Analysis. Looking beyond financials

Integrated reporting and disclosures will be the new norm in the coming days in India. This report is part of Business Responsibility Reporting (BRR), which SEBI made the top 500 companies adopt on a voluntary basis from 2017-18 onwards.

Under Integrated Reporting, companies have to report not only financials but also governance, environment, stakeholder relations, etc.

These reports can now be shown under the management discussion and analysis section of the annual report or displayed separately under a different head.

Both positive and negative material factors are part of the report. It should be made in a consistent manner and should be able to compare the extent of additional value created by the firm individually.

The report will demand that corporates give more emphasis to environment and society, in their pursuit of economic maximisation.

The target audience is shifting from shareholders alone to other stakeholders. As the reporting starts aligning with global standards, anybody doing a fundamental analysis will be able to do intelligent research and point out potential pitfalls.

Integrated reporting includes the sustainability report also. Many companies find that financial reporting alone no longer satisfies the exact needs of stakeholders; it not only includes shareholders but encompasses customers, community, suppliers, etc.

A comprehensive list should be included under capital — financial capital, manufacturing, intellectual, human capital, social & relationship and natural capital.

The sustainability report of corporate entities must be about the economic, environmental and social impact caused by its everyday activity.

Sustainability reporting can be considered as synonymous with non-financial reporting, CSR reporting and more. Corporate sustainability indicates a new philosophy, as an alternative to traditional growth and profit maximisation.

Here, focus is also given to sustainable development comprising environmental protection, social justice and equity. Integrated reporting is a step ahead of sustainability reporting.

The aim of this report is primarily to communicate to the stakeholders about the company and its strategy and risks.

This is a way of linking financial and sustainable information together, giving a holistic picture altogether.

This reporting will definitely work against corporates indulging in greenwashing.

Basically, an integrated report aims at providing insight into the resources and relationships of an organisation.

The ability of an organisation to create value for itself enables financial returns to the providers of capital.

This is interrelated with the value the organisation creates for stakeholders and society at large through a wide range of activities, interactions and relationships.

When these are material to the organisation’s ability to create value for itself, they are included in the integrated report.

The present source of material widely used by shareholders to know companies are the annual report. Here the ultimate focus is on the financial aspect of the company alone.

This is not going to meet the appetite of a wider audience. The adoption of integrated reporting will make the canvas bigger, as investors can easily capture the direction in which the corporates are moving.

To move forward, companies must focus on interlinking the growth of the economy, environment and society.

The writer is Professor, Adi Shankara Business School

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