NEW DELHI: After two episodes of the Leadership Series dedicated to CSR and Sustainability, it is now time to delve into the Corporate Governance issues and who else better to speak about it, than Richard Howitt himself, the Chief Executive Officer of the International Integrated Reporting Council, in response to an exclusive interaction with Ms. Nayan Mitra in his recent visit to India from London.
What role should a country’s legal system play to enhance the effectiveness of integrated reporting?
Integrated reporting has made enormous progress globally through individual companies who have piloted and championed it, and through ‘soft law’ initiatives such as inclusion in corporate governance codes or stock exchange listing requirements. The recent SEBI call for the top 500 listed Indian companies to undertake integrated reporting is within precisely this spirit. So is the commitment from BSE to build integrated reporting in to their corporate governance scorecard, to assess companies listed on their stock exchange. Therefore, the most important next thing the Indian Government could do is to also endorse these moves.
There is also a role for regulators to remove barriers to adoption. In India, the ‘Business Responsibility Reporting’ has been an excellent initiative for companies to address their societal role.
Integrated reporting helps companies to genuinely understand the wider impacts of the business and to change business strategy, to minimize risks and maximize opportunities which are not predicated on short-term financial interest alone. Many Indian companies who I have spoken to would support a change in this direction. Infact, the ‘Business Responsibility Reporting’ today is predicted to evolve into the integrated report of tomorrow.
Beyond that, we need a country’s legal system to promote the types of behaviours that integrated reporting calls for – providing incentives for companies that plan for the long term; recognition for businesses that are trusted in their communities; on the side of businesses that are responsive to the needs of their workforce; and supporting those that are conscious of providing for the environment around them.
I truly believe that through this new way of thinking – that takes into account the wider aspects of value creation – we can help secure financial stability and sustainable development in India’s markets and I look forward to working with our partners in India to build on this momentum in the coming years.
How are different elements of the integrated report emphasized according to capital, performance and reporting requirements?
The first emphasis of an integrated report is for the company to tell its own individual story of how it is seeking to achieve long-term value creation for the benefit of the business itself and for its investors. The whole point is to move away from the old mindset that reporting is principally done only because it is a regulatory requirement. Strong research evidence shows that companies who undertake integrated reporting achieve a lower cost of capital, a higher share value and a longer-term investor base.
However, in doing this, there is a broader recognition that companies affect what integrated reporting categorizes as the six capitals: financial, manufactured, intellectual, human, social and relationship, and natural. However, not all the capitals will be relevant to every business and businesses might want to change the names to more appropriately fit their activities.
In its integrated report, the business communicates how it creates value by describing how it uses and effects the stocks of value that the business relies on, within this multi-capital approach. Using this language to communicate means a business is better able to talk about performance in a holistic and broader way.
By giving parity to the resources and relationships a business uses, describing any trade-offs as well as interdependencies, the organization will naturally be thinking more holistically about how it can create value going forwards. Financial capital is, by its nature, backward looking because figures provide a snapshot of a financial position at any given time. Through articulating and communicating your business model on the basis of the six capitals that we have identified, businesses are able to be focused on the future.
The International <IR> Framework is principles based and does not prescribe specific metrics or measurement methods. Those responsible for the preparation of the report need to use their own judgement to decide how they disclose performance and what information is material. This encourages the organization to view reporting as a process rather than a box-ticking exercise.
How does integrated reporting impact the need for transparency and accountability in contemporary organizations?
Many companies tell me that the integrated report helps build trust amongst their stakeholders and is a bulwark against unfair or unjustified criticism of the company’s conduct. We live in an age of instant and constant news. Anyone can break a story via social media and create a narrative that works to their own advantage. So being transparent and accountable is no longer an option for business: hiding bad news stories and covering up mistakes is not really an option. Integrated Reporting gives organizations the power to tell their story in their own way. When they are thinking about broader issues such as their employees or their supply chains and managing and measuring how these are working and contributing to the long term success of the company, businesses naturally become more robust. So I would not say that Integrated Reporting is adding to the constant insistence for transparency that we have today. I would rather say that Integrated Reporting is answering such demands in a business-friendly way – it is creating transparency with a purpose – weaving the golden thread through the information a company reports to ensure it is coherent and telling a story of value creation.
What are the strength/benefits of integrated reporting and it’s related challenges?
Not only have companies who undertake integrated reporting seen direct benefits in capital markets and improved relations with external stakeholders, but the new connectivity within the company has also contributed to improved productivity, morale and performance.
By helping businesses to think holistically about their strategy and plans, companies make informed decisions and better manage key risks.
A survey of businesses (‘Realizing the benefits’) participating in the <IR> Business Network has concluded:
- 96% see a positive impact on internal engagement, connecting departments and breaking down silos.
- 92% said it increased understanding of how they created value (at board and employee level, as well as with external stakeholders)
- 87% that publish an integrated report believe investors better understood their strategy
- 84% reported improvements in management information
- 79% report improvements in management decision making.
Do you think mandated integrated reporting is the future of corporate reporting?
The danger of mandating if seen as the principal route is that, it maintains the old mindset that reporting is done for compliance rather than for successful business strategy. If businesses perceive reporting to be a burden, then they are unlikely to embrace it. The International Integrated Reporting Council wants to reform existing corporate reporting to make it more concise material to the business and forward-looking. This is not about more, but better reporting.
To create the reporting environment we are after, it has to be seen as a benefit – which is why we are working hard with the Confederation of Indian Industry (CII), via the Indian <IR> Lab, to communicate these benefits. Major businesses such as Yes Bank, Wipro and Tata Steel are already championing this new approach and I am confident that this recent boost from SEBI will mean we have more companies following suit. So for now, I think that encouragement and signposting are more useful than mandating, whilst we give businesses a chance to catch on.
What role does integrated reporting play in our attempts to develop a sustainable society?
The Chairman of the Financial Stability Board, Mark Carney, famously talked about the ‘tragedy of horizons’which he defines as the market failure that arises from not taking into account today’s known future risks. The truth is that, for too long, we have been living in an era or irresponsibility – we are all guilty of it – when we know an issue will affect us in the future, but it isn’t affecting us now, it is all too easy to put it to the back of your mind.
But increasing numbers of initiatives are springing up around the world to change this – we are working with two more global coalitions – Focusing Capital on the Long Term and the Coalition of Inclusive Capitalism – aimed at countering this short term approach to doing business.
I believe that Integrated Reporting is a key tool to achieving the necessary change. Businesses have the influence, the human capital, the global reach and the investment capability to create a new system – a system that embeds a broad understanding of value creation so that future risks and opportunities can be incorporated into today’s business and investment decisions – a system that rewards patient financial capital that, if released, has the potential to transform entire economies through infrastructure investment, unlock productivity gains and boost future economic growth and employment. We will continue to work with partners around the world to build momentum towards Integrated Reporting so that this new system becomes a reality.
What is the future of integrated reporting in India?
It is not a coincidence that the BRICS economies – including India – are emerging as global leaders in integrated reporting. India is becoming one of the world’s greatest economic players and Indian businesses as major global companies. Integrated reporting as a concept is on its own fast-track journey in becoming the global norm. Leading Indian companies have identified this and recognize that the adoption of integrated reporting can be decisive in winning recognition and acceptance, that is vital in international markets.
I invite more Indian companies to join those who have pioneered integrated reporting in the country by joining the India <IR> lab and for major companies to join the international IIRC Business Network. If your company is interested in starting this journey for the first time, consider attending one of our training programmes, being rolled out in India and everywhere in the world. If you are a bank, an investor, a technology company, an accountant, an academic, even a public sector organization, consider the benefits of joining one of IIRC’s specialist networks. If you are part of an interest group or association, endorse integrated reporting. If you are a citizen, ask it of the companies from whom you purchases or in whom you work.
All around the world, these forces are working to make integrated reporting the norm in their own country and internationally. From our valued partners here, I know that is true in India too.
About Richard Howitt
Richard Howitt is the Chief Executive Officer of the International Integrated Reporting Council (IIRC), responsible for spearheading the adoption of Integrated Reporting globally and is a major thought-leader in international debates on good corporate governance, shifting investment to the long-term and inclusive capitalism.
Richard travels extensively internationally to meet with the over 1,500 global businesses who are adopting Integrated Reporting as well as with advocates of Integrated Reporting in policy and investor communities. He is a member of the B20 group of international business leaders who dialogue with G20 governments. Richard has spoken widely on issues of financial stability, sustainable development and capital market reform as part of the United Nations Forum on Business and Human Rights, the OECD Forum on Responsible Business Conduct, the UNCTAD Expert Group on International Standards of Accounting and Reporting and at other international fora.
Richard has been involved in the evolution of Integrated Reporting from the outset, as a member of HRH The Prince of Wales Annual Forum on Accounting for Sustainability, and was at the original meeting of the Forum which led to the setting up of the IIRC in 2009. He subsequently served as an Ambassador for the IIRC, representing it at international meetings including the Rio +20 UN Summit for Sustainable Development before taking over as the Chief Executive Officer in November 2016, succeeding the IIRC’s first Chief Executive, Paul Druckman.
Prior to being appointed to the IIRC, Richard served as an elected Member of the European Parliament for over twenty years and was the rapporteur on corporate responsibility. In this capacity, he was the key architect of the EU’s non-financial information directive, one of the biggest transformations in corporate disclosure anywhere in the world.
About Nayan Mitra
Nayan Mitra comes with a rich mix of diverse professional experience of over sixteen years. She straddles seamlessly between academics, social and corporate sectors. As a Developmental Consultant and Researcher, she works closely with some of the eminent Corporations and not-for profits of India as well as being in their Advisory and Board level. She has conducted several social researches for multi-lateral agencies; the findings of which have become important bases for sustainable action. She has been a resource person in eminent Institutions of higher learning in the areas of CSR and Corporate Governance and has important peer reviewed research publications to her credit in national and international Academic journals and books as well as delivered at key Conferences. Her book, ‘Corporate Social Responsibility in India: Cases and Development after the Legal Mandate’ along with co-editor Dr. Rene Schmidpeter is a first book of its kind that charters the development of mandated Indian CSR from a multi-stakeholder perspective, bringing in over 15 authors. This Book was first launched in Cologne, Germany and only recently released by the U.S Consul General in India, Mr. Craig Hall. She spearheads the India CSR Leadership Series by India CSR, where she has brought together distinguished leaders like Dr. Bhaskar Chatterjee, Shankar Venkateswaran. She was a finalist of the prestigious Chevening Gurukul Scholarship for Leadership and Excellence – 2013, as conferred by the Foreign and Commonwealth Office (FCO) of the British Deputy High Commission.
Disclaimer: The thoughts captured in the interview is solely that of the interviewee. The views expressed by the author in this feature are entirely her own and do not necessarily reflect the views of India CSR.
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