According to a recent report by the KPMG Integrated Reporting Center of Excellence, in 2018 there were 414 self-declared integrated reports by Japanese companies. This is up from 24 in 2010, a compound annual growth rate of 43 percent. For the most part, these are large companies. Of the 2,218 companies in the First Section of the Tokyo Stock Exchange, 382 issued integrated reports and they counted for 58 percent of total market capitalization of this group.

Although it is hard to find accurate data on the number of integrated reports in each country, Japan is clearly one of—if not the—leading countries in the world for voluntary integrated reporting. Only South Africa requires integrated reporting on a comply or explain basis. On the other end of the continuum is the United States where you can count the number of true integrated reports on two hands. The <IR> U.S. Community lists 29 companies (two of which are non-profits) that it considers to be at least moving in the direction of integrated reporting. The International Integrated Reporting Council (IIRC), has a data base of what it considers to be good examples of integrated reports.

It is not clear what accounts for the enthusiasm for integrated reporting in Japan. Some of this could be due to the Japan Stewardship Code with seven principles which was established in February 2014 and updated in 2017. Especially relevant are:

• Principle 3: Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
• Principle 7: To contribute positively to the sustainable growth of investee companies, institutional investors should have in-depth knowledge of the investee companies and their business environment and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.

A well-done integrated report will provide investors with the in-depth knowledge called for in Principle 7 which, in turn, will enable the investor to properly monitor a portfolio company as described in Principle 3. That said, I have no direct experience or information on the extent to which the Stewardship Code is causing investors to encourage companies to provide integrated reports. Yet the conceptual link between a stewardship code for investors and integrated reporting by companies is clear for any country.

A word cloud of corporate governance related items | GETTY

Also potentially relevant is the Japan Corporate Governance Code with five principles, established in June 2018 and updated in 2018. Here the most relevant principles are:

• Principle 3: Companies should appropriately make information disclosure in compliance with the relevant laws and regulations, but should also strive to actively provide information beyond that required by law. This includes both financial information, such as financial standing and operating results, and non-financial information, such as business strategies and business issues, risk, and governance.
• Principles 5: In order to contribute to sustainable growth and the increase of corporate value over the mid- to long-term, companies should engage in constructive dialogue with shareholders even outside the general shareholder meeting.

Integrated reporting can clearly contribute to the information disclosures asked for in Principle 3 which, in turn, can contribute to the constructive dialogue asked for in Principle 5. Again, I do not know the extent to which the Governance Code is a factor explaining the growth of integrated reporting in Japan. Here too, the conceptual link between a corporate governance code and integrated reporting is clear for any country. Common to both codes is information disclosure and dialogue with the former making the latter more effective, a logic which also applies in any country.

Whatever the reasons for the enthusiasm for integrated reporting in Japan, there are data on the quality of these reports. Mike Krzus, Carlos Solano, and I did a comparative analysis of five integrated reports by listed companies in each of 10 countries. The reports were selected based on local input of what were considered to be good integrated reports. We assessed these reports in terms of the Guiding Principle of materiality and the Content Elements of risks and opportunities, strategy and resource allocation, performance, and outlook from “The International <IR> Framework.”

Based on evaluation scale of 0-3, the average score for all countries was 1.82. At the top were South Africa (2.85), where integrated reporting is mandated, and the Netherlands (2.68), where it is not. At the bottom were the United States (.78), Brazil (1.22) and Japan (1.38). I am not surprised at the U.S. result given the lack of enthusiasm (for a variety of reasons) in this country. The results for Brazil and Japan are more surprising. One of the first two companies to produce an integrated report was the Brazilian cosmetics and fragrances company Natura. A 2017 study by KPMG cites Brazil as a country with rapid growth in integrated reporting. In terms of the specific categories we evaluated, Japan tied with France for second-to-last on materiality at 1.60 (the U.S. was .72), third-to-last on risks and opportunities at 1.56 (Brazil was .84 and the U.S. .48), just below average  (1.85) on strategy and resource allocation at 1.80 (the U.S. was last at 1.05), last on performance at 1.10 (Brazil and the U.S. tied for second-to-last at 1.45), and was third-to-last on outlook at 8.4 (Brazil was .76 and the U.S. was .20).

Of course, five is a small sample from each country so before jumping to any conclusions it is useful to look at the much more detailed analysis of 414 companies done by KPMG Japan under the leadership of Yoshiko Shibasaka. While the categories in this report don’t exactly map the ones Mike, Carlos, and I used there are three in common: materiality, risks and opportunities, and performance (key performance indicators). The results corroborate our findings.

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