Integrated Reporting - Opportunities and challenges for CEO’s / CFO’s of Indian Companies

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Many professional accountants today, are taken aback to hear that accounting as they know it is about to change forever. The Sustainability community today is talking about Integrated Reporting - a way of accounting for economic, social and environmental (ESG) impacts.

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Integrated Reporting - Opportunities and challenges for CEO’s / CFO’s of Indian Companies

  1. 1. Integrated Reporting Opportunities and challenges for CEO’s / CFO’s of Indian Companies Namrata Rana The Customer Experience Company
  2. 2. Sustainability Reporting • Many professional accountants today, are taken aback to hear that accounting as they know it is about to change forever. The Sustainability community today is talking about Integrated Reporting - a way of accounting for economic, social and environmental (ESG) impacts. • For most accountants / finance departments all over the world sustainability has been either about risk mitigation or compliance. It hasnʼt really made a significant dent in how they worked. However, integrated reporting is about to change all that. The Global Reporting Initiative (www.globalreporting.org) and The Princeʼs Accounting for Sustainability Initiative (www.accountingforsustainability.org) are driving the change towards integrated reporting practices at organizations all over the world. • The Princeʼs Accounting for Sustainability Initiative talks about 10 main elements to embed sustainability http://www.accountingforsustainability.org/output/page152.asp . Here are my comments on (4 points) their implications for Indian Companies and CFOʼs
  3. 3. Image - Olaf Brugman - http://farm5.static.flickr.com/4048/4707056511_987ba311e2_b.jpg
  4. 4. Senior management needs to be committed to the process of embedding sustainability. In particular the Chief Executive needs to show urgency in both action and message. Only when the enthusiasm and motivation comes from the top will sustainability become an essential and unquestioned part of an organization's procedures. Board and senior management commitment “ ” Source • http://www.accountingforsustainability.org/output/page152.asp
  5. 5. • Most Indian companies understand the fundamental principles of sustainability, however there is much skepticism voiced in direct meetings with CFOʼs. C Level executives are often approached by NGOʼs to support their causes. While most C level executives understand the need to do good, they are flummoxed when it comes to drawing the right balance between doing good for the business and the planet / society. • Social Contribution - Most large Indian corporate houses make significant contributions to communities where their plants/ factories are located. They understand the need to take care of the families of their large workforce and stay compliant to pollution laws. However, integrated reporting poses a significant challenge for most. It means that the balance sheet will now talk publicly about charity / community contributions and that they will be mandated to contribute to society - voluntary action will now become mandated. What will the impact of these disclosures be, is a mystery for most. Board and senior management commitment The Indian perspective
  6. 6. • Environment - The benefit of carbon credits and the ability to reduce costs by reducing consumption of water and electricity is not lost on most Indian companies. However, there are significant technological challenges for many companies in greening the supply chain. In many cases it needs significant investments in technologies. • At the GRI conference in Amsterdam Barbara Kux, Siemens AG made an impressive presentation on their commitment to ʻgreen technologiesʼ, but someone in the Indian delegation remarked ʻ Will these be available to us?ʼ. Many Indian companies believe that the environmental laws / disclosure norms will involve significant challenges, and steps to address skepticism and resistance need to be taken. Board and senior management commitment The Indian perspective
  7. 7. Few organizations have unlimited resources to dedicate to addressing sustainability issues. It is therefore important for each organization to determine which sustainability areas are the most important for it, and to understand how sustainability in these areas affects reputation, brand and relationships with key stakeholders. Understanding and analyzing the key sustainability drivers for the organization “ ” Source • http://www.accountingforsustainability.org/output/page152.asp
  8. 8. Understanding and analyzing the key sustainability drivers for the organization The Indian perspective • Indian C level executives find that they understand that a key map of possible initiatives needs to be addressed. The challenge is not in making this list, but in evaluating it. When companies approach NGOʼs they are often handed over a list of the NGOʼs top causes for which they may need funding. When they approach consultancies they find that there are very few trained people who understand the business perspective and can actually translate sustainability opportunities into a business case for reputation building, brand value enhancement or enhancing relationships with key stakeholders. • While many frameworks and standards exist, there are many gaps. For example most donʼt really take into consideration Indiaʼs biggest challenge of developing sustainable livelihoods. At the GRI conference in Amsterdam only 1 person raised this topic Mr. Y.C. Deveshwar, who is the CEO of ITC, one of Indiaʼs largest companies. • I am still not clear how the GRI sustainability guidelines cover this really important issue for developing economies.
  9. 9. Creating a culture of sustainability begins with staff, throughout the organization, understanding not only what sustainability means generally, but what it means and why it is important in their specific context. Training is key to this and is particularly important and relevant in this developing area. Extensive and effective sustainability training “ ” Source • http://www.accountingforsustainability.org/output/page152.asp
  10. 10. Extensive and effective sustainability training The Indian perspective • The biggest challenge that Indian companies are likely to face is the absence of trained Chartered Accountants and MBAʼs who really ʻget sustainability as well as the business contextʼ. The curriculum in most of Indiaʼs business schools is woefully out of date with what the world is talking about. Sustainability impact on Finance, Marketing, Operations, Supply Chains and Business Strategy is seldom discussed. Instead separate ʻSustainabilityʼ courses are taken, which are too simplistic. • The BSE or the Bombay Stock Exchange is one of the largest Stock Exchangeʼs in the world with over 4900 listed companies. All these companies have a team of highly qualified finance teams that head them. The Institute of Chartered Accountants of India (ICAI) India has over 1,60,000 members spread throughout the country and in different parts of the world. Not only do most of these people need training, they need constant inputs on the fast moving pace of GRi guidelines as they are being developed and institutionalized. • The training challenge is immense
  11. 11. Accountants are inclined to say that if it isn't measured it isn't done and reporting sustainability performance in internal and external accounts is essential. Sustainability measures need to be reported in a way that is part of and connected to the other key measures, financial and general, which inform performance evaluation. Measuring sustainability factors and establishing them at the heart of decision-making ensures that sustainability is embedded in the day-to-day life of the organization. In order to maintain support for sustainability improvements it is necessary to demonstrate how the organization has benefited from the changes made. This requires monitoring and reporting back on progress in achieving sustainability priorities. Monitoring and reporting sustainability performance “ ” Source • http://www.accountingforsustainability.org/output/page152.asp
  12. 12. Monitoring and reporting sustainability performance The Indian perspective • After reading this most consultants would have a happy smile on their faces while C level executives would have mixed views. Change management of the 80ʻs and 90ʻs has now seen a resurgence and is now being termed as Sustainable Change Management. • The task is not an easy one as it will have significant long term business impact, isnʼt that why many C level executives shudder at the thought? Accountants are inclined to say that if it isn't measured it isn't done and reporting sustainability performance in internal and external accounts is essential. Sustainability measures need to be reported in a way that is part of and connected to the other key measures, financial and general, which inform performance evaluation. Measuring sustainability factors and establishing them at the heart of decision-making ensures that sustainability is embedded in the day-to-day life of the organization. In order to maintain support for sustainability improvements it is necessary to demonstrate how the organization has benefited from the changes made. This requires monitoring and reporting back on progress in achieving sustainability priorities. “ ”
  13. 13. Futurescape, Delhi Level 4, Rectangle 1, Commercial Complex D4 Saket, Behind Sheraton, Delhi New Delhi – 110017, INDIA Futurescape, Mumbai Level 2, Raheja Centre Point 294 CST Road Near Mumbai University Off Bandra–Kurla Complex, Santacruz (E) Mumbai – 400098, INDIA Telephone: +91 9910201783 +91 (11) 6654 4196 Email: innovate@futurescape.in Web: www.futurescape.in Twitter: @futurescape

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