NAVIGATING THE EVOLUTION OF STATE-OWNED ENTITIES’S ANNUAL REPORTING

In the ever-changing landscape of corporate reporting, State Owned Entities (SOE) face a significant transformation in their annual reporting obligations. Over a decade ago, an annual reporting obligation was placed on SOEs by law, i.e. compliance with the Companies Act. This obligation did not come with further instructions, something I have termed as ‘’Knowyour-Parastatals’’ reporting. This reporting style was introductory. SOEs were reporting on Board and Executive introductions, organograms, and internal departmental details, primarily serving the information needs of the shareholders and the general public.

In recent years, a paradigm shift has occurred as the Government demands SOEs to become self-sustaining, introducing investors as a third stakeholder with an interest in the Annual Report.

The Annual Report had to evolve to cater for what the investors wanted to see in the document, the type of information that would allow them to make informed decisions about a particular parastatal. What kind of information can sway a purse to tilt to one’s side? A purse will tilt to where there is effective leadership, the governance controls are adequate, where the business conducted by an organisation are free of corruption and fraud, to an organisation that cares about the environment it functions in, and lastly to an organisation that effectively manages risk and gives comfort to an investment being safe. All these questions were espoused in the King IV Code that followed in 2016, recommending an Integrated Reporting approach.

Observing this trend, we note SOEs, including Botswana Fibre Networks (BoFiNet) have started adopting the King IV Code, attempting to cover various stakeholder interests in their reports. The current generation reporting style goes beyond the introductory elements, delving into CSR, governance controls, internal and external audit activities, risk mitigation plans up to providing outlooks. A significant shift in recent years has been the emergence of conversations among Corporate Governance professionals regarding Environmental, Social, and Governance (ESG) Reporting and Sustainability Reporting. The former requires an SOE to measure and report on how it is fairing on environmental, social, and governance issues, and the latter, while mostly financial based, requires a report that addresses economic, environmental and social performance.

While profitability remains crucial, the focus now extends to how an entity manages the risks and the value it adds to both the people and the planet. The evidence-based answer to these questions will indicate whether an SOE is sustainable or not.

The reporting style observed has begun to introduce these principles, but what is worth looking out for are the action updates on how they have fared past the introductions. A five (5)-year ESG curve for an organisation like BoFiNet would be worth seeing where SOEs are concerned.

ESG and sustainability reporting should be part of the Board conversation because it is what this reporting generation requires, anything short of it would be a non-communicative piece of paper with no value and wanting in justification for SOEs existence.