Voices on Reporting -

Transcription

1 Voices on Reporting - Integrated Reporting 10 May 2018 KPMG.com/in

2 Welcome 01 An introduction to Integrated Reporting 02 Business case for <IR> 03 Our perspectives 04 Thought leadership publications on <IR> 2

3 Speakers for the call Santhosh Jayaram Partner Karan Marwah Partner Sustainability KPMG in India Capital Markets KPMG in India 3

4 An introduction to Integrated Reporting 4 4

5 Changing investor expectations Then Now Focus on economic growth 100% 80% Components of S&P 500 Market Value 83% 68% 32% 20% 16% 84% 80% Focus on economic, social and environmental mega forces 60% 68% The externalities had little or no impact Neither rewarded for positive externalities nor paid for the damages 40% 20% 0% 17% 32% Intangible Assets assets Tangible Assets assets Source: Intangible Asset Market Value Study, 2017 The intangible asset value of the S&P 500 grew to an average of 87 per cent by 1 January, 2015, higher than what the tangible asset was valued back in 1975 Positive and negative externalities give an actual picture of the impact created Focus on value creation and estimating the true impact 5

6 Investors perception on non-financial information 89% of investors agreed that reporting should be forward looking information. 84% investors disagreed or strongly disagreed that companies clearly clarify identification of material non-financial issues. 92% of investors surveyed agreed or strongly agreed that financial and non-financial information should be more integrated. 76% of investors agreed or strongly agreed that qualitative policy statements are essential. Investors Source: What do investors expect from non financial reporting?, ACCA, June

7 Lacunae in current reporting Lacunae in current reporting Sustainability report Interconnectedness between financial and nonfinancial information Annual general meetings Information on websites Annual report Discloses historical performance and lacks forward looking information required for decision-making Organisations Brochures, newsletters Stakeholders Misses identification of externalities that affect the business model Social networking sites Scattered reporting hinders decision-making 7 7

8 Filling the gaps: What is Integrated Reporting Integrated Reporting <IR> is a new approach to business reporting that is built around the organisation s strategy to create and sustain value in the short, medium and long-term 8

9 What <IR> is not What it is: Integrated Reporting is an outcome of Integrated thinking and showcasing management approach, not about one Integrated Report What it is not: A sustainability report appended to a financial report or vice versa A marketing, advertising or PR initiative that obscures a more balanced view of the company s performance Reporting on qualitative information and emphasis on carbon saved, trees planted, water saved, etc. reporting for the sake of reporting 9

10 Where <IR> came from - IIRC The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. ACCA CIMA IFAC CDP GRI IFRS IFAC SASB WBCSD <IR> Breakthrough partners Partners Source: Structure of the IIRC, IIRC Website, May

11 How does <IR> help An Integrated Report gives: A better link between performance information and the drivers of business value A clearer picture of management progress when implementing a strategy The investor Better insight into the underlying health of the business Adoption of standard data management procedures thereby ensuring important decisions are made on reliable data Same management and assurance process for both financial information and sustainability issues Clear picture of the allocation of organisation s capitals, including natural, social and human capital The company Holistic view of the organisation s challenges, risks and opportunities Consistent message to a variety of stakeholders, from investors to regulators to local communities 11

12 The building blocks of <IR> Guiding principles Content elements Capitals 12

13 <IR> principles and elements <IR> principles <IR> content elements Strategic focus and future orientation Materiality Connectivity of information Stakeholder relationships Consistency and comparability Conciseness Reliability and completeness Stakeholder engagement and relationships 13

14 <IR> capitals and value creation Value creation is an integral part of <IR> which talks about the process that results in increases, decreases or transformations of the stocks of value (capitals) caused by the organisation's business activities and outputs ` Financial capital Human capital Manufactured capital Social and relationship capital Intellectual capital Natural capital Business model and strategy Capitals assessed relative to Capability and competitive position Combined value addition process Business Model Inputs Activities and process Outputs Outcomes 14

15 Road map towards an <IR> Step 5 Disclosing the future outlook and the organisation s readiness towards the same Step 3 Step 4 Identifying KPIs for material issues, setting short, medium and long-term targets and disclosing performance against targets Step 2 Linking material issues to business strategy and categorising them under relevant capitals Step 1 Redesigning the business model Determining material issues impacting the ability of an organisation to create value 15

16 Business case for <IR> 16 16

17 The internal business case Historical financial information on its own fails to provide a complete picture of business value Integrated Reporting offers the opportunity to align reporting around strategy and value creation, to demonstrate how the organisation uses capital and the extent to which it should continue to be invested in the organisation. Telling the value creation story Supporting a more informed assessment of value Efficient communication of resource allocation 65% respondents in an <IR> survey have seen positive impacts in their engagement with other stakeholders. 70% have seen more connections between different departments, leading to a broadening of perspectives. 95% of respondents in the survey say they have a better understanding of how their organisation creates value due to their Integrated Reporting journey. Source: ACCA report Insights into integrated Reporting 2.0 which highlights the results from review of 45 reports for accounting periods up to 31 March

18 The external business case SEBI Recommendation - Applicability of the mandates Jul 2011 Aug 2012 Nov 2015 Feb 2017 The Ministry of Corporate Affairs, Government of India introduced NVG that focussed on principles of social, environmental and economic responsibilities of business Business Responsibility Reporting (BRR) was mandated for top 100 listed companies for disclosures on nonfinancial parameters in the annual report. BRR to be prepared in line with 9 NVG principles Mandate extended for top 500 listed companies in India by market capitalisation (as on 31st March for a respective FY) SEBI recommended top 500 listed companies in India by market capitalisation (as on 31 March for a respective FY) to voluntarily adopt Integrated Reporting <IR> 18

19 The SEBI circular Integrated Reporting may be adopted on a voluntary basis from the Financial Year (FY) by top 500 listed companies. Content and information to be presented as per International Integrated Reporting Council (IIRC) Integrated Reporting Framework. The information related to integrated reporting may be provided as: In the Annual Report separately Part of Management, Discussion & Analysis Separatereport (e.g. sustainability report) In case the company has already provided the relevant information in any other report prepared in accordance with national/international requirement / framework, it may provide appropriate reference to the same in its Integrated Report so as to avoid duplication of information. SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/20 17/10 As a green initiative, companies may host the Integrated Report on their website and provide appropriate reference to the same in their Annual Report. 19

20 Current <IR> reporting in India FY witnessed the release of 6 Integrated Reports in the below sectors Integrated Annual Report Integrated Sustainabil ity Report Integrated Annual Report Integrated Sustainability Report Integrated Annual Report Integrated Annual Report 2 Reports 1 Report 1 Report 1 Report 1 Report Banking Oil and Gas Automobile Metal and Mining IT 20

21 Global perspective on <IR> Over 1,600 organisations in 62 countries adopting <IR>* Over 50% of CEOs, CFOs and COOs are moving towards <IR>* And over 35% say they will 2,000 participating in <IR> networks worldwide* 279 Japanese companies globally issued <IR> in 2016 a 27% increase from 2015** **Source: KPMG Survey of Integrated Reports in Japan 2016 *Source: AECA International Symposium,

22 Our perspectives 22 22

23 Advantages of <IR> 1 Promotes 2 Enhances 3 More 4 Clarity 5 Longer 6 Consistent integrated thinking access to different pools of capital informed decision-making on allocation of the organisation s capitals, including natural, social and human capital term view of the organisation's challenges, risks and opportunities message to a variety of stakeholders, from investors to regulators to local communities 23

24 Suggested next steps Capacity building (KPMG is an IIRC approved training partner in India) Start small - Introduce a brief section on <IR> as a part of the existing annual report Set up systems and protocols promoting integrated thinking and management within the organisation Identify material issues and link them to the organisation s strategic objectives Develop a fullfledged Integrated Report in alignment with the requirements of the <IR> framework 24

25 Thought leadership publications on <IR> 25 25

26 <IR> Thought leadership publications The KPMG Survey of Corporate Responsibility Reporting 2017 This is the tenth survey since the first edition was published in This year, KPMG member firm professionals reviewed corporate responsibility (CR) and sustainability reporting from 4,900 companies in 49 countries and regions, making this an extensive survey. The survey provides a detailed look at global trends in CR reporting and insights for business leaders, company boards, and CR and sustainability professionals. It is designed to offer guidance on good practice to corporate professionals who assess and prepare their own organisation's CR reporting. Actual number of Integrated Reports Big rises in Japan, Brazil, Mexico and Spain Report highlights: - In 2017, 14 per cent of reporting companies in both the G250 and N100 groups label their reports as <IR> - The biggest rises were in Japan, Brazil, Mexico and Spain *Source: The KPMG Survey of Corporate Responsibility Reporting 2017, KPMG International 26

27 <IR> Thought leadership publications KPMG survey of business reporting The report looked at corporate responsibility information to the extent included in annual reports, on the basis that this should address those issues that the organisation considers to be material to shareholders and investors. Many companies also provide additional information, aimed at a broad range of stakeholders in a separate report. Report highlights Integrated Reporting has not led to reporting bloat Many South African companies have seen Integrated Reporting as an opportunity to take a hard look at their full reporting suite in order that it was not purely additive. One company in our survey had managed a 70+ page reduction in the size of their full financial statements. *Source: KPMG survey of business reporting 2014, KPMG International 27

28 <IR> Thought leadership publications The future of corporate reporting: towards a common vision The report offers a range of views from opinion leaders in their respective fields with regard to themes, and their preferred direction for corporate reporting. The report begins with the premise that the current reporting model needs to be improved. But it is a matter of debate as to how and how far it should change. The objective in presenting the report is to encourage a debate. Report highlights one weakness that Integrated Reporting focuses on, by telling the company s story comprehensively and more effectively connecting all the information that is important for understanding the long-term health of the company. Many of those extolling the need for Integrated Reporting want to see a greater emphasis on Environmental, Social and Governance (ESG) issues. *Source: The future of corporate reporting: towards a common vision 2013, KPMG International 28

29 Glossary ACCA Association of Chartered Certified Accountants CIMA Chartered Institute of Management Accountants IFAC International Federation of Accountants CDP Carbon Disclosure Project GRI Global Reporting Initiative IFRS International Financial Reporting Standards SASB Sustainability Accounting Standards Board WBCSD World Business Council for Sustainable Development FY Financial Year NVG National Voluntary Guidelines 29

30 Q&A

31 Thank you KPMG in India contacts: Santhosh Jayaram Partner Sustainability Services Karan Marwah Partner Capital Markets E: Feedback/queries can be sent to:

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