[The following guest post is contributed by Nivedita Kannan, who is an associate company secretary with a keen interest in corporate law. She can be reached at email@example.com]
The Securities and Exchange Board of India (SEBI), by way of its circular issued on 6 February 2017 (Circular), advised the top 500 listed companies in India to adopt Integrated Reporting on a voluntary basis from the financial year 2017-2018. Prior to that, such companies have been required to submit a Business Responsibility Report (BRR) that pertains to areas such as environment, governance, stakeholder relationships, and the like. Since the Circular does not mandate preparation of Integrated Report (IR), a company may voluntarily opt to prepare IR. In such a case, the company has to provide cross reference in its IR to information that has already been disclosed in accordance with any other national or international requirement / framework.
Integrated Reporting by the International Integrated Reporting Council (IIRC)
The guiding principles for the preparation of an IR, including its content and how information is to be presented, have been prescribed by the IIRC. The aim is to allow organisations to provide a concise integrated report allowing an insight into their strategy and the connectivity between factors that affect an organisation’s ability to create value over a period of time. Such factors encompass external environment that affects an organisation, the types of capital used by the organisation (as named below) and how the organisation interacts with the external environment and types of capital to create value for its stakeholders over time.
Purpose behind the Circular
With the Circular, SEBI intends to align reporting by Indian companies with international standards with the following dual purpose:
1. Improved disclosure standards through increased credibility by those charged with governance in the company; and
2. Providing stakeholders and interested shareholders with relevant information useful for making investment decisions.
How does IR differ from BRR?
Although the intent behind both the reports is the same viz., better disclosure regarding the company, yet the approach between both the reports is different. BRR is strictly to be carried out on the basis of the format prescribed by SEBI, whereas the IR does not contain any prescribed format for reporting. In fact the IR only sets out certain parameters / principles which need to be used by those charged with the responsibility of preparation and presentation of the IR to determine which matters are material and how they are disclosed.
It is also important to note that the IR does not provide for disclosure of specific financial parameters as required in Section B of Annexure I to BRR’s suggested format. In fact, the IR moves beyond disclosure of mere financial details to further classify capital (apart from financial capital) as manufactured capital, intellectual capital, human capital, social and relationship capital and natural capital. The intent behind such micro-classification is for companies to assess the effect of such types of capital on the organisation’s ability to create value over time and the availability of such capital to meet future demands.
The detailed principles relating to the IR can be viewed here.
The Circular is clearly another step towards bringing parity in disclosures by Indian companies with international reporting. However, given the principle-based approach of the IR, the Circular is a clear indication that SEBI also intends to make future reporting by Indian companies such that they are not merely confined to prescribed formats.
- Nivedita Kannan