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Addressing the materiality of KPIs in a fulsome way remained one of the biggest hurdles for companies in their journey to integrated reporting, and it improved the least out of all other factors considered in the surveys from 2011 to 2013. South African shareholder activists like Theo Botha, Director of CA Governance,63 viewed the uptake of integrated reporting as evolving on par with the development of appropriate KPIs that required a comprehensive definition of company-specific materiality. While companies had been culling nonfinancial information for sustainability reports for years, many surveyed described the difficulty of how to decide which material issues were the most relevant as a concern. Furthermore, too many companies failed to explain the methodologies behind the selection of material factors, simply saying things like "material issues are identified by the Board."64 Deloitte found that only 11% of client companies disclosed the methodology used to assess materiality, and the link to stakeholder engagement was not clearly presented.65 While deciding what is material enough to go into the report remains a challenge for companies to this day, the process has improved with the benefit of experience.

Disclosure of Nonfinancial KPIs

Integrated reporting was overwhelmingly credited with enabling management to redefine and focus its strategy to ensure sustainability's incorporation into its business model. This could be seen in the elevation of sustainability to the board level in some cases where it was not there before, the push for improved definitions of KPI data for measurement and management, inclusion into project decision-making, and an emphasis on an ongoing dialogue with stakeholders. Nevertheless, while companies had improved their integration of material environmental and social aspects into their overall business strategy, this improvement was not always reflected in their reporting practices. Many nonfinancial factors were still presented without context.66 Companies showed a tendency to disclose nonfinancial KPIs in a separate section of the report without apparent thought for the relevance to their operations or context, resulting in a weak disclosure of the interdependencies between those indicators and company performance in a holistic way.67 Indicators of how green a company is, for example, should only matter if measures like recycling or carbon emissions have a significant impact on business.

To make nonfinancial disclosure more useful for decision-making, E&Y suggested that mention of measures per unit produced or consumed, along with a comparison to industry norms, would give the KPIs greater meaning.68 Noting that stated KPIs were not always relevant to business strategy, KPMG suggested that benchmarking was helpful in determining what the most relevant KPIs were and linking them to strategic imperatives.69 As of 2013, PwC observed that while 55% of the 40 JSE-listed companies surveyed had identified one or more material capitals, only 6% effectively communicated their holistic performance.70 Likewise, PwC found that 81% of the JSE's top 40 companies' reports could improve in their definition of KPIs and the provision of a rationale for their use. However, 71% of KPIs were quantified, indicating progress in the process of disclosing nonfinancial factors in a comparable, easily understandable way.71 Although "silo reporting" was still evident, with KPIs sealed off in separate sections regardless of relevance to strategy, companies that considered the connections between KPIs and strategy found that their report content naturally addressed the most material issues affecting business value.72

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