Literature Review: Integrated Reporting and Stakeholders

The paper will focus on the integrating reporting tool is used by AGL Energy Limited. The main purpose is to discuss on my Australian companies is using Integrating reporting tool more and to assess the integrate reporting tool used by AGL Energy Limited.

Corporate Social Responsibility is the responsibility of a business towards their community, customers and other stakeholders in order to provide social value and make a positive brand around the company. The total credit rating of AGL Company is 99% in 2019 as compared with other 19,040 companies.  CSR of the company is linked with IFRS because IFRS (International Financial Reporting Standards) include the principles of accounting standards which helps in representing the financial performance of a company. The objective of IFRS is to provide all required information of a business to make effective decisions. It guides the management to improve the quality of useful information which is used by the stakeholders and shareholders. IFRS helps to report profit & loss statement, statement of financial position and cash flow statement. By analysing profit & loss statement it helps to evaluate how much value the business is creating towards social responsibility because it indicates the company’s outcome from their performance. Financial statements disclose an organisational value & reports with respect to its environmental factors. Hence, IFRS is linked with Corporate Social Responsibility.

AGL Limited is preparing Integrating Reporting because the company believes that it is the basic means for effectively disclosing on how the organisation is creating value for its stakeholders (Stubbs & Higgins, 2018). Therefore, the company is using integrating reporting more. The company has used this to evaluate how their business risk and their opportunities is related to its strategy.  

AGL Energy Ltd is an energy and utility industry of Australia. It is a public sector company which is traded under Australian Stock Exchange. The company has headquartered in Sydney of Australia. The main products are energy, hydroelectricity, wind power, natural gas and coal seam gas. The company was founded in the year 2006 as The Australian Gas Light Company.

The literature review has focused on the importance of integrated reporting for providing useful information to the stakeholders. It has been identified that the stakeholders are finding issues on getting effective information from the corporate reports. According to the authors, integrating reporting helps a company in bringing the financial and non-financial information in one report or document. Traditional system of reporting is only relevant for short-term performance of a business. But, the traditional system did not disclose on risks related to the business and the future uncertainty of the business. The company’s in this system were not able to fulfil the demands of the stakeholders in terms of information related to business operations. Integrated reporting system brings all the financial & non-financial information related to the business performance in one report. The information may be related to the competitors, the cost of productions, green-house emissions, effect if training on employee’s productivity, customer satisfaction level and many more. Hence, integrating reporting helps in measuring the internal and external performance of a business towards their stakeholders. This means that it helps in further sustainable development by resolving the issues related to social, environmental & governance from the business. Hence, it helps in building the sustainability of the society from the business operations (Hoque, 2017). Therefore, integrating reporting is one of the most predominant tool for reporting all the external and internal features of a business. It helps in reporting the external and internal information of the business. This is a complex process but it is the most effective way to communicate the information to their stakeholders. This also helps in improving the business strategy with more integrated thinking & decision-making process.

Corporate Social Responsibility and Integrated Reporting

According to legitimacy theory, an organisation should always focus on enhancing the shareholders and stakeholders theory. This means that they should effectively do the reporting procedures related to the environmental, governance and social performance of an organisation. From the 2019 annual report of AGL Energy Level it has been found that the company focuses on creating values to their shareholders & stakeholders. This is done by utilising the capital in the form of financial, human, social, intellectual, manufactured, relationship and natural. The company has grouped this capital for different stakeholders and shareholders. Social & relationship capital is used for doing integrated reporting of customers. This is done by building trust relationship with the business and customers (Beck, Dumay & Frost, 2017). This capital is also used to build relationship with the communities. They use this capital to build brand and reputation among the communities. Human capital is used for getting engaged for the wellbeing of the employees & contractors of the company (Agl.com.au, 2020). Natural capital is used to do integrated reporting of environment. Manufactured capital is related to the company’s infrastructure. This means that effective use if company assets and controlling of the system. Intellectual capital is sued for the development of system & process. It is used to support the business activities. This includes energy portfolio, customer analytics and many more. Financial capital is used to get access to the financial capital and support the business in further investment or other opportunity for business expansions (Dube & Maroun, 2017). Hence, it can be seen that AGL Energy Limited is focused on providing value to their stakeholders. Hence, it follows the legitimacy theory.

Stakeholder theory  

Stakeholder theory deals with the business relationship with their customers, employees, investors, suppliers and communities (Andriof et al., 2017). This theory is focusing a business to get engaged with their stakeholders with integrated type of reporting system. This means that the reporting system links the stakeholder requirements, their demands, governance and flexible information in their reporting process.

The stakeholder’s theory is also linked to AGL limited. The company has established various policies in their reporting system. In order to create value for the customer the company is focused in optimising the quality of customer relationship (Dumay et al. 2016). They are engaged with customers by focusing on building advanced technology in their business strategy. In this strategy the growing opportunity of the business is identified by the use of smart phones and electronically mobility to improve the energy and efficiency of the customers. This strategy is effectively disclosed in the company’s integrated reporting procedure. It has been reported that the performance of Customer Net Promoter Score (NPS) is -11% in 2019. This means that the complaints from customers has been reduced as compared to the past year scores. The stakeholder’s theory is also linked with the organisational communities which includes the local communities and the suppliers (Bonnafous-Boucher & Rendtorff, 2016). It has been reported that the company is involved in public policy development strategy to creating value to their communities (Richter & Dow, 2017). From their integrated reporting system related to communities, it has been disclosed that the total performance of the company is $45 m. This means that AGL ltd investments in their communities is more in 2019 as compared to its previous years. They are also committed towards their employees and it has been reported that the company has ensured safety of the employees by preventing the risks related to working at heights, mobile operations and many more. It has been reported that the number of work related incidents has been reduced in the year 2019. AGL‘s green-house emissions has also reduced in 2019 due to increase of renewable sources of energy. Hence, it can be seen that the integrated reporting of AGL limited is linked with stakeholder’s theory.

Case Study of AGL Energy Limited

CSR Disclosure Models

According to CSR model, a company discloses the environmental impacts and its relation with the stakeholders due to its business activity. AGL Limited has accepted the climatic change in the business. In the annual report 2019, it has been disclosed that the company has established AGL Greenhouse Gas Policy to reduce the carbon emissions into the environment (Corazza, Scagnelli & Mio, 2017). The total green-house emissions has been reduced to 43.2 in 2019 which was 43.6 in 2018. At the end of the year 2018, it has been observed that environmental risk is related to use high level of metal. The company has established coal ash measures to identify the level of metal emissions (De Villiers & Marques, 2016). The company has effectively used the CSR Disclosure Models to promote their integrated reporting process. They have related the impact of its business activity into the environment and has explained its relationship with their stakeholders (Bagnoli & Watts, 2017). It has been reported that risks is related to change of demand of customers according to the climatic change. A higher risk is involved in meeting the changing expectation of the customers. Climatic change has affected the business operations by damaging its plant. The business were not able to provide value to the customers. This created a huge loss to the business (Alotaibi & Hussainey, 2016). Hence, the environmental performance is effectively disclosed in their integrated reporting process.

Integrated reporting procedures has been adopted by most of the Australian companied. The company feels that this is the best procedure for providing all information in together to the value drivers of the company. The value drivers includes business strategy, governance and its performance. The integrated reporting system helps the board of Australian companies to explain their business strategies and decisions and how the company is able to resolve issues related to their shareholders and stakeholders. Integrating reporting is a tool for a company to build rebuild the trust that they have lost. Australian companies integrate their strategies and decision into the reporting process (Zaw, 2019). The companies has focused on giving information to their investors on the way they do the business to create environmental sustainability by reducing the waste related to use of energy. The integrated reported process is mostly done by the energy companies of Australia like AGL Energy Ltd (Agl.com.au. 2020). This is because, in case of energy companies the investors and shareholders will be more interested on knowing the business operation with respect to its external environment. Hence, integrated reporting tool is used to meet the informational need of the stakeholders.

Benefits and Drawbacks of Integrated Reporting

AGL Energy

AGL Energy Ltd is an energy and utility industry of Australia. Therefore, the company is using integrated reporting procedure in their reporting process. The company has prepared this with respect to International Integrated Reporting Council (IIRC). This is an international framework for integrated reporting. This framework is used by the company to demonstrate its risks associated from business operations and the opportunities to grow their business. The company has also executed how they creates value to their stakeholders along with improving the financial performance (Agl.com.au, 2020). In addition to the integrated reporting information, AGL has also disclosed its performance towards each stakeholders by measuring it with key performance indicators (Mitchell & Mitchell, 2017).

Conclusion

Therefore, it can be concluded that AGL Energy Limited has effectively disclosed useful information to their stakeholders by using the integrated reported system. Their integrated reporting system is linked with legitimacy theory, stakeholder’s theory and CSR disclosure model. The company has prepared this with respect to International Integrated Reporting Council (IIRC). AGL has also disclosed its performance towards each stakeholders by measuring it with key performance indicators. From the literature review it has been identified that the stakeholders are finding issues on getting effective information from the corporate reports. Integrating reporting helps a company in bringing the financial and non-financial information in one report or document. Traditional system of reporting is only relevant for short-term performance of a business. But, the traditional system did not disclose on risks related to the business and the future uncertainty of the business. The company’s in this system were not able to fulfil the demands of the stakeholders in terms of information related to business operations. Integrated reporting system brings all the financial & non-financial information related to the business performance in one report.

References

Agl.com.au. (2020). Retrieved 2 May 2020, from https://www.agl.com.au/-/media/aglmedia/documents/about-agl/investors/annual-reports/agl_annual_report_090819.pdf?la=en&hash=2890C67A39531E9197467BBC1F87B463

Alotaibi, K. O., & Hussainey, K. (2016). Determinants of CSR disclosure quantity and quality: Evidence from non-financial listed firms in Saudi Arabia. International Journal of Disclosure and Governance, 13(4), 364-393.

Andriof, J., Waddock, S., Husted, B., & Rahman, S. S. (2017). Unfolding stakeholder thinking: theory, responsibility and engagement. Routledge.

Bagnoli, M., & Watts, S. G. (2017). Voluntary assurance of voluntary CSR disclosure. Journal of Economics & Management Strategy, 26(1), 205-230.

Beck, C., Dumay, J., & Frost, G. (2017). In pursuit of a ‘single source of truth’: from threatened legitimacy to integrated reporting. Journal of Business Ethics, 141(1), 191-205.

Bonnafous-Boucher, M., & Rendtorff, J. D. (2016). STAKEHOLDER THEORY. PALGRAVE MACMILLAN.

Corazza, L., Scagnelli, S. D., & Mio, C. (2017). Simulacra and sustainability disclosure: analysis of the interpretative models of creating shared value. Corporate Social Responsibility and Environmental Management, 24(5), 414-434.

De Villiers, C., & Marques, A. (2016). Corporate social responsibility, country-level predispositions, and the consequences of choosing a level of disclosure. Accounting and Business Research, 46(2), 167-195.

Dube, S., & Maroun, W. (2017). Corporate social responsibility reporting by South African mining companies: Evidence of legitimacy theory. South African Journal of Business Management, 48(1), 23-34.

Dumay, J., Bernardi, C., Guthrie, J., & Demartini, P. (2016, September). Integrated reporting: A structured literature review. In Accounting Forum (Vol. 40, No. 3, pp. 166-185). Taylor & Francis.

Hoque, M. E. (2017). Why company should adopt integrated reporting?. International Journal of Economics and Financial Issues, 7(1).

Richter, U. H., & Dow, K. E. (2017). Stakeholder theory: A deliberative perspective. Business Ethics: A European Review, 26(4), 428-442.

Stubbs, W., & Higgins, C. (2018). Stakeholders’ perspectives on the role of regulatory reform in integrated reporting. Journal of Business Ethics, 147(3), 489-508.

Zaw, P. (2019). Planned manufactured capital investment disclosures in annual and integrated reports: Evidence from New Zealand and Australian organisations (Doctoral dissertation, Auckland University of Technology).