbodiestoleadinpromotion,implementation,andcapabilityandcapacitybuildingof<IR>

In Malaysia, the Malaysian Institute of Accountants (MIA) and its IRSC have been actively advocating the adoption of <IR> since 2015. In the IRSC’s review on the adoption of <IR> by Malaysian PLCs undertaken in 2019/2020, they found that there is a gradual increase in

the number of PLCs commencing their <IR> journey. For example, 105 PLCs reported that they had applied <IR> in FY 2019 compared to 97 PLCs in FY201834 (Corporate Governance Monitor, 2020).

34 See “Securities Commission Malaysia: Corporate Governance Monitor”. p. 15. Retrieved From https://www.sc.com.my/api/documentms/download.ashx?id=ff69ce0d-a35e-44d4-996a-c591529c56c7


While the IRSC observed some best <IR> practices carried out by selected PLCs, the IRSC also noted several areas for improvements. The suggested areas for improvements for <IR> practices in Malaysia include:

(1) PLCs to cover medium-term and longer-term forward-looking information instead of focusing mainly in the short term;

(2) Better connectivity between financial and non-financial information to demonstrate integrated thinking;

(3) Enhanced disclosure of stakeholder relationships to feature the mode of engagement with stakeholders,

stakeholders’ legitimate needs and interests, and the organisation’s response to those needs.

The IRSC will continue to engage stakeholders including directors and investors, on the benefits of <IR> and the required capacity building (Corporate Governance Monitor, 2020). The accounting bodies can facilitate the transition into <IR> practices by providing education and guidance to all areas of the accounting profession, to build the capability and capacity of <IR> practitioners (The American Institute of CPAs and The Chartered Institute of Management Accountants, 2021).

12.3 Accountingprofessionals’roleinassistingorganisationstomanagecomplexESGissuesandimprovedecision-making

To overcome the potential challenges for implementing <IR> in Malaysia, the accounting professionals and corporate organisations need to work together. Integrated reporting requires both financial and non-financial information. To initiate the <IR> process, organisations must understand and address complex Environmental, Social, and Governance (ESG) issues, and integrate these non-financial ESG factors into their strategies, business models, and reporting.

According to The American Institute of CPAs® and The Chartered Institute of Management Accountants® (2021), accounting professionals must be able to analyse

and advise on ESG factors and help organisations make informed and holistic decisions. The accounting professionals do not have to become sustainability experts. Instead, accounting professionals need to establish rapport with climate scientists, biodiversity experts, and regulators to gain technical information about environmental factors. Thereafter, accounting professionals have to decipher how these ESG factors are connected to the organisational system, communicate these insights objectively and responsibly to their organisations and guide the management in decision-making.

12.4 Organisation’sroleinmaking<IR>asuccessPwC (2018) highlighted three key factors that contribute to successful <IR> implementation. First, it is crucial to gain the support of those charged with the highest levels of governance in an organisation, such as the Board of Directors, C-Suites, or other organizational leaders who give the mandate for <IR> adoption. They must provide the mandate to adopt <IR>, and it must be clear and communicated across the organisation.

Second, successful <IR> implementation depends on consistency. <IR> focuses on long-term business outlook, so to have a communicable value creation story, an organisation must be consistent in its practices and disclosure.

Third, teamwork is essential to ensure successful <IR> implementation. To present <IR> holistically in an annual report, it is vital to form a cross-departmental working group. This working group must work to build consensus, to deliver the organization’s value creation story. By working together, departments can achieve clear and consistent reporting This ultimately delivers a holistic presentation of its value creation—the foundation of <IR>.

Organisations that have adopted <IR> have cited many benefits. They reported breakthrough in understanding value creation, improving measures of successes, improving decision-making, promoting long-term decision-making, and abolishing silos by connecting departments and broadening perspectives (PwC, 2018).


13 ConclusionThis report provides insight into the state of Integrated Reporting <IR> amongst the constituents of the FTSE Bursa Malaysia KLCI Index. An overview of the development of <IR> in Malaysia was presented.

Using the latest annual reports and financial statements (FY2020), research was carried out to examine the adoption of <IR> by the constituents of the FTSE Bursa

Malaysia KLCI Index. 18 PLCs have adopted <IR> and 8 PLCs were chosen to showcase examples of commendable <IR> practices.

The report concluded by identifying the challenges of implementation of <IR> in Malaysia and proposed solutions to overcome these challenges.


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AcknowledgementsResearch Lead

Dr. Isabel Sim ACMA, CGMA (Academic); MAICD (Australia); Member of SID (Singapore) Email: [email protected]

Dr. Isabel Sim is principal consultant at Nonprofit Innovation Pte Ltd, which specialises in consultancy for the non-profit sector. She was Director (Projects), Centre for Social Development Asia (CSDA), National University of Singapore (NUS) and Senior Research Fellow, Department of Social Work, FASS, NUS. Before that, she was Head (Corporate Governance Practices), Centre for Governance, Institutions and Organisations (CGIO) as well as Senior Lecturer at NUS Business School.

She has published extensively in the areas of corporate governance for publicly listed companies, sustainability reporting, charity governance, accounting and finance for non-profits. She holds a degree in Social Work, Masters in Business Administration, Masters in Applied Finance and Ph.D. in Finance.

Research Assistants

Mr. Anand M. Menon is an undergraduate at Singapore Management University (2022). He is currently pursuing a Bachelors in Business Management with a double major in Marketing and Strategic Management. His areas of research interest include corporate strategy, digital marketing and international business.

Ms. Amanda L.L. Cheng is an undergraduate at Princeton University (2022). She majors in the Princeton School of Public and International Affairs on the Conflict and Cooperation track and minors in Cognitive Science. Her research interests lie at the intersection of emerging technology, ethics and law.

Mr. Nathan J. N. Lee is an undergraduate at the National University of Singapore (2022). He is currently pursuing a Bachelors in Mechanical Engineering, specialising in Aeronautical Engineering. His research interests include aircraft structures, aerospace technologies and artificial intelligence.

Reviewer

Mrs. Zenia M. Chang is a sustainability professional and earned a Bachelors in Political Science from the University of California, Los Angeles and a Masters in Environmental Science and Policy from Columbia University in the City of New York. In the U.S., she consulted the federal, state, and local governments and private organisations on sustainability program implementation. She currently consults Southeast Asian companies on sustainability best practices, reporting, and strategy.


Appendix A Integrated Reporting Steering Committee Members and Observers

Integrated Reporting Steering Committee Members (2021)

No Salutation Name Designation Organisation

1 Mr. Ong Chee Wai (Chairman) Partner and the Malaysia Assurance Leader

Ernst & Young PLT

2 Mr. Chiew Chun Wee Regional Head of Policy ASEAN ANZ

ACCA

3 Ms. Pauline Ho Assurance Partner and Chief Strategic Operations Officer

PricewaterhouseCoopers PLT

4 Mr. Tang Seng Choon Partner, Head of Audit and Assurance

BDO PLT

5 Mr. Venkkat Ramanan Regional Vice President, Asia Pacific

AICPA & CIMA

6 Ms. Kasturi Nathan Advisory Partner and Head of Governance and Sustainability

KPMG PLT

7 En. Wan Ahmad Ikram Wan Lotfi Chief Financial Officer Perbadanan Insurans Deposit Malaysia (PIDM)

8 Ms. Michele Kythe Lim President and Chief Executive Officer

Institute of Corporate Directors Malaysia (ICDM)

9 En. Mustamir Mohamad Group Chief Financial Officer Sime Darby Berhad

10 Ms. Lim Fen Nee Chair of the ACCA Malaysian Advisory Committee (MAC)

ACCA

11 Ms. Nik Nazhah Nik Abdul Aziz Director, Finance Khazanah Nasional Berhad

12 Ms. Lya Rahman Adviser/Council Member Institutional Investors Council Malaysia (IIC)

13 Mr. Devanesan Evanson Chief Executive Officer Minority Shareholders Watch Group (MSWG)

Integrated Reporting Steering Committee Observers (2021)

1 Ms. Nadia Zainuddin Deputy General Manager Securities Commission Malaysia

2 Ms. San Mei Kim Senior Manager, Corporate Governance and Sustainability

Bursa Malaysia Berhad

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MIA’s international outlook and connections are reflected in its membership of regional and international professional organisations such as the International Federation of Accountants (IFAC) and the ASEAN Federation of Accountants (AFA). For more information on MIA, visit www.mia.org.my

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