Integrated reporting by Tata Steel

Are your profits coming at the expense of the society? Is your business a zero sum game? Integrated reporting (IR) that attempts to put a value to social and environmental capital that goes into the functioning of an enterprise is taking final shape. Jane Diplock, director, International Integrated Reporting council (IIRC) said the draft global framework for integrated reporting is expected to be released by April. IIRC is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. Speaking from New Zealand over a video call at a conference organised by Asian Centre for Corporate Governance and Sustainability, Diplock termed IR as the next level of evolution of corporate reporting and holds the key for ‘restoration of financial stability’. She also pointed out how investors with over $3 trillion assets under management, that represent about 20 per cent of the global investors, are already on the board the IR bandwagon.

tata steelDiplock pointed out that in India, Tata Steel was the first company to warm up to the concept. “Tata Steel is among the 100 large companies around the globe that are actively involved in the project.”  Tata group is closely associated with the project with Kaushik Chatterjee, group CFO, Tata Steel being the member of the working group that is developing the IR framework. The group also provide practical guidance, develop positions and make recommendations as appropriate to the Board and Council on matters submitted for its review in the context of the IIRC’s initiatives and activities.  Biren Bhuta, chief- corporate sustainability services, Tata Steel said the company could easily relate to the concept as it was in sync with much of what it was doing already. Bhuta, in a presentation, pointed out Integrated Reporting would help stakeholders move away from short term thinking based on quarter on quarter numbers. Integrated Reporting is expected to reflect the broad and longer-term consequences of the decisions organizations make, based on a wide range of factors, in order to create and sustain value.  It is said to enable an organization to communicate in a clear, articulate way how it is drawing on all the resources and relationships it utilises to create and preserve value in the short, medium and long term, helping investors to manage risks and allocate resources most efficiently. Bhuta says this will help stakeholders move to a “more medium and long term thinking.”

Bhuta expected version 1.0 of the IR framework to be published by end of 2013. According to advocates of IR, the current focus on an organisation’s financial statements does not accurately evaluate the value of the organization.   Financial reporting covers both financial performance and risk, and this will remain an important part of the reporting universe; it is, however, insufficient by itself to provide all the information than users now need for rational and high quality decision-making.  In a scenario where the majority of the information available to investors is historic, they are required to navigate a course around the next corner with reference only to a rear view mirror as if there were no road ahead.  IR seeks to be the route map that supports investment decision-making, reflective of the integrated thinking and decision-making within organisations. Accountants see the concept getting wider acceptance in the coming years, but have some concerns. PR Ramesh, chairman, Deloitte observed that integrated reporting would involve some amount of judgment which is inherent to accounting. “The challenge would be to move away from qualitative parameters to more objective parameters to facilitate comparison,” he said. Ramesh also pointed out how companies may be worried about disclosing too much as IR requires companies to reveal their business models. Another issue would be the cost, especially for medium and small companies. Diplock said, “if large companies see value and merits, it will be equally sensible for medium sized firms.”

-Business Standard