Name: Mashumi Sankhe

Class: CSR
PRN No: 1062190809
Roll No: 19MBACSR049
Subject: Sustainable Finance
Course Code: MCR603A

Q.1.Answer:

Integrated reporting:

Integrated reporting is a new domain in accountancy that aims to enhance the scope of corporate
reporting. Unlike traditional approach, integrated reporting attempts to report the value creation
process of an organization. It refers that both financial as well as non-financial factors are
responsible for development of sustainable value addition for an organization. The framework of
integrated reporting includes six capitals:

1. Financial Capital
2. Human Capital
3. Manufactured Capital
4. Intellectual Capital
5. Social and Relationship Capital
6. Natural Capital

Traditional financial reporting:

The reporting of financial results and disclosures of a company to its stakeholders is known as

‘Financial Reporting’. It can be of two types; external financial reporting and internal financial
reporting. External financial reporting is done by the publication of ‘financial statements’ and is
governed by the international standards on accounting or generally accepted accounting principles.
Internal financial reporting can be formulated in the way that best suits the management to make
well-informed decisions.

Difference between integrated reporting and traditional financial reporting are as follows:

1. Relevant governing body:

Traditional financial reporting is governed by IFRS’s (International Financial Reporting Standards)

which are issued by IASB (International Accounting Standards Board). These standards provide
detailed guidelines about the recording, summarizing and presentation of financial results of an
entity. Integrated reporting has been developed by the International Integrated Reporting Council
(IIRC). IIRC is an international coalition of regulators, investors, firms and non-governmental
organizations.
2. Objective:

The main objective of ‘traditional financial reporting’ is to provide reports on structured information
about the financial position and financial viability of an organization to the relevant stakeholders
especially shareholders. These reports must be prepared in compliance with the relevant standards.
However, the main focus of integrated reporting is to report on all aspects of an organization
including financial reporting, sustainable reporting, management commentary and corporate
governance in a single report. Additionally, integrated reporting emphasizes upon
increased efficiency in corporate reporting by improving the standard of information available to
investors of financial capital.

3. Application and comparability:

Financial reporting is currently adopted by almost all industrialized countries. As these reports are
prepared according to the international accounting standards, the results of these reports are
comparable among organizations. This is because implementation of these standards promote
common business language which could be interpreted and understood even in different
jurisdictions. Integrated reporting is not being adopted on a global scale yet, especially in developing
economies. One major reason for this is that organizations do not want to indulge their capital in
such sectors of reporting which do not derive direct and tangible financial inflow.

4. Organizational involvement:

Traditional financial reporting engages only those stakeholders that are important. The focus of
traditional financial reporting is on the communication of financial matters of an organization.
Integrated reporting aims to involve more stakeholders for greater collaboration amongst different
facets of an organization. This makes it viable for the organizational members of different
departments to collude and achieve congruent strategic objective. Integrated Reporting prevails a
sense of corporate social responsibility, because if the organization will engage society at large into
its operation, not only society will be benefited but positive effects will reciprocate in terms of good
reputation for the organization.

5. Information:

The information gathered while traditional reporting of business transactions and for preparing
financial statements of a company is mostly of financial nature. Therefore, the management of a
company keeps an outdated approach and pay heed only to financial results of the company. These
reports can only provide an orthodox analysis of financial dealings of the company while integrated
reporting indulges other aspects like the environment in which the company is operating, the
available resources a company etc. Additionally, integrated reporting compels managers to not just
rely on past data but to gather additional information about the business processes and future
prospects of the organization. This incremental knowledge can enhance ways to exploit these
resources or capitals in best possible manner to meet organizational goals.

The Six Capitals of IR are:

 Financial Capital is the pool of funds that is available to an organization for use in the
production of goods or the provisions of services & obtained through financing, such as
debts, equity or grants, or generated through operations or investments (retained earnings)
  Manufactured Capital comprises manufactured physical objects that are available to an
organization for use in the production of goods or the provisions of services, including
buildings & equipment.
 Intellectual Capital (often called intangibles) include intellectual property such as patents,
copyrights & software, and ‘organizational capital’, such as tacit knowledge, systems,
procedures & protocols.
 Human Capital covers people’s competencies, capabilities, experience and their motivations
to innovate. It includes job satisfaction and health and safety conditions.
 Social and relationship capital refers to the institutions and the relationships, within &
between communities, groups of stakeholders & other networks and the ability to share
information to enhance individual and collective well-being.
 Natural Capital refers to all renewable and non – renewable environmental resources,
ecological services (example. water purification or climate stabilization) & processes that
provide goods or services that support the past, current or future prosperity of an
organization.

Q.2.Answer:

Green Finance - Green financing is to increase level of financial flows (from banking, micro-credit,
insurance and investment) from the public, private and not-for-profit sectors to sustainable
development priorities. A key part of this is to better manage environmental and social risks, take up
opportunities that bring both a decent rate of return and environmental benefit and deliver greater
accountability.

Green finance is a systematic programme involving multiple stakeholders such as Government,

financial institutions, and regulatory agencies. Beyond framing the

Policy framework and guidelines for green finance, to create an appropriate incentive and restrictive
mechanism, green elements will need to be incorporated into laws and

Regulations of the countries including fiscal, taxation, monetary, credit and industrial policies. This
cannot be done in isolation and will need a well-coordinated approach amongst various actors
including the Ministry of Finance, Ministry of Environment Forest and Climate Change, State
Governments, and regulatory bodies such as the Reserve Bank of India (RBI) for laws on commercial
banks and financial institutions, the Securities Exchange Board of India (SEBI) for securities law, and
the Insurance Regulatory and Development Authority of India (IRDAI) for insurance law.

Green financing could be promoted through changes in countries’ regulatory frameworks,

harmonizing public financial incentives, increases in green financing from different sectors,
alignment of public sector financing decision-making with the environmental dimension of the
Sustainable Development Goals, increases in investment in clean and green technologies, financing
for sustainable natural resource-based green economies and climate smart blue economy, increase
use of green bonds, and so on.

Green Bonds - Green bonds is one of the financing options available to private firms and public
entities to support climate and environmental investments. It is a debt security that is issued to raise
capital specifically to support climate related or environmental projects.
In addition to evaluating the standard financial characteristics (such as maturity, coupon, price, and
credit quality of the issuer), investors also assess the specific environmental purpose of the projects
that the bonds intend to support.

The World Bank (International Bank for Reconstruction and Development or –IBRD–) launched the
first labelled green bond in 2008 in the amount of SKr 3.35 billion (approximately US$440 million).6
The rationale for this first green bond was threefold:

• First, it responded to specific demand from Scandinavian pension funds seeking to support
climate-focused projects through a simple fixed-income product. It also fit well with IBRD's efforts to
cater to investors interested in sustainable and responsible investing (SRI).

• Second, it supported the World Bank's strategy to introduce innovation in climate finance.

• Third, by focusing on climate change mitigation and adaptation projects, World Bank Green Bonds
helped raise awareness among investors and the financial community about how developing
countries can take action on climate change but also stand to be affected by it.

Green bonds allow issuers to reach different investors and promote their environmental credentials.

For example, the World Bank (IBRD) designed the green bond as part of its overall bond program to
cater to sustainable and responsible investors and promote its support of climate change projects in
its borrowing member countries. As a multilateral development cooperative, IBRD offers the same
pricing in its lending to all its member countries in lending rates that reflect its total average funding
cost plus a percentage spread. Because IBRD green bonds are part of its general funding program,
lending rates for projects included in IBRD’s green bond program receive the same treatment as all
other IBRD loans.

In the case of International Finance Corporation (IFC), green bonds are aimed at its renewable
energy investments and energy efficiency investments. IFC has a US$84 billion balance sheet and is
rated triple-A. It has funded its investments primarily by issuing bonds since 1989. The bond
program for 2016 is US$17 billion, to be raised by accessing various markets including green bonds
for the additional value of investor diversification. IFC’s green bonds attract new investors and
highlight IFC’s work in providing climate-smart solutions to emerging-market private sector clients.

Steps followed by bond issuers:

 Define project selection criteria.

The issuer defines the kind of green projects it seeks to support with green bonds. For the World
Bank, such eligible projects must support the transition to low-carbon development and climate-
resilient growth. The selection criteria are often reviewed and assessed by an external expert party
to provide investors the assurance that they meet generally accepted technical definitions.

 Establish project selection process.

All World Bank projects –including the projects supported by its green bonds– undergo a rigorous
review and approval process, which includes early screening, identifying and managing potential
environmental and/or social impacts, and obtaining the approval of the Bank's Board of Executive
Directors. Subsequently, environmental specialists then screen the approved projects to identify
those that meet the World Bank’s green bond eligibility criteria

 Earmark and allocate proceeds.

The issuer discloses how it will separate green bond proceeds and make periodic allocations to
eligible investments.

 Monitor and report.

The issuer monitors the implementation of the green projects and provides reports on the use of
proceeds and the expected environmental sustainability impacts.

Q.4.Answer:

Externalities are impacts generated by one economic actor, which are felt by others, but the market
doesn’t bring these impact back to affect the actor that originated them.

The most economistic model cannot escape its own proofs that externalities are signs of market
failures. With efforts to "internalize" the costs of economic activity that have been "externalized" to
the natural world. The economic actor, X, who can avoid the costs of his/her economic activities by
leaving them to be borne by A, B and C, generally has some or all of the following characteristics: -- X
is either a single actor or else a small group, and is able to organize in pursuit of clearly perceived
goals. -- X possesses knowledge, in particular of what is in his/her interest; s/he also knows what
s/he is doing (and may deliberately conceal certain actions from A, B and C). -- X possesses economic
power. -- X possesses political power. 2 By contrast, A, B and C are apt to be relatively small actors,
diffuse, unorganized, ignorant of how they are being affected by X, possessing fewer financial
resources, and (largely because of these characteristics) lacking in political power.

A few reasons for hope The environmental movement has taken the lead, first by increasing the
knowledge possessed by A, B and C – informing those affected by negative externalities about the
ways in which economic actors may be off-loading some costs of their activity in the form of
environmental degradation or threats to the health and safety of workers, neighbours, consumers
and other stakeholders. Environmental groups and movements, as they work to inform A, B and C,
are also taking advantage of the communications revolution to overcome the disadvantages of
diffuseness, and are assisting the organization of those adversely affected by economic externalities.

If a firm benefits from hiring someone, and then causes health or other costs that it doesn’t have to
pay – and someone else does – the market is not working properly. Other people than economists,
hearing about such externalities would talk about it in the more common terms of fairness. The
result, in any case, is that here is a rare and precious case where we are all in agreement.

Taxes are one solution to overcoming externalities. To help reduce the negative effects of certain
externalities such as pollution, governments can impose a tax on the goods causing the externalities.
The tax, called a Pigovian tax—named after economist Arthur C. Pigou, sometimes called a
Pigouvian tax—is considered to be equal to the value of the negative externality. This tax is meant to
discourage activities that impose a net cost to an unrelated third party. That means that the
imposition of this type of tax will reduce the market outcome of the externality to an amount that is
considered efficient.

Subsidies can also overcome negative externalities by encouraging the consumption of a positive

externality. One example would be to subsidize orchards that plant fruit trees to provide positive
externalities to beekeepers.

Governments can also implement regulations to offset the effects of externalities. Regulation is
considered the most common solution. The public often turns to governments to pass and enact
legislation and regulation to curb the negative effects of externalities. Several examples include
environmental regulations or health-related legislation.