Introduction.

An integrated report is a document in which a company integrates not only financial information but also non-financial information such as environmental, social, and governance (ESG) information to comprehensively demonstrate the organization's value creation process.

In recent years, ESG perspectives have become increasingly important in investment decisions, and companies are required to disclose their efforts in a more concrete and transparent manner. As a result, the number of integrated reports issued is rapidly increasing, and ESG information disclosure by companies is becoming increasingly important. The graph below shows the trend in the number of integrated reports issued from 2004 to 2023, and the increasing trend is clear.

This article analyzes changes in ESG-related keywords in a number of integrated reports of Japanese companies and discusses recent trends.

Why is Integrated Reporting getting so much attention?

It is becoming increasingly difficult to understand the true value of a company based solely on traditional financial reporting. This is due to the increasing importance of intangible assets in corporate value, and the growing interest in non-financial information as a result of the expansion of ESG investment. In addition, the importance of long-term corporate value creation, not just short-term performance, is being recognized, and there is an increasing need to meet the information needs of diverse stakeholders, such as investors and society at large.

In contrast, an integrated report presents an overall picture of corporate activities by comprehensively reporting the following elements

• Financial Information (Operating Results, Financial Position, Cash Flows)
• Corporate Philosophy and Vision
• business model
• ESG (Environmental, Social and Governance) Initiatives
• Human capital and intellectual property
• Risks and Opportunities
• Medium- to Long-term Strategy

An important characteristic of an integrated report is that it has a future-oriented perspective and presents a company's value creation story. The report relates financial and non-financial elements and focuses on information of high importance, while devising ways to convey necessary information in an easy-to-understand manner. Thus, integrated reports are playing an increasingly important role as a tool for dialogue between companies and society toward sustainable development.

ESG Keyword Change and Analysis

In analyzing changes in keywords in the companies' integrated reports, we scored the importance of each keyword.

Scores were calculated using the TF-IDF method, which is widely used in the field of text mining to quantify the importance of a particular word in a document, taking into account not only the simple number of occurrences but also how distinctive the word is. The higher the score, the more important the word is. A higher score suggests that the word is used more frequently in the integrated report and is a topic of high corporate focus.

This analysis covers all integrated reports from 2019 through 2023. The analysis for 2024 is currently underway and additional discussion will be conducted based on future trends.

The top five keywords in the 2023 Integrated Report are as follows

ESG-related words such as "society" and "environment" ranked high on the list. This indicates that companies are stepping up their efforts to address environmental issues and social responsibility, and tend to actively communicate this in their integrated reports.

The words "risk" and "growth" are also high on the list, indicating the growing importance of managing the risks that companies face in order to achieve sustainable growth.

Next, we will look at specific trends for 2019-2023.

Sustainability and Sustainable Management

The first thing to note is the surge in the keyword "sustainability.

Words like "sustainable" and "sustainable" also score well. These words indicate a company's management approach to both long-term growth and environmental and social responsibility.

As investors and stakeholders increasingly demand ESG information disclosure, companies are required to take a more concrete approach to reducing their environmental impact and fulfilling their social responsibilities. building a sustainable business model is essential to increasing corporate value through expanded ESG investment.

Climate Change and Decarbonization Strategies

Climate change" and "reduction" are among the keywords that frequently appear in integrated reports. This trend may reflect the strengthening of carbon neutral policies and the acceleration of companies' efforts to transition to a decarbonized society.

Companies need to take concrete decarbonization measures, such as managing greenhouse gas emissions and using renewable energy. Emissions reductions throughout the supply chain are required, and investments are being made in initiatives such as sustainable procurement and energy efficiency.

Strengthening Corporate Governance

References to "governance" are also on the rise. Particularly since 2021, the revision of Japan's Corporate Governance Code and the influence of foreign investors have led to calls for greater corporate transparency. As a result, efforts to improve the quality of corporate governance, such as increasing the transparency of management decision-making processes and strengthening the independence of the board of directors, are accelerating.

For investors and shareholders, corporate governance is an important aspect of investment decisions and will continue to be one of the most closely watched areas.

Conclusion

This article analyzes changes in ESG-related keywords in integrated reports from 2019 to 2023. The results reveal that ESG is an important part of corporate strategy and that interest in environmental issues and social responsibility is further increasing.

Companies are expected to go beyond mere information disclosure to intensify their actual efforts and clearly communicate the results of those efforts. the importance of ESG will continue to grow, and companies are expected to keep a close eye on these trends and adapt their strategies accordingly.

Reference: Scores for each word by year

*"-" indicates that the score is less than 3.5.

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Commentary] Integrated Reporting - For Increasing Transparency in Corporate Activities
https://aiesg.co.jp/topics/report/240322_integrated-report/
Commentary] Toward a New Grand Design for Corporate Information Disclosure: The Fourth Interim Report of the Advisory Group on Corporate Information Disclosure, Explained in an Easy-to-understand Format
https://aiesg.co.jp/topics/report/250207-disclosure-of-corporate-information/