Insights from narrative disclosures regarding integrated thinking in integrated reports in South Africa and Japan

Abstract

Purpose This study aims to provide insights into the poorly understood concept of integrated thinking by comparing and contrasting disclosures related to integrated thinking provided in integrated reports in two different institutional settings. Design/methodology/approach The study uses content analysis of the narrative sections of integrated reports to explore similarities and differences in the way the concept of integrated thinking is portrayed. It uses a matched sample of financial services companies in two different institutional settings, South Africa (where integrated reporting (IR) is mandatory and IR practices are world-leading) and Japan (where IR is voluntary and interest in IR is still developing). IR adoption is viewed through the lens of institutional theory, focussing on isomorphic forces which affect companies’ structure, policies and practices. Findings Even though the conceptualisation of integrated thinking differs between South Africa and Japan, in both settings there is a strong association between integrated thinking disclosures and corporate governance practices, materiality assessments and the pursuit of an industry leadership position, suggesting a link between these concepts and the underlying level of integrated thinking. Japanese disclosures appear to mimic South African disclosures, highlighting South Africa’s leading role in IR, although Japan shows more varied interpretations of integrated thinking. Originality/value This study contributes to the growing body of literature on the poorly understood concept of integrated thinking, responding to calls from both academics and practitioners for more research in this area. It shows the potential for integrated thinking to develop through a process of mimicry and highlights South Africa’s leading role in the dissemination of best practice in the field. Its findings relating to the fluid conceptualisation of integrated thinking in different institutional settings will be of interest to regulators and practitioners. To the knowledge this is one of the first studies to consider disclosures relating to integrated thinking in the financial services sector. Focussing on the financial services sector, with its unique features and regulatory frameworks, allows for deeper analysis, free from the potential distortions inherent in studying a broader cross-section of industries. The study also highlights the importance of corporate governance to integrated thinking, suggesting future research avenues.

Understanding integrated thinking: evidence from the field, the development of a framework and avenues for future research

“…Arul et al (2021) compare and contrast integrated reporting disclosures in two different institutional settings, South Africa and Japan, to provide insights into the concept of integrated thinking. In particular, the authors perform a content analysis of the narrative sections of a sample of integrated reports of organizations operating in the financial sector in both countries to explore similarities and differences in the way the concept of integrated thinking is portrayed (Arul et al , 2021). The analysis suggests that a strong association exists between integrated thinking disclosures, corporate governance practices, materiality assessments and the pursuit of an industry leadership position (Arul et al , 2021).…”

“…In particular, the authors perform a content analysis of the narrative sections of a sample of integrated reports of organizations operating in the financial sector in both countries to explore similarities and differences in the way the concept of integrated thinking is portrayed (Arul et al , 2021). The analysis suggests that a strong association exists between integrated thinking disclosures, corporate governance practices, materiality assessments and the pursuit of an industry leadership position (Arul et al , 2021). In a similar vein, Quarchioni et al (2021) combine textual analysis and network text analysis to examine the meaning of integrated thinking as it is embedded in the texts of integrated reports of five organizations between 2012 and 2018.…”

Adoption of integrated reporting and changes to internal mechanisms in Japanese companies

“…Existing research has focused on these potential outcomes by examining the internal mechanisms implemented by early IR adopters (Guthrie et al, 2017; McNally & Maroun, 2018; Stubbs & Higgins, 2014). However, no study has focused on this topic in Japan, ‘where IR is voluntary and interest in IR is still developing’ (Arul et al, 2020). In addition, it is necessary to investigate how integrated thinking is promoted and practiced through the adoption of IR (Feng et al, 2017; Guthrie et al, 2017; La Torre et al, 2019).…”

“…However, from an internal corporate perspective, IR research is limited (de Villiers & Dimes, 2020; Girella, Zambon, et al, 2019; Higgins et al, 2019; Mio et al, 2020). This is also true for IR research in Japan (Arul et al, 2020), where there are no studies like those of Stubbs and Higgins (2014), Guthrie et al (2017) or McNally and Maroun (2018) that investigate pertinent research issues (e.g., the reasons companies apply IR, the internal mechanisms of IR and organisational changes due to the adoption of IR).…”

“…By focusing on Japan—‘where IR is voluntary and interest in IR is still developing’ (Arul et al, 2020, p. 1)—this study contributes new knowledge regarding sustainability and sustainability reporting by focusing on how companies embed integrated thinking as an organisational value in the process of IR and in their activities (Adams, 2017; Baboukardos et al, 2021; La Torre et al, 2019). As for practical implications, this study clarifies IR practices, which can be used by companies, regulatory authorities and accounting professionals in countries that experience similar IR situations as Japan.…”