Integrated Reporting

An initiative by Ministry of Human Resource Development

in Association with Banasthali Vidyapith

Annual Refresher Program in

Teaching (ARPIT) through
National Resource Centres (NRCs)

INTEGRATED REPORTING
Shri Amitava Banerjee

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INTEGRATED REPORTING

Conventional reporting
The primary feature of conventional reporting is that the same is Rule based. There are
certain governing rules of the Companies Act, 2013, Accounting Standards of ICAI, Income
Tax Act even other statutes like the MSME Act which define the reporting norms for the
financial statements. Further the time frame is for one financial year comprising of 12 months
and relates to only financial data from the past (i.e. the period ended on 31st March). The
other extended part is the director’s report which when combined with the financial statement
makes up the Annual Report shared with shareholders. The intent is very noble - the financial
statements give the figures and the directors being in charge of management explain the
implications of the figures. However for a listed company a Corporate Governance report, a
Management Discussion and Analysis, and Sustainability Report are also furnished along
with financial statements. Annual report given by the U.S Securities Exchange commission
is really likeable.

The annual report to shareholders is a document used by most

public companies to disclose corporate information to their
shareholders.

It is usually a state-of-the-company report, including an

opening letter from the Chief Executive Officer,
financial data,
results of operations,
market segment information,
new product plans,
subsidiary activities, and
research and development activities on future programs.

Reporting companies must send annual reports to their

shareholders when they hold annual meetings to elect directors

Primer on Integrated Reporting – Banasthali Vidyapith

Conventional reports vs. Integrated reports

Difference can be summarised between the two as follows:

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Primer on Integrated Reporting – Banasthali Vidyapith

Need of Integrated Reporting

The root of IR can be traced back to the principles laid down by The International
Organization of Securities Commissions (IOSCO). IOSCO is the international body that
brings together the world's securities regulators and is recognized as the global standard setter
for the securities sector. IOSCO develops implements and promotes adherence to
internationally recognized standards for securities regulation.

IOSCO Principle 16 states “there should be full, accurate and timely disclosure of
financial results, risks and other information that is material to investors´ decisions.”

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What is material information ?

The offer document must contain all ‘material disclosures’

which are necessary for the subscribers of the debt securities to
take an informed investment decision.

Schedule VII of SEBI (ICDR ) Regulations 2018

Such other information as is material and appropriate to enable
investors to make an informed investment decision.

GRI Report , Defining What Matters - Do companies and

investors agree on what is material?
“The report should cover Aspects that reflect the organization’s
significant economic, environmental and social impacts; or
substantively influence the assessments and decisions of
stakeholders.”

Primer on Integrated Reporting – Banasthali Vidyapith

A report by the Global Reporting Initiative (GRI) which is an independent international

organization has pioneered corporate sustainability reporting since 1997.

Primer on Integrated Reporting – Banasthali Vidyapith

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Materiality information for an investor means primarily like:

a) Local communities
b) Climate strategy
c) Operational eco efficiency
d) Occupational health & safety
e) Labour practices , Human rights
f) Water related issues
g) Code of conduct
h) Tax strategy
i) Biodiversity
j) Corporate Governance
k) Mineral waste management
l) Human capital development
m) Supply chain management

Governance of Integrated Reporting

IR movement started with the formation of International Integrated Reporting Committee,
2010 (IIRC) by the Prince’s accounting for Sustainability Project (A4S) and the Global
Reporting Initiative (GRI). In this respect I must quote from what The Prince of Wales had
said, we are at present “battling to meet 21st century challenges with, at best, 20th century
decision making and reporting systems.”

Therefore the IIRC aimed to deal with challenges of over-consumption of finite natural
resources, climate change, and the need to provide clean water, food and a better standard of
living for a growing global population. The IR framework helps in in tackling these issues on
clear and comprehensive information derived from the report in mandates.

The role of the IIRC is to respond to the need for a concise, clear, consistent and comparable
integrated reporting framework, reflecting the organization’s strategic objectives, governance
and business model, and integrating both financial and non-financial information.

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Integrated Reporting in India

With the Introduction of Business Responsibility Reporting (BRR) by SEBI, in 2012
importance of the concept is realised. SEBI has, vide circular dated August 13, 2012,
mandated inclusion of Business Responsibility Report (BRR) as a part of the Annual Report
for top 100 listed entities. The said reporting requirement was in line with the 'National
Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business
(NVGs)' notified by Ministry of Corporate Affairs, Government of India, in July, 2011.

Even though the ministry had actually laid the foundation stone in 2011 but as it was
voluntary not much attention was laid to it. But when it was made mandatory by SEBI, Indian
Incorporations had to wake up.

Later on Corporate Social Responsibility (CSR) Reporting Requirement as per the provisions
of Section 135 and schedule VII of Companies Act 2013 came into effect.

The base line of BRR was of adopting responsible business practices by a listed company as
accessed funds from the public and an element of public interest gets involved, for which
they are obligated to make exhaustive disclosures on a regular basis.

Basic elements of IR

IR is based on 6 C's or six kinds of capital, Financial, Manufactured, Intellectual, Human,

Social and Natural. It recognises the concept that all organisations depend on various forms
of capital for their success. It is important that all such forms of capital are disclosed to
stakeholders to enable informed investment decision making.

The contents of the six capitals can be summarised as follows.

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‘

What does 5 elements of IR talk of ?

Primer on Integrated Reporting – Banasthali Vidyapith

The general character of each category but not of the specific items in each category is
done. However, one should understand what items need to be identified in each category
for example, in financial capital the cash generated from operations, bank loans or
deposits from shareholders can be crucial.

In case of manufactured capital, Land, building, infrastructure, environmental

certifications etc. find relevance.

Intellectual capital on the other hand focuses on R&D expenditure, patents, internal
development of software, licences etc. are important.

Human capital takes into account training hours, capacity building measures and salary
as an example.

Lastly the social capital emphasise on items like Investment in skills development and
socio-economic development.

IR make businesses more responsible

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IR is a process of understanding the link between financial results and sustainability impacts,
which is vital for business managers, which is connected to both short and long term
business success. The core of IR is providing rich information and measurements, based on
which better decisions can be made.

A basic example:
A bank in our city has been financing your borrowing needs over the years without charging
processing fees. Apparently this will certify strength in the market for which the banker is
doing favour. But what if the actual fact is that the bank has no other large ticket borrower
and its monthly loan disbursement target gets fulfilled by lending and the cost of advocacy
for bank loan to other customers is much higher than the cost of processing fees forgone.IR
will bring out this fact, as it matches the processes and the figures. It is first concerned about
why and the focuses on how and then prescribes what is to be done.

Can IR prevent frauds?

IR is like block chain technology and is defined as an incorruptible digital ledger of

transactions that can be programmed to record virtually everything of value. In an excel file
where there is a main page and various pages can be inserted. Every time changes made in
any of the pages, the main page will get affected. Any change in any cell of a page will cause
the figures to change on the main page. This is called block-chain.

IR is a close function of six capital and even if any fudging is done in any of the capitals , like
any of the pages of the excel file the main figures will change.

Guiding principles

IR has seven (7) guiding principles based on which the information needs to be presented.

1. Strategic focus and future orientation

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2. Connectivity of information
3. Stakeholder relationships
4. Materiality
5. Conciseness
6. Reliability and completeness
7. Consistency and comparability

The beauty of the system is that all the above terms are self-explanatory and easily
understood. The IIRC has given some direction about each of them.

Guiding principles What it means

Strategic focus and future orientation
Connectivity of information
Stakeholder relationships
Materiality
Conciseness
Reliability and completeness:
Consistency and comparability:
 organization’s strategy,
 how it relates to the organization’s ability to
create value over time and
 to its use of and effects on the capitals
 Holistic picture of the combination,
interrelatedness and dependencies between
the factors that affect the organization’s ability
to create value over time
 the nature and quality of the organization’s
relationships with its key stakeholders,
 how and to what extent the organization
understands, takes into account and responds
to their legitimate needs and interests
 information about matters that substantively
affect the organization’s ability to create value
over time
 should be concise
 all material matters, both positive and negative,
in a balanced way and without material error
 consistent over time; and in a way that enables
comparison with other organizations

Primer on Integrated Reporting – Banasthali Vidyapith

Mahindra’s IR for 2017-18 and from pages 26 onwards give you a fair view of many
variables which otherwise if you wanted to look for in case of conventional report would
take ages to find out.

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IR for Indian entities is still an experiment and all other aspects of conventional reporting
still stay like the Corporate Governance report & Management Discussion and Analysis
report. IR is not an ultimate report now but only a way of presenting information.

IR in India is still in experimental phase. To be specific SEBI in 2017 encouraged 100

and then extended top 500 companies for voluntary adoption from FY 2017 -18 of the
BRR framework.

So the information related to Integrated Reporting may be provided in any of the three
ways:

Separately in the annual report or by incorporating in Management Discussion &

Analysis or by preparing a separate report (annual report prepared as per IR framework).

So the day, the third option becomes the only option (annual report prepared as per IR
framework) and all other report’s like CG, MD&A and CSR are dissolved and a true IR
reporting regime. India has made in India IR and it is called the National Guidelines on the
Economic, Social and Environmental Responsibilities of Business 2018.

Summary
These are teething problems, the issue is the mind-set. There are two main components in IR
a business model and sustainability initiatives. While all businesses have a strong business
model, the fact that a much smaller percent report on or document their sustainability
initiatives hence this gap needs to be filled. Once consciously map the sustainability
initiatives then many reports will go away and IR will serve its true purpose instead of being
an extra burden.

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