In 2013, the International Integrated Reporting Council (IIRC) released a framework for integrated reporting . Integrated reporting is a new approach to corporate reporting which is rapidly gaining international recognition. Integrated reporting is one step ahead of sustainability reporting .
Annual financial information/statements + Annual sustainability information = Integrated reporting (One report)
Integrated reporting is founded on integrated thinking which helps to demonstrate the interconnectivity (co-creation) of strategy, strategic objectives, performance, risk and incentives which further helps to identify the sources of value creation.
Here, the word sources means capital which includes financial capital, human capital, manufactured capital, intellectual capital, social capital, natural capital.
PURPOSE
The aim of an integrated reporting is to tell the organization's stakeholders in a clear and concise manner about the company , its strategies , its risk & performance and linking its financial and sustainability performance in such a way that provides a holistic view about the organisation & its future prospects.
The ‘building blocks’ of an integrated report are:
Guiding Principles
These underpin the preparation of an integrated report, informing the content of the report and how information is presented. They include:
- Strategic focus and future orientation
- Connectivity of information
- Stakeholder relationships
- Materiality
- Conciseness
- Reliability and completeness
- Consistency and comparability
Content elements
The key categories of information required to be included in an integrated report under the Framework. They include:
- Organisational overview and external environment
- Governance
- Business model
- Risks and opportunities
- Strategy and resource allocation 6.Performance
- Outlook
- Basis of preparation and presentation
Why do businesses need integrated reporting?
Ans- Integrated reporting is an important tool in improving the understanding of the relationship between financial and non-financial factors that determine a company’s performance and of how a company creates sustainable value in the longer term. The need to promote financial stability and sustainable development by better linking investment decisions, corporate behaviour and reporting has become increasingly important. Both regulators and companies now realise the need for a fundamental change in reporting where the focus is not on the financial capital, but on demonstrating the value created by an entity while operating within its economic, social and environmental system.
INTERNATIONAL INTEGRATED REPORTING COUNCIL (IIRC)
The IIRC has stated that integrated reporting helps, "to build trust and confidence between companies and their investors and between markets and society as a whole."
- IIRC defines Integrated reporting as a process that results in communication by an organization, most visibly a periodic integrated reporting, about how an organization's strategy, governance, performance and prospects.
- It leads to the creation of value over the short , medium and long term
- The value creation concept is the backbone of integrated reporting . The central to this is the proposition that value is increasingly shaped by factors additional (such as environment, social, reputation, human capital skills and others )to the financial performance.
- The long-term vision is a world in which integrated thinking is embedded within the mainstream business practice in the public and private sectors, facilitated by corporate reporting norm.
Integrated reports allow companies to communicate their progress on multiple levels in a consistent way.
KEY STAKEHOLDERS OF INTEGRATED REPORTING
The key stakeholders of integrated reporting are :
- Organisations -integrated reporting helps organisations to understand and communicate their impact and how they create value in a holistic way. This can help improve relationships with all stakeholders, reduce cost of capital and facilitate improved long-term performance, reliance and sustainable development.
- Investors & other key stakeholders such as customers, employees & regulators - Integrated reporting provides an understanding of businesses and their prospects, enabling better Informed decisions.
- Society - Enhanced business and investor performance increases economic prosperity, while appropriate consideration and management of all the capitals over the short, medium and long term promotes sustainable development and financial stability.
What is the difference between Integrated Reporting and sustainability reporting?
Ans- Integrated reporting provides a more in depth look at how all material issues affect your business performance, such as ESG factors whereas Sustainability reporting is the basic process of assessing how your company's practices align with key industry standards and expectations, such as what is outlined in the Global Reporting Initiative.
Although the objectives of sustainability reporting and Integrated Reporting may be different, Sustainability reporting is an intrinsic element of integrated reporting.
What is the relation between Integrated Reporting and sustainability reporting?
Ans- Integrated reporting can be seen as a tool to help companies understand the risks associated with their operations (including those related to climate change), as well as providing transparency of how they function internally. Sustainability, which is part of the triple bottom line, means that companies should not only look at their immediate profits but also consider the environmental and social impacts of their decisions in order to protect stakeholders interests in the future.
INTEGRATED REPORTING AND GOVERNANCE
Integrated reporting can facilitate effective communication of the overall governance framework to stakeholders. It involves the consolidation of multiple aspects of an organisation's activities and operations and encourages articulation of how an organisation's strategy, governance, performance and prospects, in the context of its operating environment, can lead to value creation over time.
There are four pillars of governance -
1. Accountability
- To clarify the roles and responsibilities in an organization
- Defining who does what & how each role adds value to well run Organizations.
2. Transparency
- Refers to openness & clarity in internal & external reporting
3. Integrity
- This is at the heart of good governance practice & derives how decisions are made
the value the organization adheres to & its culture.
4. Stewardship
- This refers to how an organisation is 'steered or guided to achieve long-term sustainability.
- Stewardship is a key responsibility of the board and involves maximising the employment of human, financial, natural, intellectual, social and relationship, as well as manufactured capital to odd value and support the future prosperity of the organisation.
FUNDAMENTAL CONCEPTS
There are three fundamental concepts :
- Value creation, preservation or erosion for the organisation and for others.
- The capitals, which are identified in the Framework as financial, manufactured, intellectual, human, social and relationship and natural capital.
- Process through which value is created, preserved.
INTEGRATED REPORTING BY LISTED ENTITIES IN INDIA
SEBI's continuous effort has been to protect the interest of the shareholders and to safeguard their rights. With the aim of providing a concise communication about how an organisation's strategy, governance, performance and prospects creates value over time and to provide both financial and non-financial information about an organisation to the shareholders.
SEBI has mandated the requirement of submission of Business Responsibility Report ("BRR') for top 1,000 listed entities under Regulation 34(2)(1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 ("SEBI LODR"). The key principles which are required to be reported by the entities pertain to areas such as environment, governance, stakeholder's relationships, etc.
In terms of amendment to regulation 34 (2) (1) of LODR Regulations vide Gazette notification no.SEBILAD-NRO/GN/2021/22 dated May 05, 2021, it has now been decided to introduce new reporting requirements on ESG parameters called the Business Responsibility and Sustainability Report (BRSR).
Business Responsibility Report versus Integrated Report?
Ans-Business Responsibility Report (BRR) acts as a tool to help companies understand the principles and core elements of responsible business practices and to start implementing improvements which reflect their adoption in the manner the company undertakes its business.
Whereas, integrated reporting is one step further instead of reporting on financial performance and sustainability performance separately, or even within the same annual report, integrated reporting intends to show how the company manages and integrates environmental, social and financial thinking into its business.
The concept of integrated reporting is being discussed at various international forums since 2009. Therefore, it is high time for us to also adopt such reporting framework in order to secure competitive edge globally.
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