An integrated report is a concise communication about how an organization's strategy, governance, performance and prospects lead to the creation of value over short, medium and long term. An integrated report aims to provide insight about the resources and relationships used or affected by an organization to explain how the organization interacts these resources and relationships with the external environment.
Though financial reporting has always been the most important information referred to by investors and stakeholders, it tells just a part of the story. Integrated reporting aims to give a holistic view of the organisation by putting its performance, business model and strategy in the context of its material economic, social and environmental issues.
The Concept –
The ability of an organization to create value for itself enables financial returns to the providers of financial capital. This is interrelated with the value the organization creates for stakeholders and society at large through a wide range of activities, interactions and relationships mainly environmental and social. When these are significant to the organization’s ability to create value for itself, they are included in the integrated report.
For example, with a lot of global awareness around climate change, investors are looking at environmentally sustainable organizations and thus also evaluate investment options based on environmental factors like GHG emissions, water, energy and also social factors apart from the traditional financial and economic factors, to understand the true value of the organization in the long term. Many institutional investors and stakeholders too require the businesses to report in on both financial and non-financial topics of significance for true assessments.
Benefit to Businesses –
Integrated reporting benefits the businesses not just externally, but internally too. An integrated reporting exercise helps the organization understand the real risks and opportunities in both the short and long term. It establishes the dependence of financial performance on the non-financial parameters, which generally is ignored by most of the organizations leading to unpreparedness and inability or inefficiency in coping with the same. Integrated reporting helps the organization build sustainable processes, reducing costs and improving efficiency by influencing management strategy, policy and even business plans.
Integrated Reporting helps organizations build credibility, brand loyalty and trust by enabling stakeholders understand the organization’s true value based on both the financial and non-financial parameters. It also helps mitigating, and many a times even reversing, negative ESG (environmental, social and governance) impacts.
Integrated Reporting in the Indian Context –
As per the report on ‘India’s top companies for Sustainability and CSR 2016’, a study undertaken by IIM Udaipur, Futurescape and Economic Times, out of top 217 companies from diverse industries under study, around 130 companies had disclosed on sustainability reporting in 2014-15. On August 13, 2012, the Securities Exchange Board ofIndia (SEBI) has mandated Business Responsibility Reporting (BRR) for top 100 listed entities in their annual reports. The said reporting requirement is in line with 'National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business' (NVGs) notified by Ministry of Corporate Affairs, Government of India, in July 2011.
As an extension to the above mandate, on February 6th, 2017, SEBI has prescribed Integrated Reporting to top500 listed companies by market capitalization. With a view of growing importance of integrated reporting at international forums and increasing requirement of investors for both financial and non-financial information, SEBI has asked the companies to voluntarily disclose in an integrated manner.
However, with thousands of companies listed in India, a very little percentage does reporting on non-financial parameters. This implicates that integrated reporting as a part of the business integrated process is at a very nascent stage. However, with the growing significance of integrated reporting globally and prescription from SEBI, it is a sign for India catching up with the same.
For details on sustainability reporting – its significance to your organization, the procedures and long term benefits, do get in touch with us.