Dipankar Ghosh | Integrated reporting and beyond…

Companies have started taking steps in disclosing sustainability performance with some even indicating future plans and targets. Still, there remains a substantial gap in adopting a fully-integrated approach to reporting across financial and non-financial aspects.

The Corporate Social Responsibility (CSR) and sustainability reporting landscape in India has evolved tremendously in the last two decades. Earlier, reporting by organizations was limited to financial disclosures only; environmental, social and governance (ESG) issues were considered ‘non- financial’, and therefore unworthy of attention. However, over the past decades, due to increased demand of stakeholders, companies have started taking steps in disclosing sustainability performance, and some of them have even started indicating future plans and targets. Still, there remains a substantial gap in adopting a fully-integrated approach to reporting across financial and non-financial aspects, except for initiatives by a few.

One of the biggest hurdles in the path of adoption of the concept integrated reporting is the absence of ‘integrated thinking’ by the organization’s leadership. Other than the evolved few, most companies still do not fully recognize the linkages between business and sustainability. Sustainability is still viewed as a stand-alone activity.

The emergence of integrated reporting presents a new alterative, combining the financial, sustainability, management strategy and governance information in an comprehensive manner, not only providing information of historic performance, but emphasizing the concept of ‘value creation’ across ‘financial, manufactured, intellectual, human, social relationship and natural capitals,’ that the Integrated Reporting presents an opportunity for providing insights about business, environmental and social ecosystem in which it operates, and the inter-linkages, to all its stakeholders.

The benefit of this approach is not limited to external stakeholders. A research conducted by the IIRC has shown that, out of the total participants in its pilot programme, 93 per cent said this approach of reporting leads to better quality of data collection and 88 per cent said that it leads to improvements in business decision-making. Although the number of organizations publishing such reports is small today, globally, the increasing trend is clear and closer home in India, the awareness in on the rise.

As the business leaders in India today realize the value of communicating strategy and the value that it intends to create, the timing of Securities and Exchange Board of India’s (SEBI) recommendation towards integrated reporting last february was also perfect in providing a gentle nudge to those already in the process of making up their mind, to think differently and to initiate action. It encouraged others to be at least aware. While financial statements as per current statutory regulations are to stay, integrated report is viewed not just as a disclosure or communication tool, but a business tool as well.

Across the globe, many companies have started treading the path of integrated reporting; many matured corporates have gone another step ahead by mapping their sustainability performance to the financial gains or implications. One of the pioneering approaches was adopted by the footwear manufacturer Puma, where the company published an environmental profit and loss statement, presenting the cost to the planet incurred by the company across its operations and supply chain. The report aims to pinpoint the areas to develop more sustainable materials and methods providing an overview of emerging risks associated with various facets of business, such as availability of water for production, costs associated with greenhouse gas emissions, etc., to enable the company to make better, more informed business decisions that take account of environmental impacts as well as more traditional financial and operational considerations. Since then, many other organizations have adopted similar concepts with some variations, in demonstrating ’value’ of their sustainability related actions.

Simultaneously, emphasis for integrated reporting is coming from governments and stock exchanges all over the world. International Integrated Reporting Council (IIRC), a global coalition of regulators, investors,   companies,   standards   bodies, the accountancy professionals and NGOs, on   their   part,   are   collaborating   with World Business Council for Sustainable Development (WBCSD), Global Reporting Initiative (GRI), the World Bank, Ceres, Business for Social Responsibility (BSR), the Association of Chartered Certified Public Accountants and others, rather aggressively, for propagating the new and advanced reporting framework.

To the stakeholders of a company, sustainability   reporting   will   soon   be just the minimum requirement to demonstrate commitment. On the other hand, matured organizations are bound to   consider   integrated   reporting   as their opportunity to communicate and implement sustainability strategy and to create value for shareholders over short as well as long-term, while contributing to sustainable business and society.

 

The writer is partner, Thinkthrough Consulting Pvt Ltd (TTC). (with inputs from Vidushi Bhatt)