SEBI Chairman calls on CII to develop a roadmap for Integrated Reporting in India

Speaking on Integrated Reporting at the 9th Sustainable and Inclusive Solutions Summit organized by the CII-ITC Centre of Excellence for Sustainable Development, Mr U K Sinha, Chairman, Securities and Exchange Board of India, invited CII to develop a roadmap on integrated reporting for discussion with SEBI. Mr Sinha clarified that SEBI will not regulate disclosures that demand integrated reporting. He stressed on the need to first create awareness and build the environment that is experienced with integrated reporting. He suggested this approach based on SEBI’s experience in the past of gradually improving transparency via various clauses of the listing agreement.

Mr Sinha acknowledged that Integrated Reporting is the next step in the evolution of reporting and that it marks a fundamental change in the way corporates communicate with their stakeholders. Questioning if corporates in India are ready for Integrated Reporting, he said, ‘we will be working along with industry to know in an incremental manner about integrated reporting rather than forcing something from our own side’, while adding, ‘some of you might have seen that when we have moved towards certain aspects of corporate governance we have been very careful also to see that the trade and industry is prepared for the changes.’

Mr Y C Deveshawar, Past President, Confederation of Indian Industry, Chairman, Advisory Council of the CII-ITC Centre of Excellence for Sustainable Development and Chairman, ITC Limited, emphasized the importance of rethinking capitalism and the role of reporting in it. He argued that the kind of corporate reporting in India and the rest of the developed world cannot be the same because of the different challenges that exist in the developing countries. According to him, responsible capitalism needs to be progressed with businesses synergizing the creation of shareholder and societal value in three steps; first with consumer value; second with utilizing resources; and third by replenishing resources. ‘By reporting you can stimulate the company to begin to think along these lines,’ and therefore he says, ‘reporting is a good thing, because if you can look at your resources like low hanging fruits, you can begin to utilize your resources better.’

Quoting Mahatma Gandhi, Mr Paul Druckman, Chief Executive Officer, The International Integrated Reporting Council, said that happiness is when there is harmony in what you think, what you say, and what you do. This harmony is missing in what companies are doing. Few businesses, according to him, can point to one voice of execution, and integrated reporting brings that consistency and cohesiveness to the business. He also mentioned that transparency is required but the information should be in context. Being the CEO of IIRC, he says that, ’Integrated Reporting is not about more reporting. It is not an additional layer, it is more about cohesive and concise reporting. Not allowing irrelevant information to obscure the really important issues that are likely to affect the sustainability of the business model in the long term which creates a sustainable environment for us all’. The pilot companies working with IIRC have reported favourably to Integrated Reporting as it introduces them to best practices, helps the business get noticed and also spurs innovation.

The Next In Corporate Governance: Sustainability Embedded

Sustainability is more than just a corporate way of life. It’s also the solution to most of the world’s problems

The primary purpose of companies is to maximize shareholders wealth and supply goods and services to the customer. While bearing this purpose of its existence it has to execute many functions. These include delivery of products and services as per customer’s needs. For this it has to tap existing and new markets  with the help of sales and marketing functions in a manner that enhances brand equity and reputation. They employ adept manpower, train and skill them for a suitable jobs, build infrastructure and deploy technology, design and implement competitive strategy, counter risks to avoid major losses and foresee overall functioning according to set  rules and regulations.

This is the way business is done and it involves a web of departments, human resources, technology, and infrastructure. Risk management is an essential ingredient towards reaching this desired purpose. It comes in many forms: natural calamity like floods, cyclones, air pollution, disasters due to climate change, company specific risks like labour unrest, corporate fraud, money laundering and many more. Company’s success rests on how it mitigates these risks and avoids any pitfalls that threaten its value and equity.

It is the responsibility of boards along with CEO and chairman to direct the company to move in a particular direction. Thus their function within the company is of utmost importance. They govern the company by establishing broad policies and objectives, ensure the availability of adequate financial resources, approve budgets, and account to stakeholders for organizations performance. This function is very well termed as “Corporate Governance”.

Within the framework of corporate governance boards look at various issues affecting the company, its policies and objectives. It is also the backbone of any company which is a visage for any crisis and risk to knock on. It is important that the framework of sustainable business and corporate governance takes into account such risks within its functioning and mitigate their affect. Risks do not only affect companies but in varied forms affect society, economy and environment.

To manage such risks, continue to grow and remain relevant to changing markets, companies have to reinvent and reorganise themselves. According to an analysis conducted by the CII-ITC Centre of Excellence for Sustainable Development, over the period of four decades (from 1970 to 2010) 407 new companies have been added to the list of Fortune 500 companies. This means that around 407 companies of 1970 have lost it to Fortune 500 list in 2010. One reason can be increased competition from new companies or existing companies with better and enhanced working style; others can be mergers, acquisition, bankruptcy, etc.

Companies should reinvent in a manner that defines or responds to evolving sustainability trends and indicators. Sustainability is increasingly becoming the norm of economic growth and consumer lifestyles. It is not just about becoming green. Sustainability goes beyond climate change and greener planet to include socio-economic wellbeing of all people. Companies need completely different work-styles and business models that embrace economic, social and environmental issues and indicators in business strategies.

These new formats of business require sustainability to be embedded into corporate governance. Unless that happens, reinvention and reorganisation of companies is unlikely to take place successfully.

Framework for integration of corporate governance and sustainability not only focuses on the functioning of boards but also on the functioning of senior management. The management of the company ensures that the objectives of the company are met. Strategies are developed by senior management, their implementation is monitored by boards, and result sensed by stakeholders. These three parties are integral to corporate governance.

 

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The Next In Corporate Governance: Sustainability Embedded

For An Eco-Friendly Industry

Renewables, biofuels, green buildings and water-related products are frontier areas.

The state of the planet is grim. Carbon emissions are at their highest levels in human history – the last time the concentration of this greenhouse gas was so high, the Arctic was ice-free. This is the direct outcome of unregulated human action. In that context, World Environment Day is a great opportunity for all stakeholders to take stock of where we stand and where we must go from here.

The three key stakeholders to saving the environment are civil society, government and industry – each with its own unique role to play. But the ultimate responsibility of devising these solutions rests with industry.

Technological Possibilities

Studies show that Asia has nearly 100 million two and three wheelers vehicles which still use 2-cycle gasoline engines. Clearly, this is a challenge. Conversely, it is also a great opportunity for industry to introduce conversion kits to LPG or CNG, perhaps even low-cost quadricycles. Similarly, leading companies with innovative water management programmes are showcasing how by introducing new irrigation techniques they not only helped reduce the strain on the environment but also incrementally increased their profits.

The three stakeholders need to consider the growth requirements of our country vis-à-vis the challenge of sustainability.

Legal Issues

The Indian economy has benefited from substantial deregulation in the last 22 years – considerably reducing poverty and improving lifestyles. However, environmental challenges, too, have increased manifold. Many antiquated laws have only been incrementally improved to suit the new governance order.

We must find innovative approaches to environmental governance in India. This would require moving beyond the conventional ‘do no harm’ approach to a more proactive ‘do good’ approach. Unfortunately, the country’s current environmental regulations come under criminal laws that imply a ‘prohibit and punish’ regime instead. Under criminal law, companies are either subject to compliance or non-compliance but extent of compliance is not considered; consequently, there is lack of any incentive for businesses to go beyond compliance.

Industry, civil society and government should work together to evolve solutions to environmental challenges in a concerted and coordinated manner. A joint task force should examine current laws and identify outdated regulations with a view to bringing them in line with current industry models. Industry can extend this initiative to State governments as well. For example, India does not have a single location for waste segregation and urban waste is fast becoming a problem as the number of million-plus cities grows rapidly.

Performance assessment or evaluation for determining environmental impact and identifying solutions is a must for enterprises. Not only does this help align the firm to environmental regulations, it also offers a chance for reducing costs by minimising waste and introducing more efficiency into processes. .

Renewable Energy

A CII-Boston Consulting Group study on Indian manufacturing identified green products as the next big area of potential opportunity for the sector. It estimated that a quarter of cars sold in 2020 could be electric vehicles. The solar energy market is expected to grow 9 per cent annually till 2017, while other renewable energy markets are also growing. There are huge opportunities in green buildings, water related products and biofuels, composites and advanced materials, nanotechnology, artificial intelligence, or fuel cells.

Indian companies can establish the current ‘green baseline’, identify and assess risks to business. The government is already working on developing Green Public Procurement Guidelines which can offer new opportunities, once in place.

Sustainability As A Driver For Innovation And Profit

Finding solutions for the world’s most pressing problems – in particular, poverty and climate change – is no longer the exclusive domain of governments, aid agencies and NGOs. Entrepreneurs and business leaders too are demonstrating that almost no problem is too big to be tackled through innovation.

The fact that rapid economic growth is the only realistic means to lift the poor out of extreme poverty and the fact that most economic activities depend on products and services provided by the ecosystems, necessitates the ushering of a new business paradigm which enables rapid economic growth without compromising the capacity of the ecosystem to sustain, nurture and fuel economic development and human well-being.

Sustaining global economic development will demand a substantial shift in the role of industry by bringing innovation to drive sustainability and profit. India’s rapid emergence as a global economic player is being propelled in large substance by its business and industry sector, which is increasingly contributing innovative solutions for integration of development and environmental sustainability.

Interestingly, India and other emerging regions are breeding grounds for such innovative businesses and enterprises. They have recognised the challenge early, and are responding creatively, thus pushing the envelope for their prosperity. Local firms and multinationals that have localised themselves are most likely to lead and master the change. Going forward, India and other developing economies need to address poverty alleviation as well as sustainable routes to development. Resource-efficient solutions will help companies contribute to this task, as well as add to their global competitiveness. Exploring the conclusions in this report would allow companies to work out strategies that make them winners in a low-carbon economy. CII believes that sustainable development is the future of enterprise and that this report will act as a change agent to stimulate greater efforts towards this

Amidst the emerging trends in process and product innovation, mainly in response to sustainability drivers, the WWF and CII – ITC Centre of Excellence for Sustainable Development came together to explore how businesses can use drivers such as innovation and profits to tackle the twin challenges of poverty and climate change. The resulting publication brings together case studies of how businesses have targeted sustainability without losing sight of core business objectives. It reaches a number of broad conclusions that we believe will assist other companies to formulate their own roadmaps for sustainable growth.

 

The Report on ‘Indian Companies With Solutions That The World Needs’ by CII-ITC Centre of Excellence for Sustainable Development and WWF is the first product of the Centre-WWF partnership. Click to download the report.