Responsible reporting

Business responsibility and sustainability reporting have become buzzwords for corporate entities. According to a survey by a large accounting firm, only 26 reports were available worldwide in 1992. In 2010, the number increased to 5,593. This is because the demand for accountability in aspects such as the environment, customers, and employees is getting louder.

To enhance the quality of reporting by listed entities, SEBI has mandated the top 100 listed entities (based on market capitalisation) at the Bombay Stock Exchange and National Stock Exchange to include business responsibility report in their annual report. Others may do so voluntarily.

SEBI has prescribed nine principles for business responsibility reporting, including conduct of business with ethics, transparency and accountability; provision of goods and services that are safe and contribute to sustainability; wellbeing of employees, human rights and environment protection.

The requirement is applicable from financial year ending on or after December 31, 2012. A listed entity which submits a business responsibility report to overseas agencies or stakeholders, in accordance with an international framework, can furnish the same after mapping it to the principles laid down by SEBI.

Key business impact

Business responsibility reporting is a step in the right direction. It will help entities report their economic, environmental, social, and governance performance in a credible way. In other words, it is expected to fill the gap between an entity’s financial performance and its true performance after considering non-financial metrics. It is also likely to help companies demonstrate that their business is not detrimental to the environment, society or employees.

It may positively impact aspects such as business valuation and brand reputation, help in attracting, motivating and retaining employees, as also in attracting capital.

The survey mentioned indicates that many global companies are beginning to look at sustainability as a revenue driver. A majority of the top-ranked factors for driving sustainability initiatives are related to retaining or increasing revenue — 87 per cent of respondents cited changes in consumer demand and brand risks.

Practical issues

Many entities have some element of business responsibility reporting in place, which, however, may not be aligned to their business strategies. The management needs to review and align these principles with business goals.

Based on the responses to the survey, it may be seen that although business responsibility reporting is on the rise worldwide, the tools remain rudimentary, even primitive. A majority of the companies use spreadsheets, centralised databases, emails and phone calls as principal tools; only 24 per cent use packaged software. Respondents also mentioned difficulties in finding the right data, assessing its credibility, and determining which data was suitable for reporting. This suggests that the state of reporting systems remains nascent.

Senior management, particularly the CFO, must take responsibility for establishing a solid reporting platform, including the management, measurement and reporting of the company’s sustainability-related activities.

The survey indicates that 65 per cent of CFOs worldwide are engaged with sustainability. One key reason for the growing involvement is an increase in analyst scrutiny of sustainability issues.

Third-party assurance on business responsibility reporting significantly enhances its authenticity. Twenty-five per cent of the respondents use third-party assurance, and another 42 per cent plan to do so in the near future. A top reason for assurance is the addition of credibility to the information presented.

SEBI’s decision to mandate business responsibility reporting for the top 100 listed entities is welcome. In future, it may extend it to other entities as well.

Vishal Bansal is senior professional in a member firm of Ernst & Young Global

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