Reporting about value creation – Evidence from the Netherlands

Kavita Nandram; Mohamed El Harchaoui

doi:10.5117/mab.94.50394

Abstract

Value creation is a key element in transparent and informative reporting, as it gives a better impression of the risks and opportunities that a company faces. Companies are expected to report about value creation in their annual report under various regulations and frameworks in relation to non-financial reporting. Therefore, the aim of this study is to obtain insight into whether Dutch AEX and AMX listed companies are making any progress on reporting about value creation in their 2018 annual reporting. Our analysis shows that reporting about value creation can be more specific and companies can pay more attention to any possible destruction of value. Additionally, companies can provide better insight into the long term and other effects of their chosen strategy in their value creation models. The paper provides a number of examples of good practice as inspiration for companies.

Keywords

Integrated Reporting, Value creation, Non-financial Reporting

1. Introduction

Companies are expected to provide information in their management reports that will enable users of these reports to establish whether, to what degree and in what manner the company has created value and expects to create value in the future. They are also expected to report on the influence of their business model on value creation and/or value destruction. Reporting on value creation in annual reports is a relatively recent phenomenon and is still under development. Value creation is a key element in transparent and informative reporting, as it gives a better impression of the risks and opportunities that a company faces. The information is also relevant to understand potential for shareholder value, position in the value chain, other stakeholder benefits etc. Value creation is an abstract concept. For example, the Dutch Corporate Governance Code (the Code) (Monitoring Commissie Corporate Governance Code 2016) does not give a definition of value creation and how companies should report on it. In practice, reporting about value creation in the annual reports therefore varies from one company to another.

Based on this, and the demand from investors (Vereniging van Effectenbezitters 2019; Eumedion 2019; Blackrock 2020) for better reporting on long term value creation, we conducted a content analysis on the reporting about long term value creation by Dutch listed (AEX and AMX) companies in their 2018 annual reports. In addition, we held interviews with ten companies from the population. In this study we established on the basis of a combination of the Code, the value creation background paper from the International Integrated Reporting Council (IIRC), the guidelines of the Global Reporting Initiative (GRI) and academic literature (Boesso and Kumar 2007; Dilling 2016; Schoenmaker and Schramade 2019; Athanasakou et al. 2019) on value creation, whether and how companies report about value creation and how they explain their vision, strategy and governance in the context of value creation in their annual report.

In 2019 the Monitoring Commissie Corporate Governance reported that 99% of all Dutch listed companies report in line with the the Code. They also noted that listed companies embrace the concept of long term value creation, but still have questions about how to implement the concept. Therefore, the primary objective of the study is to obtain insight into reporting on value creation and to prompt companies to improve the quality of their reporting on this issue. With the results of this study we hope to contribute to the further development of reporting on value creation.

The next sections list the literature and theoretical background, research method and findings with respect to the manner in which the AEX and AMX listed companies report on the various aspects of long term value creation. Reference is also made to a number of good practices from which companies can draw inspiration with respect to how they can report on value creation.¹

2. Theoretical background value creation

The notion of ‘value’ is multifaceted and thus has been addressed from different angles (Le Pennec and Raufflet 2018). According to a neo-classical economics perspective, value is purely economic, and is destined for shareholders (Friedman 1970). This view was challenged by the concept of ‘shared value’. “The purpose of the corporation must be redefined as creating shared value, not just profit per se” (Porter and Kramer 2011). This involves creating economic value in a way that also creates value for society by addressing its needs and challenges. When considered in this light, value is no longer purely economic in nature (Le Pennec and Raufflet 2018).

Huse (2007) defines different types of value creation: economic, social, internal and external value creation. These types of value creation are interconnected and are helpful in defining stakeholder needs. Huse (2007) included the types of value creation in a table that shows examples of the different types of value creation (see table 1). Under the stakeholder view, the firm is understood as multi-stakeholder organization. Under this perspective companies need to invite their stakeholders into their plans and initiatives and get them engaged and involved (Freeman et al. 2010).

Table 1.

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Types of value creation (source: Huse 2007).

	Internal value creation	External value creation
Economic value creation	Internationalisation, merger, restructuring, entrepreneurial posture, innovation, venturing	Financial performance: stock market returns, accounting returns, sales growth, etc.
Social value creation	Employee well-being, workplace safety, workplace ethics, programmes for employee training, etc.	Corporate social performance and ethical behaviour, family welfare, product quality and customer satisfaction, environmental sustainability, job creation, etc.

This changed perspective has achieved considerable success and since the beginning of the 2000s, the attention for non-financial disclosure has increased for large publicly listed companies (Dilling 2016; Lungu et al. 2009). There is increased disclosure on non-financial information (KPMG 2017), however, there has been much debate about quality and presentation of data. There is consensus among stakeholders that neither the current annual financial reports nor the sustainability reports provide sufficient information needed to determine a company’s long term value creation process (Dilling 2016; Boesso 2003). Most financial reports don’t address the long term challenges and opportunities that a company faces. Companies are often only reporting the bare minimum required by regulators or professional bodies in their annual reports (Dilling 2016). Over the last decade, we have seen a drastic development towards non-financial disclosures in sustainability and more recently, integrated reporting. Also, the Non-Financial Reporting Directive (European Commission) came into effect in all EU-member states in 2018. All 28 countries have since adapted the Directive into national law. EU law requires large companies to disclose certain information on the way they operate and manage social and environmental challenges. More specific, the Directive requires public-interest entities with more than 500 employees to disclose information about environmental matters, social and employee aspects, respect for human rights, anti-corruption and bribary issues, and diversity in the board of directors in the management report.

Moreover, sustainability reports are adding information on long term value creation; however these reports are usually focused on certain environmental areas leaving certain stakeholders with information gaps (Dilling 2016). Most large listed companies nowadays report about environmental, social and governmental issues on a voluntarily basis in accordance with GRI guidelines or standards. In contrast to financial and sustainability reporting, integrated reporting offers a concise, stand-alone communication about how an organization’s strategy, governance, performance, and prospects lead to the creation of value over the short, medium, and long term (IIRC 2013). The concept of long term value creation means that a company aims to optimize its financial, social and environmental value in the long term (Schoenmaker and Schramade 2019; Schoenmaker 2018; Tirole 2017; Dyllick and Muff 2016). In the value creation background paper, the IIRC (2013) describes that long term value is created through an organization’s business model, which takes inputs from the capitals and transforms them through business activities and interactions to produce outputs and outcomes that, over the short, medium and long term, create or destroy value for the organization, its stakeholders, society and the environment. This is also illustrated by the study by Ocean Tomo (2017) that shows that intangible assets are now responsible for 80% of all business value of listed firms.

Integrated reports present a holistic and complete picture of the business in a clear, concise, connected and comparable manner. It is a means of presenting the material information about the organization’s strategy, governance and performance on commercial, social and environmental issues (IIRC 2013). Through effectively connecting these often siloed areas, businesses are able to provide not only an update on past performance but also a long term perspective of future value creation. The connections and interdependencies between the different factors that contribute to the creation of value result in different outcomes for different stakeholders (IIRC 2013).

The assessment of value creation therefore involves considering the interdependencies between a company’s competitiveness and performance and the communities, stakeholders, supply chains and natural environment it affects and on which it draws. An integrated report should enable providers of financial capital to assess whether, to what extent and how an organization’s business model affects the wider context that supports or threatens value creation, including financial value, in the short, medium and long term (IIRC 2013).

In the Netherlands, long term value creation is included in the Corporate Governance Code (2016). According to the Code (2016) companies are expected to provide information in their management reports that will enable users of these reports to establish whether, to what degree and in what manner the company has created value and will create value in the future. They are also expected to report on the influence of their business model on value creation and/or value destruction.

3. Research method

We performed a content analysis on the 2018 annual reports of 39 AEX and AMX companies whose Member State of origin is the Netherlands and conducted interviews with 10 of these companies. We selected only the 39 listed companies that are subject to supervision of the Dutch Authority for the Financial Markets. Appendix A includes a list of the 39 companies that are included in the sample. The questionnaires for the content analysis of the annual reports were based on the information on value creation in the Dutch Corporate Governance Code, the value creation background paper of the International Integrated Reporting Council, the guidelines of the Global Reporting Initiative and academic literature on value creation (Boesso and Kumar 2007; Dilling 2016; Schoenmaker and Schramade 2019; Athanasakou et al. 2019). The analysis mainly focused on whether and how companies report on value creation; the forms and time periods of value creation; and the vision, strategy and governance with respect to value creation (see table 3). The questions were mainly answered by selecting ‘yes / no / somewhat’. When the answer was somewhat, we included an explanation. In order to reduce the risk of subjectivity, we included a mechanism to rotate and re-review the filled-out analysis by a different person within our team.

Based on the outcome of the questions we ranked the annual reports of the companies into the following categories: above average, average and below average. These scores are relative to the population of 39 companies. In addition, we conducted interviews with five companies with an above average score and five companies with an average and below average score to gain additional insight to the findings of the content analysis. The interviews where performed with people who are responsible for (non-financial) reporting, head of the sustainability department, or investor relationships.

4. Results

We conducted a content analysis on the annual reports of a total of 39 listed companies. 20 of these companies are in the AEX Index, and 19 are in the AMX Index. Table 2 shows that slightly over half (51%) of the companies in the population rank above the average on their reporting of value creation. Although these companies generally have adequate scores on the content analysis questions (see Table 3), they also can improve their reporting. Of the 51%, 23% (9 companies) report above average on the different elements (in the area of reporting about value creation) they were scored on in the content analysis.

Table 3 includes an overview of the scores per content analysis question. The percentages represent the percentage of companies that report about the elements that are part of the content analysis.

Table 2.

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Score on value creation reporting.

Final assessment of value creation	Number of companies – Total AEX and AMX	Number of AEX companies	Number of AMX companies
Above average	20 (51%)	13 (65%)	7 (36%)
Average	10 (26%)	4 (20%)	6 (32%)
Below average	9 (23%)	3 (15%)	6 (32%)
Total	39 (100%)	20 (100%)	19 (100%)

Table 3.

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Reporting on value creation.

Content analysis questions	% of companies that report about these elements
Does the company include a description of its business model in its report and is this linked to its strategy?	67%
Does the company include a description of its business model (input, activities, output, outcome, impact) in its report and is this linked to its strategy?
Input	69%
Activities	82%
Output	77%
Distinction between outcome and impact	28%
Is a distinction made between time horizons (short, medium and long term)? In particular, we looked at whether the company reports on long-term value creation in its report.	23%
Does the company report on the relevant capitals?
Financial capital	74%
Human capital	74%
Social and Relationship Capital	72%
Natural Capital	59%
Intellectual Capital	44%
Manufactured Capital	36%
Other Capital	10%
Does the company include a visual overview of their value creation model?	69%
Does the company report on how it creates value?	85%
Does the company report on why it creates value?	46%
Does the company report on to what extent it creates value?	69%
Does the company report for whom it creates value?	97%
Does the company report about value creation in an organisation specific manner?	49%
Does the report devote attention to the management’s vision with respect to long-term value creation?	69%
Does the report devote attention to the management’s vision with respect to long-term value creation and how this vision is linked to its strategy?	62%
Does the report make a connection between the governance structure and how this connects with the company’s long-term goals and strategy?	31%
Does the company’s reporting state how the implementation of its remuneration policy contributes to long-term value creation?	51%
Does the company’s reporting state what the relationship between remuneration and performance is?	44%
Are the quantitative data in the value creation model included in the assurance report by the auditor?
Assurance type - COS 3000	3%
Assurance type - COS 3810	41%
One audit report signed by the external auditor	8%
Separate assurance report over the non-financial information	36%
No assurance over the non financial information	56%
What level of assurance does the assurance report provide?
Mixed assurance	3%
No assurance over the non financial information	56%
Limited assurance	31%
Reasonable assurance	10%

4.1 Reporting on value creation in the annual reports

Most companies report on value creation in their management reports but this can be more specific. The reporting on value creation by slightly more than half (51%) of the companies in the population is too generic. Companies with below-average scores (23%) present their reporting on value creation using general descriptions, they do not have a clear value creation model, they have a value creation model but offer no or very limited disclosure and they focus primarily on financial value creation. The interviews that we held with some of these companies revealed that they interpret value creation primarily as the creation of financial value for their shareholders.

The companies that do not yet report specifically on broader value creation stated in the interviews that they were engaged internally with the theme of sustainability, non-financial information and value creation, but they had not yet reached the point at which they were able to report on this externally. One possible explanation for failure to keep up with reporting on value creation is the novelty and the lack of a clear definition. As mentioned by the interviewees: “Sustainability is a relatively recent theme. Non-financial value creation is still growing, financial value creation is clear.”

A number of companies with below-average scores stated during the interviews that cost and the scale of their organisation were the main reasons for reporting only financial information and their reluctance to meet the requirements for the reporting of non-financial information. They state the following: “We have to make money. If we don’t, we have no future”. However, they did concede that there had been increasing demand from investors and other stakeholders in recent years, and that this had created attention for the importance of non-financial indicators. For this group of companies, external factors (such as compliance, demand from customers and investors) could play a decisive role in getting them to change course.

49% of the companies report the activities, realised results, outcome, impact and objectives for each capital. Figure 1 shows an example of good practice for a graphic representation of a value creation model. Figure 2 shows an example of good practice of how companies can then report specifically on their creation of value in the text. In the example, the company reports on human capital in a manner specific to its own organisation.

Figure 1.

Good practice: Graphic representation of a value creation model. Koninklijke Philips N.V. Annual report 2018, pp. 8–10. https://www.results.philips.com/publications/ar18

Figure 1.

Continued.

Figure 2.

Good practice: Specific reporting on value creation for each capital. Arcadis N.V. Annual integrated report 2018, p. 45. https://www.arcadis.com/en/global/investors/

Figure 2.

Continued.

The companies reporting specifically on value creation all stated during the interviews that value creation is part of their business model and the company’s DNA. These companies have a clear ambition to continue to improve the manner of their reporting. They state the following: “We have made clear progress on how we report on value creation in recent years, but there is still room for improvement.” They see their annual reporting as a document that tells the story of their organisation to all their stakeholders.

Our content analysis of how, why and in what form companies create value shows that the vast majority (85%) of the companies provide information on how value is created. 69% reported the form in which they create value and slightly under half (46%) report on why they create value. The other companies do not or not specifically state why they create value. The companies that do not specifically report use general expressions such as “we aim to make a positive contribution”. The links between the various capitals are also often not explained. Figure 3 shows an example of a company that discuss their impact on society. This example makes a connection with the long term impact for stakeholders and society.

Figure 3.

Good practice: Impact in society. KPN N.V. Integrated Annual Report 2018, p. 74. https://annualreport2018.kpn/

There is considerable variation in the way in which companies explain their value creation model and the information they include in this model. The value creation models contain input for the business models in most cases. This is presented on the basis of a number of capitals. The most frequent capitals reported in the value creation model concern the financial, human, social and relational capitals (see Table 4). Four of the companies chose to report in their value creation models on other types of capital, such as externally purchased technological capital, in addition to the six generally recognised capitals.²

Figure 4 shows an example of good practice of a value creation model in which the business model is developed on the basis of the capitals. The model also clearly includes the business model, in which reporting of input, activities, output and outcome is presented.

Figure 4.

Good practice: value creation model on the basis of capitals. Arcadis N.V. Annual Integrated Report 2018, pp. 14, 15. https://www.arcadis.com/en/global/investors/

Table 4.

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Capital categories in the value creation model.

Types of capital	Number of companies (% of the total population N = 39)
Financial capital	74%
Human capital	74%
Social and relational capital	72%
Natural capital	59%
Intellectual capital	44%
Manufactured capital	36%
Other capital	10%

4.2 The distinction between time periods in reporting on value creation

Various regulations and frameworks assign an important role to the distinction between time periods in the reporting on value creation. For instance, Principle 1.1.4 of the Code states that in its report, the management board should include an account of its view with respect to value creation in the long term and its strategy for achieving this, as well as the contribution to this strategy made in the past financial year. The Code also requires companies to report on developments in both the short and the long term. The <IR> framework recognises multiple time periods and refers to value creation in the short, medium and long term.

The content analysis revealed that 23% of the companies in the population made a distinction between time periods in their reporting on value creation. 33% of the companies made some partial distinction between time periods in their reporting on value creation, with most presenting specific reporting on short-term value creation and general texts with respect to value creation in the long term. Few devoted attention to value creation in the medium term. Companies with an above-average score reported specifically on non-financial KPIs related to the value creation model, with an account of the developments in the short (2018), medium (2020) and long term (2030) (see Figure 5). Obviously, these time periods vary from one company or sector to another. What is long term for one company may be short term for another. Companies can thus use the time periods that are appropriate to them, but the distinction between time periods in reporting on value creation can be clearer.

Figure 5.

Good practice: distinction between short-, medium- and long-term. Heineken N.V. Annual report 2018, pp. 120, 121, 125. https://www.theheinekencompany.com/investors/results-reports-webcasts-and-presentations

4.3 Attention to outcome and impact in value creation models

The various regulation and frameworks require reporting on the vision, strategy, business model and output in relation to value creation³.

The content analysis shows that a majority (69%) present their reporting on value creation in graphic form. The value creation models generally include an overview of the business model. All these companies (69% of the total) presenting a graphic representation of their value creation models also included the input⁴ capitals, such as financial and human capital and showed the relationship with the strategy. The vast majority (82%) of the companies in the population listed the activities⁵ that contribute to their value creation process and strategy in their annual reporting. A majority of the companies (77%) in the population also described the output⁶ and its relationship to their strategy. However, the companies still did not devote sufficient attention to outcome⁷ and impact⁸ in their value creation models. 28% of the companies in the population made a distinction between outcome and impact in relation to value creation. Companies that did report on the outcome and impact created also made reference to the Sustainable Development Goals of the United Nations (hereinafter: SDGs). We also note that the information reported is still mainly focused on positive value creation. The interviews with the companies revealed that they see reporting on any value destruction as challenging. We see an element of ‘cherry-picking’ and positive marketing in the selection of SDGs by companies. A more comprehensive focus that centres on the most relevant SDGs would be more appropriate to the purpose and urgency of the SDGs.

We note that the degree of detail in the graphic model varies from one company to another. Some companies choose to include a description of the input, activities, output, outcome and impact, while others present a more concise graphic representation and then provide a more detailed description of their business model and the value created in the text. A form of reporting in which companies report in graphic form in a single figure on value creation in organisation-specific terms would contribute to clearer insight into the value creation process for stakeholders. Nonetheless, a graphic model should not be an end in itself but should be a means of providing insight into value creation. Companies with above-average scores reported on the outcome in quantitative terms in their annual reporting. In addition, we see that companies need to devote greater attention to the challenges and dilemmas that affect value creation.

4.4 Reporting about the risks and results

Investors consider it important to understand the opportunities and risks that companies face. This is why it is important that companies report on this.

Principle 1.1.1 of the Code for example states that a company’s management board should develop a view on long term value creation and should formulate a strategy in line with this. The formulation of this strategy should in any case include attention to a company’s opportunities and risks.

We established how companies report on their realised results and risks of the capitals included in the value creation model. The findings are stated in Table 5. This shows that most of the companies in the population have good insight into the financial results and risks related to financial capital and also report specifically on them.

Table 5.

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Reporting on performance and risks with respect to the capitals.

Types of capital	Number of companies (% of the total population N = 39)
Types of capital	Result – Specifically reported	Risks – Specifically reported
Financial capital	34 (87%)	31 (79%)
Human capital	26 (67%)	18 (46%)
Social and relational capital	23 (59%)	13 (33%)
Natural capital	23 (59%)	5 (13%)
Intellectual capital	9 (23%)	13 (33%)
Manufactured capital	8 (21%)	3 (8%)

Around half of the companies in the population that included natural capital in their value creation models stated the specific result relating to natural capital. There are few further details of the specific risks with respect to natural capital in the annual reporting. Intellectual and manufactured capital are stated in the value creation model, but few details are provided of the risks and results.

Figure 6 shows an example of good practice by a company that presents an account of the risks relating to natural capital in its annual reporting. This company reports specifically on the risks with respect to the climate and plastic packaging. It also reports on the climate risks in relation to the Taskforce on Climate-Related Financial Disclosure (TCFD) recommendations and the impact of a 2 °C and a 4 °C scenario.

Figure 7 shows an example of good practice by a company that uses a connectivity matrix in its annual reporting to explain how it interprets its value creation on the basis of the company’s strategy, risks and objectives and material themes identified by stakeholders. Comparative figures were also provided for the material KPIs. Further qualitative and quantitative information on the items in the overview is provided in the management report. This overview makes the information reported more readable and more comprehensible.

Figure 6.

Good practice: Risks in relation to natural capital. Unilever N.V. 2018 Annual report and accounts, pp. 30, 33. https://www.unilever.com/investor-relations/annual-report-and-accounts/archive-of-annual-report-and-accounts/

Figure 7.

Good practice: Cohesion between strategy, objectives, material KPIs, risks and realised results. Arcadis N.V. Annual integrated report, pp. 40, 41. https://www.arcadis.com/en/global/investors/

4.5 The link between long term value creation and the company’s governance

We analysed whether listed companies devote sufficient attention to the vision of the management with respect to long term value creation in their management reports. 69% of the companies in the population did devote attention to this in their management reports. 62% of the population devoted attention to how the management’s vision in relation to long term value creation is linked to its strategy in the management report. However, companies can devote greater attention to the link between long term value creation and the company’s governance. We find that 31% of the companies in the population made a connection between their governance and how this connects with the company’s long term goals and strategy in their reports. The companies that provide this insight in general do so mainly in the text, providing a description of their priorities, strategy and the role of the management board, management and the corporate responsibility committee (if applicable) in achieving these goals. Figure 8 gives an example of good practice by a company that reported the link between its governance and its long term objectives with respect to sustainability. Most of the companies in the population that make a connection between governance and long term objectives do so mainly with respect to their strategy in relation to sustainability.

Figure 8.

Good practice: Link between governance structure and long-term objectives. KPN N.V. Integrated Annual Report 2018, p. 79. https://annualreport2018.kpn/

4.6 Remuneration policy and long term value creation

The interviews with the companies showed that the commitment of the management board and the management is an important driver for reporting on long term value creation. This commitment could be encouraged by linking long term value creation to the company’s remuneration policy, for example. The Code⁹ proposes that companies should make it clear how the implementation of the remuneration policy contributes to long term value creation.

The content analysis on the annual reports shows that slightly over half of the companies (51%) report in their annual reporting on how the implementation of their remuneration policy contributes to long term value creation. Figure 9 shows an example of good practice regarding how companies report on this. The companies that fail to do this in most cases have not explained why they are not observing the provisions of the Code. The relationship between remuneration and results from capitals is less often (44%) explained in the annual reporting. The example shown in Figure 9 shows how the company linked its remuneration policy to the results on a number of financial and non-financial capitals.

Figure 9.

Good practice: Implementation of remuneration policy and long-term value creation. Royal DSM N.V. Integrated annual report 2018, pp. 131, 133, 134. https://annualreport.dsm.com/ar2018/en_US/downloads.html

4.7 Assurance provided by an auditor

The content analysis reveals that 44% of the companies in the population had assurance procedures¹⁰ performed by the auditor on their reported non-financial information. Twelve of the companies (31%) in the population had an assurance report based on a limited degree of assurance attached to their annual reporting. Four companies (10%) in the population had an assurance report on the basis of a reasonable degree of assurance attached to their annual reporting, and one company (3%) in the population had a statement from the statutory auditor regarding the non-financial information reported on the basis of a combined degree of assurance (a limited and reasonable degree of assurance).

36% of the companies in the population had the assurance report on their reported non-financial information signed by the auditor responsible for the audit. Three companies (8%) in the population had an assurance report signed by a different auditor, but from the same audit firm as the auditor responsible for the audit.

Three (8%) companies in the population provided one integrated statement (combination of audit and assurance). 36% of the companies in the population provided an audit report and a separate assurance report regarding the non-financial information in their annual reporting.

The interviews with the companies that had an assurance engagement performed by the statutory auditor showed that these companies believe that a separate audit adds value. Users of annual reporting are not yet requesting a reasonable degree of assurance regarding the non-financial information and therefore a limited degree of assurance is, in the opinion of the companies concerned, sufficient at this time. The companies with below-average scores for their reporting on value creation also mostly did not include any specific assurance report with respect to the non-financial information in their annual reporting. These companies stated that a separate assurance report on non-financial information was neither necessary nor mandatory, and that they did not consider this to be relevant for reasons of cost.

5. Conclusion

Long term value creation is a more central feature of the reporting in 2018 of listed companies in the AEX and AMX indices, with 85% of them providing insight into how value is created and 69% reporting on what form this takes. This is a positive development. There is, however, room for improvement of the quality of this reporting, which needs to be more specific.

Value creation is a key element in good and informative reporting, it for example gives a better impression of the risks and opportunities that a company faces. An example of this concerns the effects of climate change, which may materially affect a company’s strategy, business model and results. The same applies to factors such as biodiversity, scarcity of materials and how companies deal with human rights.

The study shows that there is variation in value creation reporting by listed companies and that their reporting on value creation needs to be more specific. There can also be more attention to value destruction. Additionally, companies can provide better insight into the long term and other effects of their chosen strategy in their value creation models. Also, companies could devote more attention to outcome and impact in their value creation models. With respect to the capitals, the results show that companies should be more specific about the risks in relation to natural, manufactured and intellectual capital. Furthermore, the results show that companies could devote greater attention to the link between long term value creation and the company’s governance and the link between remuneration and capitals. Assurance over the non-financial information by an external auditor is considered as useful, but slightly less than half of the companies in the sample have assurance on their reports. The paper provides a number of examples of good practice as inspiration for parties to take action.

P.K. Nandram MSc RA (Kavita) is Supervision Officer and project leader Integrated Reporting at the Dutch Authority for the Financial Markets and PhD student at the University of Amsterdam. The aim of her PhD project is to examine the value relevance of integrated reporting in relation to stakeholders’ judgment and decision-making behavior.

M. El Harchaoui RA (Mohamed) is Senior Supervision Officer and project leader Integrated Reporting/non-financial information at the Dutch Authority for the Financial Markets.

This paper is a revised version of the ‘In Balance 2019 survey of value creation’ as published by the Dutch Authority for the Financial Markets on December 5^th, 2019 (AFM 2019).

Notes

1

We hope that companies will be inspired by the good practices described in this paper to make further improvements. These good practices should not be seen as a standard or as the only correct formulation. Other formulations are also possible.

2

In its 2013 Framework, the International Integrated Reporting Council identifies six capitals; financial, human, social and relational, natural, intellectual and manufactured capital. We note from the annual reporting that the vast majority of the companies use these categories of capital in their reporting of value creation and the business model. Of course, each organisation is different, and therefore may not necessarily need to report on all the six categories of capital.

3

The NFID, Guidelines, GRI and <IR> framework of the IIRC, among others.

4

Input covers factors such as the people or resources that are deployed. The value creation model generally describes this on the basis of the various capitals (financial, human, manufactured, social and relational, intellectual and natural).

5

Activities are the actions taken with the input capitals.

6

Output is the performance generated by the activities in the short term. Figure 4 shows an example of reporting on output.

7

Outcome concerns the direct effects or changes as a result of the input, activities and performance. Figures 1 and 4 show an example of reporting on outcome.

8

Impact is the long term effect of outcome on society and our living environment. In other words, the societal change that is ultimately achieved. Figure 1 shows an example of reporting on impact.

9

Principle 3.4.1 Remuneration report.

10

As a part of the annual reporting, the management report is subject to the statutory audit by the auditor responsible for the audit. Companies also engage auditors to perform an assurance engagement regarding the non-financial information in their annual reporting.

References

AFM [Autoriteit Financiële Markten] (2019) In Balance 2019 – Survey of value creation and follow-up to the Non-Financial Information (Disclosure) Decree. https://www.afm.nl/en/nieuws/2019/dec/waardecreatie-wint-aan-belang

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Appendix A

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CSV

XLSX

List of companies included in the population.

Company	Index (status at 01-01-2019)
Aalberts N.V.	AEX
ABN Amro Group N.V.	AEX
Aegon N.V.	AEX
Akzo Nobel N.V.	AEX
Altice Europe N.V.	AEX
ASML Holding N.V.	AEX
ASR Nederland N.V.	AEX
Gemalto N.V.	AEX
Heineken N.V.	AEX
ING Groep N.V.	AEX
Koninklijke Ahold Delhaize N.V.	AEX
Koninklijke DSM N.V.	AEX
Koninklijke KPN N.V.	AEX
Koninklijke Philips N.V.	AEX
Koninklijke Vopak N.V.	AEX
NN Group N.V.	AEX
Randstad Holding N.V.	AEX
Signify N.V.	AEX
Unilever N.V.	AEX
Wolters Kluwer N.V.	AEX
Adyen N.V.	AMX
AMG Advanced Metallurgical Group N.V.	AMX
Arcadis N.V.	AMX
ASM International N.V.	AMX
BE Semiconductor Industries N.V.	AMX
Corbion N.V.	AMX
Fugro N.V.	AMX
Grandvision N.V.	AMX
IMCD N.V.	AMX
Intertrust N.V.	AMX
Koninklijke BAM Groep N.V.	AMX
Koninklijke Boskalis Westminster N.V.	AMX
OCI N.V.	AMX
PostNL N.V.	AMX
SBM Offshore N.V.	AMX
Sligro Food Group N.V.	AMX
Takeaway.com N.V.	AMX
TKH Group N.V.	AMX
TomTom N.V.	AMX