Strategy disclosures by listed financial services companies: Signalling theory, legitimacy theory and South African integrated reporting practices

The paper finds social and environmental strategy-related disclosure is still secondary to economic strategy-related disclosures. This may be due to persistent focus on providers of financial capital and the need to perform financially. Further, the subsector’s business model and how closely the subsector interacts with their customers is seen as a driver of social and environmental strategy-related disclosure to maintain their legitimacy and to reduce information asymmetry, reduce cost of capital and assure investors that these factors are being appropriately managed by the entity.


Introduction
Integrated reporting is the most recent advance in the sustainable business practice and reporting movement.According to the International Integrated Reporting Committee (IIRC) (2013), an effective integrated report is not just an aggregation of an annual and sustainability report.It should provide users with a detailed explanation of how an organisation manages financial and non-financial risks in order to generate sustainable returns (IIRC, 2013;de Villiers et al., 2014;King, 2016).Consequently, an integrated report shifts the historical focus of financial statements to a forwardlooking account of the value creation process (ibid).The reporting entity should illustrate how management uses financial, manufactured, human, intellectual, natural and social/relationship capitals in the value creation process (IIRC, 2013).This should be linked clearly to the entity's strategy, business model and key risks (Stubbs and Higgins, 2014;Raemaekers et al., 2016).
The extent to which companies have actually embraced an integrated perspective of corporate reporting is, however, unclear.The release of the IIRC's framework on integrated reporting has coincided with an increase in the extent of environment, social and governance (ESG) disclosures (Padia, 2012;Carels et al., 2013;Raemaekers and Maroun, 2014).There is also evidence of risk assessment and management including ESG considerations (PWC, 2013;Loate et al., 2015) and non-financial information being incorporated in multiple sections of the integrated reports (Solomon and Maroun, 2012;Stent and Dowler, 2015).A number of weaknesses have, however, been identified.
Despite the call for a clear and concise review of the value creation process (IIRC, 2013), users complain that integrated reports are repetitive, contain unnecessary detail and obscure important information (Solomon and Maroun, 2012;Miller and Graham, 2013).The extent to which financial and nonfinancial information is being integrated is also superficial.ESG considerations are not consistently incorporated in risk assessment and management plans (Massa et al., 2015;Raemaekers et al., 2016) and forward-looking analysis dealing with each of the IIRC's capitals is seldom provided (PwC, 2015).Related to this, non-financial disclosures are generic and do not give insight into how ESG factors impact the ability of the organisation to generate returns in the short-, medium-and long-term (PwC, 2014;Atkins and Maroun, 2015).
Critics argue that these flaws are the result of a persistent focus on financial indicators (Brown and Dillard, 2014;Stubbs and Higgins, 2014;Maroun, 2016).The last twenty years have seen an increase in the extent of non-financial disclosures (KPMG, 2010;Adams et al., 2016) but accounting and finance remain the primary discourse for articulating corporate performance (Gray et al., 1995;Atkins et al., 2015a).As a result, ESG issues are interpreted as being of secondary importance as opposed to important strategic issues which can have a material effect on the business model and the generation of future returns (Cho et al., 2012;Tregidga et al., 2014).Related closely to this, the drive for corporate sustainability is not always seen as consistent with a key objective of profit maximisation for the benefit of debt and equity providers (ibid).As such, ESG reporting can be used to satisfy the general social expectation for more comprehensive disclosures in an integrated report (see Institute of Directors in Southers Africa (IOD), 2011; de Villiers and Alexander, 2014) but is not regarded as value relevant from a financial perspective (Atkins et al., 2015b;Marcia et al., 2015).
To explore the tension between financial and non-financial reporting in more detail, this paper examines the integrated reports of Johannesburg Stock Exchange-(JSE) listed companies in the financial services sector.It focuses on the extent of social, environmental and economic issues being included in strategy-related disclosures.
This sector was chosen because of the significant role it plays in the local economy and the fact that these institutions provide the financial infrastructure for different social, environmental and economic (SEE) initiatives undertaken by their customers.This sector can also influence the extent to which their investees engage with pressing SEE-related issues (Maroun and Atkins, 2015;King, 2016) and should be setting the tone for responsible investment and corporate reporting (Institute of Directors in Southern Africa (IOD), 2011).As such, investigating if social or environmental issues are being incorporated in the industry's strategyrelated disclosures will shed light on the progress made by a core sector of the South African economy to provide more integrated explanations of the value creation process (see IIRC, 2013).In addition, because this paper concentrates on disclosures at the strategic level (rather than in total), it provides indirect evidence on whether or not integrated reporting is promoting integrated thinking as demonstrated by the inclusion of non-financial metrics in a company's strategic considerations.

Theoretical framework
Signalling and legitimacy theory are most commonly used to explain the proliferation of non-financial reporting over the last 20 years (Cho et al., 2015).From a signalling perspective, ESG reporting is not just a social or political imperative.Environmental and social issues can affect an organisation's operations and impact its ability to generate financial returns (Integrated Reporting Committee of South Africa (IRCSA), 2011).As a result, high quality ESG disclosures signal that potentially significant business risks are being effectively managed, reducing information asymmetry and lowering the cost of equity (de Villiers and van Staden, 2011;De Klerk et al., 2015).This view is supported by a growing body of research which finds a positive correlation between nonfinancial reporting and return on equity (de Klerk and de Villiers, 2012), the quality of an organisation's management (Churet and Eccles, 2014) and a firm's perceived sustainability (Eccles and Saltzman, 2011).
Legitimacy theory does not focus on the direct financial value of ESG reporting.Instead, firms disclose non-financial information in order to manage stakeholder expectations and demonstrate allegiance to prevailing social norms (O'Donovan, 2002;Higgins and Walker, 2012;Loate et al., 2015).Patten (1992;2002;2005), for example, finds that a firm faced with a specific environmental crisis increases the extent of non-financial reporting to reassure stakeholders that the organisation is managing the negative event.The same applies when a company is subject to critical publicity in the popular press (Brennan and Merkl-Davies, 2014) or seeks to win an influential stakeholder's approval (de Villiers and van Staden, 2006).Similarly, larger organisations are more likely to complement financial information with separate sustainability or corporate social responsibility reports than smaller firms due to additional political pressure and public interest (Thorne et al., 2014).In each instance non-financial reporting is used to demonstrate that the firm is aware of important ESG issues, is responding to weaknesses and remains deserving of stakeholders' continued support (Brennan and Merkl-Davies, 2014;Tregidga et al., 2014).
Short-term financial performance and corporate sustainability are not, however, always consistent (Tregidga et al., 2014).As a result, demands for financial returns by some stakeholders may conflict with the ESG imperatives stressed by others (Cho et al., 2015).Where this is the case, the entity needs to manage carefully how it includes non-financial indicators in its integrated report.

Using non-financial reporting to manage stakeholder expectations
Where information is relevant for the most influential stakeholders, this needs to be emphasised in corporate communications (Botten, 2009).In a capital market system, the result is that financial information -which addresses the primary information needs of debt and equity providers -is disclosed predominately in the annual or integrated report as opposed to the sustainability report or corporate webpage (de Villiers and van Staden, 2011).In terms of signalling theory, prominent reporting on key financial information is essential for reducing the risk of adverse selection and lowering the cost of capital.The need to maintain legitimacy by managing social expectations cannot, however, be overlooked.
The codification and institutionalisation of best corporate governance and reporting practice necessitates an acceptable level of non-financial reporting (de Villiers and Alexander, 2014;Tregidga et al., 2014).Consequently, an organisation must include at least some ESG information in its communication with stakeholders.If ESG considerations are seen as an essential part of the business model, signalling theory predicts that reporting is driven by the need to demonstrate how the non-financial factors are being managed to preserve or increase firm value and limit the risk of adverse selection.This is amplified by the requirement to report on non-financial issues in order to maintain legitimacy.As a result, ESG disclosures would be included in the primary corporate report to stakeholders or in the most prominent sections of that report.
In contrast, if ESG issues are not seen as an integral part of the business model or as a significant business risk, the value relevance of the ESG information is reduced (Marcia et al., 2015).Disclosures are provided primarily to satisfy the expectations of a broad group of stakeholders (in terms of legitimacy theory) who do not have a direct interest in the firm or have only limited influence to demand change.As a result, while legitimacy theory predicts that some ESG reporting is required, the extent of disclosure can be reduced or the information can be included in less prominent sections of the corporate reports (Patten, 2002;de Villiers and van Staden, 2011).
To explore how companies are reporting on non-financial metrics in more detail, the research examines the extent to which social and environmental issues are addressed at a strategic level in integrated reports of South African financial services firms.The researchers posit that a company which provides consumer-focused services, or has a business models with direct links to environmental or social factors, is more likely to identify social and environmental indicators as strategically relevant.This is because of the pressures of a larger group of stakeholders with an immediate interest in the respective firm, as predicted by legitimacy theory (Thorne et al., 2014).At the same time, the easier-to-understand impact of non-financial issues on the scope of the organisation to generate value means that, as per signalling theory, social and environmental disclosures are value-relevant and will be included prominently as strategic issues in the integrated report (de Villiers and van Staden, 2011).

Strategy disclosures
'Strategy' can be defined as the management of a group of long-term unique activities and resources in order to enhance a firm's value and maintain its position (Porter, 1996).A similar conclusion can be reached based on the IIRC's integrated reporting framework which, as discussed in Section 1, argues that firm value is a function of the management of multiple types of capital transformations in order to generate sustainable returns into the long-run (IIRC, 2013).This implies that the management of the different types of capital under an organisation's direction is not only important for corporate reporting but is also a relevant strategic requirement.To explore this in more detail, the guidance provided by King-III (IOD, 2009) and the IIRC (2013) is used to develop a strategy disclosure matrix.The disclosure items included in this matrix are derived below.

Constructing the data collection instrument
According to the IIRC (2013), a company's integrated report should have a strategic focus and future orientation.This requires a company to identify and discuss significant risks, opportunities and dependencies resulting from the specific market position and business model.Those charged with governance should incorporate these factors in specific strategies for ensuring the company's short-, medium-and long-term sustainability (IIRC, 2013).The strategy should be updated as new facts or circumstances emerge (Collier and Agyei-Ampomah, 2008).As a result, the following were included in the data collection instrument to determine whether the company's disclosure: 1. Identifies significant risks, opportunities and dependencies resulting from market position and business model.2. Highlights the relationship between past and future performance.3. Describes how the organisation is balancing short-, medium-and long-term interests.4. Describes how past experiences have affect expected future developments.5. Articulates the availability, quality and affordability of significant capitals used to generate value.
In addition, an integrated report should 'answer the question: Where does the organization want to go and how does it intend to get there' (IIRC, 2013, p. 27).
6. Identifies the organisation's short-, medium-and longterm objectives and determines how it plans to meet these objectives.7. Identifies the resource allocation plans to implement strategy.8. Describes the link between strategies and the business model and required changes to the business model.9. Considers the external environment to identify strategic impacts.10.Assesses the effect of capitals available on the identified strategy.
The organisation also needs to consider how it plans to maintain its competitive advantage.This can include: stressing the importance of innovation in operating activities (Porter, 1998), development of intellectual capital to drive new approaches to doing business (IRCSA, 2011), efficient utilisation of scarce resources (Collier and Agyei-Ampomah, 2008) and embedding social or environmental issues in the business model as a differentiation tool (Atkins et al., 2016).

Differentiates what gives the organisation a sustainable competitive advantage.
A company's strategy needs to be planned and communicated carefully.It cannot contradict the entity's core values, its primary purpose or stakeholders' expectations (IOD, 2009).As a result, the strategy should consider all material risks and opportunities according to a formal risk management and analysis system (Collier and Agyei-Ampomah, 2008).Both the organisation's strategy and related business plans should be reviewed by senior management and, where applicable, internal audit in order to ensure that important issues specific to each of the relevant capitals are addressed (IIRC, 2013) and understood by the organisation and its key stakeholders (IOD, 2009).
12. Demonstrates how strategy aligns with the purpose of the company and stakeholders' expectations.13.Demonstrates that the risks relating to strategy and business plans have been thoroughly examined.14.Identifies risk management processes and systems (including the role played by management).15.Identifies the role of internal audit in risk management processes.
An appropriate Information Technology (IT) system is required to support the process of identifying risks, assessing their impact and incorporating these in business plans and an organisation's strategy (IOD, 2009) The disclosures identified above are aggregated and form the basis of a strategy disclosure matrix.This is explained in more detail in the method section.

Method
The research is conducted in an interpretive style.Although data is collected and analysed using a quantitative technique, the aim is not to test for causal relationships, develop generalizable results or conduct an econometric analysis of reporting trends (Coetsee and Stegmann, 2012;Maroun and Jonker, 2014).The study is an exploratory one.It considers the extent to which companies are dealing with SEE issues in their strategy-related disclosures and how this reflects the operationalisation of signalling or legitimacy considerations, as discussed in the literature review.

Population and sample
The population is all JSE-listed companies in the financial services sector as at 31 December 2013.Companies with no integrated reports available were excluded.These included companies whose primary listing is in another country and are, therefore, exempt from complying with the JSE's requirement1 to produce an integrated report.A final sample of 55 companies was analysed (see Appendix B).These companies are listed in Appendix C.

Data collection and analysis
As explained in the literature review, a data collection instrument was developed interpretively by the researchers, based on the guidance provided in King-III, the IIRC and some of the prior research on ESG reporting by South African companies.The instrument is an easy-to-understand matrix which lists the different strategy-related considerations which should be included in an integrated report and is used to record whether or not these disclosure items are discussed in the context of financial (economic), social/transformational (social) or natural (environmental) capital.
not complied with a specific aspect of the King-III code by explaining why it has not done so.
Using the same approach as Padia (2012) and Makiwane and Padia (2013), the support researcher read each integrated report to gain a sense of its content and structure.The reports were then analysed by subsection or heading to identify strategy-related disclosures using the data collection instrument.Once the disclosures were located, the support researcher examined each disclosure to determine if the relevant strategic issue related to a financial (economic) or non-financial (social or environmental) consideration.The disclosure has been coded accordingly.This resulted in each integrated report being read several times until all of the sections in the reports had been processed and the identified strategy disclosures had been coded as either financial, social or environmental in nature.
Where a disclosure was identified, a score was assigned as follows: 0 No disclosure; 1 Limited disclosure around strategy given in this area (well below average) 2 Partial disclosure around strategy given in this area (below average) 3 Adequate disclosure around strategy given in this area (average) 4 Well defined disclosure around strategy given in this area (above average) or 5 Extensive disclosure around strategy given in this area (excellent).
(Adapted from Padia ( 2012)) The same scoring system was applied to all SEE disclosures.
To ensure the reliability of the scoring process, the disclosure matrix was piloted using two companies' integrated reports.
The same two companies' reports were then analysed and scored again after a few days to assess consistency and accuracy of the scoring.The initial and subsequent scorecards were compared to ensure consistency.Once the researchers were satisfied that the disclosure checklist was complete and could be applied consistently, the remaining integrated reports were scored.
The scoring system is subjective but the aim is not to 'measure' the disclosures in a positivist sense.The data were aggregated and analysed in a way which allowed for the interpretation of the findings according to the defined theoretical frameworks.Further, no attempt was made to judge the perceived usefulness of the disclosures.This is an inherent limitation of the research but it avoids incorporating excessive subjectivity and ensures that company scores are comparable.The final data collection instrument is included in Appendix A.
After all of the integrated reports were scored, descriptive statistics were generated for each subsector in the financial services sector (according to the JSE) and by type of disclosure.A relatively small data set (and the interpretive style of the paper) precluded the use of detailed econometric analysis.As the data were not normally distributed, a nonparametric Friedman Test was used to test if, in total, there were statistically significant differences between SEE disclosures provided by the companies under review.In addition, SEE disclosures were considered separately to determine if there were statistically significant variations in the level of SEE disclosures by subsector.Based on these results, the researchers ranked the subsectors according to the extent of SEE disclosures at the strategic level.An easy-tointerpret matrix was prepared to contrasts the extent of strategy disclosures focused on financial (economic) and nonfinancial issues (social and environmental) based on the ranking of the average disclosure scores.The results and analysis are presented in the following sections.

Results
Figure 1 shows the composition of companies analysed by subsector of the financial services according to the JSE.The majority of companies are in financial services (32.7%), followed by real estate firms (25.5%).Banks comprise the smallest subsector (12.7%).The subsector average (Table 1) shows that, overall, banking firms provided the most information on their strategy followed by companies in the real estate subsector.Financial services and investment instrument firms provide the least disclosure.The rankings are summarised in Table 2. Most strategic disclosures were focused on economic issues (average total score of 2.57).This was followed by social (average total score of 1.45) and environmental disclosures (average total score of 1.24).Using the overall disclosure score determined by calculating the mean score for each SEE indicators, the following results were generated by a Friedman test.Table 3A and 3B show that there is at least one pair of scores with statistically significantly differences at the 1% level of significance (χ 2 (2)=57.774,p<.001.).More specifically, the mean economic disclosure score (MR=2.85,n=55) is significantly higher than the mean environmental (MR=1.53,n=55) and social (MR=1.65,n=55) disclosure scores.The scores on the non-financial disclosures (with 95% confidence intervals overlapping) are not statistically different.

Figure 2: Confidence intervals
Finally, the researchers considered if there were statistically significant differences in SEE disclosures (each considered separately) according to subsector.Results are summarized in Table 4A and Table 4B.The Kruskal-Wallis test revealed no significant social disclosure score differences among the subsectors (χ 2 (4) =6.161, p>.05).In contrast, there is at least one pair of subsectors with statistically significate differences in environmental disclosures (χ 2 (4) =13.968, p<.01).The untabulated custom tables with Bonferroni correction show that real estate firms (MR=38.71,n=14) provide more environmental disclosures than financial services companies (MR=19.22,n=18) and that these differences are statistically significant.The Kruskal-Wallis test also showed that there is at least one pair of subsectors with economic disclosure scores which differ significantly (χ2(4) =10.638, p<.05).The un-tabulated custom tables with Bonferroni correction reveal that banks (MR=37.29,n=7) provide more details on economic issues in their strategy-related disclosures than investment instrument companies (MR=15.31,n=8).These differences are statistically significant.

Discussion and analysis
There is a growing awareness of the importance of environmental issues such as climate change, habitat loss, income inequality and employee health and safety (de Villiers and van Staden, 2006;Jones and Solomon, 2013;Raemaekers et al., 2016).The result is that organisations are under pressure to demonstrate how social and environmental concerns are being taken into account in their business models and day-to-day operations in order to maintain legitimacy (O'Donovan, 2002;Patten, 2002;Adams et al., 2016).Stakeholders' expectations for high quality nonfinancial reporting have been reinforced by: (1) the limitations of historical financial statements for providing insight into long-term value creation (IRCSA, 2011) ; (2) the emphasis on social and environmental metrics in codes of corporate governance (IOD, 2009) and (3) demands for corporate reports which explain the interconnections between different types of capital (IIRC, 2013).As a result, and as predicted by legitimacy theory, all of the companies in the financial services industry include social and environmental strategy-related disclosures in their integrated reports.
At the same time, the fundamentals of the capital market system remain relevant.In particular, the need to generate financial returns for debt and equity providers has not been diminished by sustainability and integrated reporting (Dillard and Reynolds, 2008;Atkins et al., 2015a).As a result, Table 1 and Table 2 show that economic issues are discussed by all companies under review in their strategy disclosures and that less detail is provided on social and environmental issues at the strategic level (Table 3A; Table 3B).This is consistent with the findings of the prior research which finds that legitimacy considerations necessitate some prominent disclosure of social and environmental issues but, because of the relevance of financial imperatives, companies must emphasise economic factors at the strategic level (see de Villiers and van Staden, 2011;Tregidga et al., 2014).On closer inspection, however, differences in the approach to incorporating SEE issues in strategic disclosures included in the integrated report emerge.
The Kruskal-Wallis Test does not reveal statistically significant variation in social disclosures by subsector but this is not the case with environmental and economic disclosures.There is at least one pair of scores showing statistically significant differences (Table 3A and Table 3B) implying that, despite the overall emphasis on economic-related strategic disclosures at the industry level, reporting strategies vary by subsector.To examine the interconnection between reporting on SEE strategic indicators in more detail, Table 5 shows the relative emphasis on the different disclosures.
For this purpose, as the Friedman Test (Table 3A and 3B) revealed no statistically significant differences between social and environmental disclosures, these are grouped as 'Social and environmental reporting (non-financial disclosures) in Table 5.The frequency of these disclosures is contrasted with the frequency of economic disclosures.The mean rankings for SEE disclosures are used to position the subsectors of firms to show the relative emphasis on SEE issues in their strategy reporting.

Low volume reporting
Financial services and investment instrument firms provide the least strategy-related disclosures (Table 2).As shown in Table 1, their mean SEE scores are below the industry average.
Form a signalling theory perspective, the results imply that information asymmetry is low because stakeholders have a detailed understanding of the relevant strategic considerations.As a result, the marginal benefit of additional disclosure does not justify the added cost of reporting (de Villiers and van Staden, 2011).This applies to both financial and non-financial disclosures.Similarly, legitimacy theory predicts that firms respond to societal expectations for transparent reporting on important social and environmental issues by increasing the quantum of non-financial disclosures (Patten, 2002).As a result, the low mean disclosure scores (Table 1) suggest that pressures from different stakeholder groups for dealing with environmental and social issues at the strategic level are low.Alternately, with stakeholders not demanding an account of how corporate strategy is incorporating non-financial considerations, the organisations maintain a relatively low level of disclosure in order to avoid additional scrutiny (de Villiers and van Staden, 2006) or the risk of extensive disclosure inviting calls for further changes to the business model (Cho et al., 2015).
Nevertheless, the purpose of integrated reporting is to demonstrate how each of the capitals under a company's control is managed in order to create long-term value (IIRC, 2013;PWC, 2013).The low mean environmental and social disclosure scores of the financial services and investment instrument subsectors (Table 1), coupled with the fact that the subsectors provide limited SEE disclosures in total (Table 2; Figure 2), can be interpreted as an indication that these firms do not regard non-financial metrics as strategically relevant.This finding is surprising given the recent release of the Code for Responsible Investment in South Africa (CRISA) which is designed to encourage the investment community to take cognizance of social and environmental issues when making investment decisions (IOD, 2011;Atkins and Maroun, 2015).
Similarly, the Equator Principles should form a significant component of a financial services company's environmental strategy and should be disclosed (Amalric, 2005).It is, therefore, possible that the subsectors have not internalized the principles of responsible investment and integrated reporting, with the result that environmental and social issues do not feature in the development of their strategic framework.
Concurrently, despite King-III, the Global Reporting Initiative, the IIRC's framework, CRISA and the Equator Principles, companies in the financial services sector either cannot identify their environmental and social impact or feel that this is negligible.On the one hand, their business model is such that any environmental or social footprint is indirect.For example, unlike a manufacturing concern, they are unlikely to have significant CO2 emissions, water consumption or biodiversity impacts.Similarly, unlike the mining sector, the financial services and investment instrument firms do not rely significantly on unskilled labour.Nevertheless, it would be reasonable to expect these firms to provide stakeholders with an understanding of how their investment philosophy is evolving to take environmental and social issues into consideration (cf Amalric, 2005).For example -and in line with CRISA (Maroun and Atkins, 2015) and the Equator Principles (Amalric, 2005)these companies could explain how they are funding clean energy projects or how their risk assessments and discount rates are being adjusted to accommodate key environmental or social indicators.

High volume reporting
Like companies providing low levels of strategy disclosures, the insurance, bank and real estate subsectors emphasised economic considerations at the strategic level (Table 3A; Table 3B).Social and environmental issues are discussed in more detail (Table 5).The greater emphasis placed on nonfinancial issues may be attributable to the business model.This is most clearly evident when comparing real estate to financial services firms where the Kruskal-Wallis test reported the most statistically significant differences in disclosure scores (Table 4A; Table 4B).
Real estate companies have significant physical assets (as opposed to financial instruments) on their balance sheets which increase direct exposure to, for example, environmental-related risks.For instance, rising sea levels has an immediate impact on a real estate company with material sea-side properties.A financial services institution interprets the same risk only as a possible decline in the fair value of its equity investments, which is likely to be hedged due to diversified investments in different portfolios of assets and investments in off-setting financial instruments.As a result, signalling theory predicts that more environmental disclosures are required to reassure investors that risks are being managed, reduce information asymmetry and manage the effects of environmental issues on the cost of capital.
The real estate subsector is also more subject to pressures from environmentally conscious consumers with the result that prominent non-financial reporting is essential for managing legitimacy.For example, there is growing demand for energy-efficient buildings and low emission construction techniques which could explain why these companies are more likely to identify environmental issues as strategically relevant.This is in contrast to financial services firms which are not directly responsible for the environmental management practices of their investees 2 .It may also be the case that the real estate companies are able to use environmental responsibility as a way of differentiating themselves from competitors to secure their strategic position.Because of the nature of the industry, a comparable approach of investing in environmentally responsible companies may be replicated easily and is, therefore, not a maintainable strategic competitive advantage (see Porter, 1996).
Banks had the second highest environmental disclosures and ranked first for social disclosures (Table 2; Figure 2).While many of the arguments explaining a low disclosure score in the financial services subsector (Section 5.1) may be applicable to the banking, there is an important difference.
Companies in the banking subsector include the major commercial banks which engage on a day-to-day basis with general consumers (consider Elsbach and Sutton, 1992;Suchman, 1995;Hooghiemstra, 2000;Bansal and Clelland, 2004).As a result, they are more likely to be subject to consumer pressure and criticism in the popular press than are investment instrument firms which are more focused on niche markets.The same may apply to the insurance subsector which, as shown by Table 2, follows a similar approach to incorporating SEE issues in strategic-related disclosures.
The precise reasons for these disclosure trends cannot be defined but it is possible that banking, insurance and real estate subsectors have a more evolved reporting system and a better understanding of the interconnections between the different types of capital than the other subsectors under review.The results in Table 4A, Table 4B and Table 2 also imply (but do not prove) that there is a relationship between the extent of SEE disclosures in the strategy sections of integrated reports and the type of business model.Those subsectors which offer direct services to their customers or are subject to more public scrutiny are more inclined to provide additional information on their risk exposures and management practices (focused on social or environmental challenges) in order to manage legitimacy considerations.
Where the business model is such that the link between social and environmental issues and financial performance is clearer, the need to use non-financial reporting to address legitimacy concerns is amplified by signalling requirements.Prominent social and environmental disclosures signal that the relevant risks are under control and have been incorporated into the firm's strategic plans in order to maintain the confidence of financial capital providers.In contrast, investment and financial instrument firms are, arguably, providing niche services to specific segments of the market.They have a more abstract business model and are less likely to engage directly with the general public.In this complex strategic environment, organisations provide less risk-related information and are also less likely to include environmental and social issues in their strategy-related disclosures.

Conclusion
This paper examined the extent of SEE disclosures dealing with the strategy of companies listed on the JSE's financial services sector.As predicted by signalling theory, in a capital market context, economic disclosures are important for reducing information asymmetry, lowering the cost of capital and limiting the risk of adverse selection (de Villiers and van Staden, 2011).As a result, companies must report prominently on key economic indicators, something which the financial services industry does by emphasising these factors in its strategy-related disclosures.Non-financial information cannot, however, be overlooked.
There is a growing awareness of the importance of dealing with social and environmental issues to ensure corporate sustainability (IIRC, 2013).As a result, companies are under mounting pressure to disclose non-financial information in their integrated reports and explain how social and environmental challenges are being managed as part of the process of generating financial returns (de Villiers et al., 2014;Atkins and Maroun, 2015).For the South African Financial Services Industry, this means that social and environmental metrics cannot be entirely marginalised.To meet social expectations and secure legitimacy, at least some social and environmental issues must be dealt with prominently in their strategy disclosures.The primary emphasis on financial capital, however, means that nonfinancial reporting at the strategic level is limited.
For financial services and investment instrument firms, in particular, the business model is complex and focused on generating returns for a niche group of stakeholders.In addition, these companies have relatively few daily dealings with the general consumer.Consequently, the societal pressure to manage environmental and social issues (as predicted by legitimacy theory) actively is low.This is especially true given that the link between social and environmental issues and the organisations' business model is only indirect.From a signalling theory perspective, the added cost of additional non-financial reporting is not justified by the financial benefits of the marginal information given to the providers of financial capital.As a result, these two subsectors reported few social and environmental issues at the strategic level and provided the lowest level of disclosure on their corporate strategy in total.
The banking, insurance and real estate subsectors adopt a slightly different reporting strategy.Financial capital remains a primary focus and, accordingly, these companies still emphasise economic issues at the strategic level.Unlike financial services and investment instrument firms, however, social and environmental issues are included to a greater extent in strategy-related disclosures.Banks, insurance companies and real estate managers interact regularly with a relatively broad group of stakeholders.They provide consumer-focused services and/or have business models with direct links to environmental or social factors.Consequently, the relevance of non-financial reporting as a signalling mechanism and managing legitimacy is increased with the result that these non-financial indicators are more likely to be seen as strategically relevant.These results have a number of important implications.
Firstly, codes of corporate governance (IOD, 2009) and responsible investment practices (IOD, 2011) do not necessarily result in companies in the financial services sector adopting a more integrated approach to corporate strategy.CRISA and the Equator Principles call for environmental and social factors to be taken in the investment analysis and appraisal process (IOD, 2011) and there is mounting scientific evidence on the risks posed to the industry by social and environmental issues (Hill and Maroun, 2015;Atkins et al., 2016).Nevertheless, not all firms in the financial services sector identify these issues as strategically relevant.
Consequently, pressures from stakeholders -especially when the link between the business model and social or environmental considerations is easy to determinemay be better drivers of integrated reporting and thinking than codified best practice.Additional research will, therefore, be needed to examine in more detail which stakeholder groups interact with the financial services industry and how these relationships contribute to more detailed analysis of and reporting on the relevance of social and environmental issues, something which this paper has not been able to do.
Secondly, this study stops short of engaging preparers of integrated reports to identify their reporting challenges.Low levels of strategic and environmental reporting may be due to the difficulty of drawing a connection between the business model and non-financial factors and articulating this clearly in the integrated report.As such, future research should concentrate on examining the obstacles to incorporating social and environmental issues in strategic disclosures and provide practical guidance for identifying and reporting on non-financial factors.
Finally, the research focuses on only a single industry in South Africa.The relationship between business model, level of stakeholder engagement and the extent of social and environmental reporting at the strategic level needs to be examined in more detail.This can include studies to compare reporting trends across industries and from country to country.The results of this study show relatively low levels of non-financial detail at the strategic level suggesting that there is a still a far way to go before South African corporates can claim that they have truly adopted an integrated approach to corporate reporting and management.Future researchers can add significant value by identifying those factors which promote integrated thinking and reporting and developing a framework for application by South African companies.

Figure 1 :
Figure 1: Sample by subsector . A Chief Risk Officer, with sufficient expertise and authority, should be appointed to ensure effective implementation and monitoring of action plans linked to the entity's strategic goals.This includes a review of the design and implementation of controls to ensure risks and opportunities are continuously identified and responded to by the appropriate members of management.

Table 2 )
are interpreted as placing a high emphasis on the respective disclosures.Those ranked last reveal that they are placing a low emphasis on the relevant disclosures.All other subsectors are reported as placing moderate emphasis on either financial or non-financial disclosures.Using this schematic, two broad approaches to corporate reporting are identified.