Reporting – Governance, Risk Management, Compliances and Ethics Important Questions

Question 1.
Role of Government in Sustainability Reporting?
Attempt the following: Write note on sustainability reporting in emerging economies.
‘Sustainability reporting’ is a process for publicly disclosing an organization’s economic, environmental, and social performance. Global Reporting Initiative (GRI) has developed a generally accepted framework to simplify report preparation and assessment, helping both reporters and report users gain greater value from sustainability reporting.

Sustainability Reporting Framework in India:
In India, the Ministry of Corporate Affairs (MCA) recommends sustainability reporting. Considering the importance of sustainability in businesses, MCA had launched Corporate Social Responsibility Volun tary Guidelines in 2009. To take this further, in 2011 MCA issued ‘National Voluntary Guidelines on Social, Environmental and Economical Responsibilities of Business’ which encouraged reporting on environment, social and governance issues.

SEBI in its (Listing Obligations and Disclosure Requirements) Regulations, 2015 has mandated the requirement of submission of BRR for top 1000 listed entities describing initiative taken by them from an environmental, social and governance perspective in the prescribed format

Regulation 34(2)(f) of SEBI (LODR) Regulations, 2015 – “The annual report shall contain the following :
(f) For the top one thousand listed entities based on market capitalization (calculated as on March 31 of every financial year), business responsibility report describing the initiatives taken by them from an environmental, social and governance perspective, in the format as specified by the Board from time to time.

Provided that listed entities other than top one thousand listed companies based on market capitalization and listed entities which have listed I their specified securities on SME Exchange, may include these business responsibility reports on a voluntary basis in the format as specified.”

Question 2.
Attempt the following; As the company secretary of sound India ltd. you are required by the chairman to prepare a note for the board of directors highlighting the following:
(i) Importance of sustainability reporting.
(ii) Available framework for sustainability reporting.
(iii) Challenges involved in main streaming sustainability reporting.
(i) Importance of sustainability reporting – Internal benefits of sustainability reporting for companies and organizations can include :

  • Increased understanding of risks and opportunities
  • Emphasizing the link between financial and non-financial performance.
  • Influencing long-term management strategy and policy, and business plans.

External benefits of sustainability reporting can include:

  • Mitigating – or reversing – negative environmental, social and governance impacts.
  • Improving reputation and brand loyalty.
  • Enabling external stakeholders to understand the organization’s true value, and tangible and intangible assets.

(ii) Sustainability report – A sustainability report is a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities. A sustainability report presents the organization’s values and governance model, and demonstrates the link between its strategy and its commitment to a sustainable global economy. A sustainability report is the key platform for communicating sustainability performance and impacts – whether positive or negative.

Sustainability Reporting Framework in India – In India, considering the importance of sustainability in businesses, MCA had launched Corporate Social Responsibility Voluntary Guidelines in 2009.

To take this further, in 2011 MCA issued ‘National Voluntary Guidelines on Social, Environmental and Economical Responsibilities of Business’ which encouraged reporting on environment, social and governance issues.

SEBI in its (Listing Obligations and Disclosure Requirements) Regulations, 2015 vide Regulation 34 has mandated the requirement of submission of BRR for top 1000 listed entities describing initiative taken by them from an environmental, social and governance perspective in the prescribed format.

(iii) Following are the challenges in mainstreaming sustainability reporting:
1. Government Encouragement: In many jurisdictions, there are no guidelines on sustainability reporting to encourage the corporate sector. While on the other hand, there are voluntary as well as mandatory guidelines from regulators for reporting on Sustainability aspects like in India we have SEBI framework of Business Responsibility Report.

2. Awareness: Lack of awareness about the emerging concept of sustainability reporting is also a major challenge which the government and corporate governance bodies need to address by arranging the sustainability awareness programme for the Pro-fessionals, Board of Directors and Management in the corporate sector.

3. Expertise Knowledge: Sustainability Reporting is relatively a new concept in many jurisdictions and organization found it very difficult to prepare a sustainability report in the absence of expert guidance on the subject. The professional bodies in various jurisdictions should impart the expert knowledge of sustainability reporting to their members to develop a good cadre of experts in this emerging area of sustainability reporting.

4. Investor Behaviour: It is a recognized principle that investors should consider the Environmental, Social and Governance (ESG) issues while making investment decisions. There are specific regulators guidelines for the institutional investor to be vigilant on voting aspects and be concerned about the governance practices of the companies in which they invest.

Question 3.
Answer the following; What are the key drivers of sustainability re-porting?
Sustainability reporting is a process of publicly disclosing an organization’s economic, environmental, and social performance. Some of the key drivers of sustainability reporting are
1. Regulations: Governments, at most levels have stepped up the pressure on corporations to measure the impact of their operations on the environment. The most notable shift has been from voluntary to mandatory sustainability, monitoring and reporting.

2. Customers: Public opinion and consumer preferences are a more abstract but powerful factor that exerts considerable influence on companies, particularly those that are consumer oriented.

3. Loyalty: This factor has led the firms to provide much more information about the products they produce, the suppliers who produce them, and the product’s environmental impact starting from creation to consumption.

4. NGO’s and the Media: Public reaction comes not just from customers but from advocates and the media, who shape public opinion.

5. Employees: Those who work for a company bring particular pressure to bear on how their employers behave; they, too, are concerned citizens beyond their corporate roles.

6. Peer pressure from other companies: Each company .is part of an – industry, with the peer pressures and alliances that go along with it. Matching industry standards for sustainability reporting can be a factor; particularly for those who operate in the same supply chain and have environmental or social standards they expect of their partners.

7. Companies themselves: Corporations, as public citizens, feel their own pressure to create a credible sustainability policy, with performance measures to back it up, but with an eye on the bottom line as well. Increasingly, stakeholders are demanding explicit sustainability reporting strategies and a proof of the results.

8. Investors: Investors like Institutional investors and stock exchange CEOs have moved to request increased sustainability reporting from listed companies, and environmental, social and corporate governance indices have been established such as the Dow Jones Sustainability Index.

Question 4.
Explain briefly the following; Global reporting initiative (GRI).
Attempt the following; What is the main function of global reporting initiatives?
The GRI Standards represent global best practice for reporting | publicly on a range of economic, environmental and social impacts, j Sustainability reporting based on the Standards provides information about an organization’s positive or negative contributions to sustainable development.

The modular, interrelated GRI Standards are designed primarily to be used as a set, to prepare a sustainability report focused on material topics. Preparing a report in accordance with the GRI Standards provides an inclusive picture of an organization’s material topics, their related impacts, and how they are managed. An organization can also use all or part of selected GRI Standards to report specific information.

GRI Sustainability Reporting Standards (GRI Standards) help businesses, governments and other organizations understand cCtid communicate the impact of business on critical sustainability issues.

Question 5.
“Report content should be balanced and reasonable presentation of the organisation’s performance.” In the light of above statement, discuss the steps to use the GRI Reporting Framework.
The Global Reporting Initiative (GRI) had launched the fourth generation of its sustainability reporting guidelines: the GRI G4 Sustainability Guidelines (the Guidelines) in 2013. The aim of G4, is to help reporters prepare sustainability reports that contain valuable information about the organization’s most critical sustainability related issues, and make such sustainability reporting standard practice.

G4 is applicable to all organizations, large and small, across the world. The Guidelines are now presented in two parts to facilitate the identification of reporting requirements and related guidance. It consist of following two parts.

Part 1- Reporting Principles and Standard Disclosures: It contains the reporting principles and standard disclosures and also sets out the criteria to be applied by an organization to prepare its sustainability report in accordance with the Guidelines.

Part 2 – Implementation Manual: It contains reporting and interpretative guidance that an organization should consult when preparing its sustainability report.

Standard Disclosures:
Following are two different types of Standard Disclosures

General Standard Disclosures Specific Standard Disclosures
Strategy and Analysis

Organizational Profile

Identified Material Aspects and Boundaries

Stakeholder Engagement

Report Profile


Ethics and Integrity

Disclosures on Management Approach


Question 6.
What is stakeholder inclusiveness?
Explain the concept of stakeholder inclusiveness.
The reporting organization should identify its stakeholders and explain in its sustainability reporting how it has responded to their reasonable expectations and interests. Elucidate statement by considering stakeholders inclusiveness.
‘Stakeholder Inclusiveness’ is one of the four core principles in the GRI G4 Guidelines that help to define report content that is material to the reporting organization and its stakeholders.

Stakeholders are defined as entities or individuals:

  • Who can reasonably be expected to be significantly affected by the organization’s activities, products, and/or services.
  • Whose actions can reasonably be expected to affect the ability of the organization to successfully implement its strategies and achieve its objectives.

Need for stakeholders inclusiveness:
Stakeholders are individuals or groups that have interests, rights, or ownership in an organization and its activities. Since the stakeholders for an organization are scattered and there may be variation in their expectation and interest, stakeholder engagement processes can serve as tools for understanding the reasonable expectations and interests of stakeholders.

The reasonable expectations and interests of stakeholders are a key reference point for many decisions in the preparation of the sustainability report. The organization should identify its stakeholders, and explain how it has responded to their reasonable expectations and interests.

Question 7.
What are the different sections of Business Responsibility Reporting Framework as per LODR Regulations?
What are the major sections of Business Responsibility Report (BRR)?
As per Regulation 34 of SEBI (LODR) 2015, SEBI has mandated the requirement of submission of BRR for top 1000 listed entities describing initiative taken by them from an environmental, social and governance perspective in the prescribed format.”

  • Section A : General Information about the Organisation – Industry Sector, Products & Services, Markets, other general information.
  • Section B : Financial Details of the Organisation – Paid up capital, Turnover, Profits, CSR (Corporate Social Responsibility) spend.
  • Section C : Other Details – BR initiatives at Subsidiaries and Supply- chain Partners.
  • Section D : BR Information – Structure, Governance & Policies for Business Responsibility.
  • Section E : Principle-wise Performance – Indicators to assess performance on the 9 Business Responsibility principles as envisaged by the National Voluntary Guidelines (NVGs).

Question 8.
What do you understand by integrated reporting?
An Integrated Report is:
“A concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long-term”.

The primary purpose of an integrated report is to explain to providers of financial capital how an organisation creates value over time. Integrated reporting is founded on integrated thinking, which helps demonstrate inter connectivity of strategy, strategic objectives, performance, risk and incentives and helps to identify sources of value creation. Integrated Reporting is one step ahead of sustainability reporting and is set to become the way companies report their annual financial and sustainability information together in one report.

Aim of integrated report – The aim of an integrated report is to clearly and concisely tell the organization’s stakeholders about the company and its strategy and risks, linking its financial and sustainability performance in a way that gives stakeholders a holistic view of the organization and its future prospects.

Question 9.
In addition to the Financial Capital, the Integrated Reporting examines ‘ i five additional capitals that should guide an organisation’s decision-making and long-term success. Which are these five additional capitals?
Following are the five additional capitals which are in addition to financial capital that should guide an organisation’s decision-making and long-term success – its value creation in the broadest sense:
1. Manufactured capital: Manufactured capital is seen as human-created, production-oriented equipment and tools.

2. Intellectual capital: It is a key element in an organization’s future earning potential, investment in R&D, innovation, human resources and external relationships, which can determine the organization’s competitive advantage.

3. Human capital: It is generally understood to consist of individual’s capabilities and the knowledge, skills and experience of the company’s employees and managers as they are relevant to the task at hand as well as the capacity to add to the reservoir of knowledge, skills and experience.

4. Social and relationship capital: Social and relationship capital may include relationships within an organization, as well as those between an organization and its external stakeholders, depending on where social boundaries are drawn.

5. Natural capital: It may be defined as any stock of natural resources or environmental assets such as soil, water, and atmosphere, ecosystems which provide a flow of useful goods or services now and in the future.

Question 10.
“Integrated reporting would build on the existing financial reporting model to present additional information about a company’s strategy, governance, and performance.”
In light of above sentence, prepare a note on purpose of Integrated reporting and guiding principles for preparation of such report.
Purpose of Integrated Reporting:
1. The primary purpose of an integrated report is to explain to pro-viders of financial capital how an organisation creates value over time. An integrated report benefits all stakeholders interested in an organisation’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators and policy-makers.

2. An integrated report aims to provide insight about the resources and relationships used and affected by an organisation – these are collectively referred to as “the capitals” in this Framework.

3. It also seeks to explain how the organisation interacts with the external environment and the capitals to create value over the short, medium and long term. The capitals are stocks of value that are increased, decreased or transformed through the activities and outputs of the organisation.

They are categorized in this Framework as financial, manufactured, intellectual, human, social and relationship, and natural capital, although organisations preparing an integrated report are not required to adopt this categorization or to structure their report along the lines of the capitals.

Guiding Principles:
The following Guiding Principles underpin the preparation and presentation of an integrated report, informing the content of the report and how information is presented. These Guiding Principles are applied individually and collectively for the purpose of preparing and presenting an integrated report; accordingly, judgment is needed in applying them, particularly when there is an apparent tension between them (e.g., between conciseness and completeness).

A. Strategic focus and future orientation: An integrated report should provide insight into the organisation’s strategy, and how it relates to the organisation’s ability to create value in the short, medium and long term and to its use of and effects on the capitals.

B. Connectivity of information: An integrated report should show a holistic picture of the combination, inter relatedness and dependencies between the factors that affect the organisation’s ability to create value over time.

C. Stakeholder relationships: An integrated report should provide insight into the nature and quality of the organisation’s relation-ships with its key stakeholders, including how and to what extent the organisation understands, takes into account and responds to their legitimate needs and interests.

D. Materiality: An integrated report should disclose information about matters that substantively affect the organisation’s ability to create value over the short, medium and long term.

E. An integrated report should be concise: An integrated report includes sufficient context to understand the organisation’s strategic governance, performance and prospects without being burdened with less relevant information.

F. Reliability and completeness: An integrated report should include all material matters, both positive and negative, in a balanced way and without material error.

G. Consistency and comparability: The information in an integrated report should be presented:

  • On a basis that is consistent over time.
  • In a way that enables comparison with other organisations to the extent it is material to the organisation’s own ability to create value over time.

Question 11.
Sustainability reporting is an intrinsic element of integrate report. Elaborate.
‘Sustainability reporting’ considers the relevance of sustainability to an organization and also addresses sustainability priorities and key topics, focusing on the impact of sustainability trends, risks and opportunities on the long-term prospects and financial performance of the organization.

On the other hand Integrated reporting is an integrated representation of the key factors that are material to its present and future value creation. Integrated reporters build on sustainability reporting foundations and disclosures in preparing their integrated report.

‘Sustainability reporting’ vs. ‘Integrated reporting’ :
Although the objectives of sustainability reporting and integrated reporting may be different, sustainability reporting is an intrinsic element of integrated reporting. Sustainability reporting is fundamental to an organization’s integrated thinking and reporting process in providing input into the organization’s identification of its material issues, its strategic objectives, and the assessment of its ability to achieve those objectives and create value over time.

Question 12.
The Ministry of Corporate Affairs issued the Corporate Governance Social Responsibility Voluntary Guidelines 2009, which emphasize that every business should design and formulate a CSR policy to guide the ‘ strategic planning and a road map for its CSR initiatives. Outline the core ; elements of CSR policy.
Core elements of a CSR Policy are as follows:
1. Care for all stakeholders: The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them.

2. Ethical functioning: Their governance systems should be under pinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.

3. Respect for workers’ rights and welfare: Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement.

4. Respect for Human Rights: Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party.

5. Respect for Environment: Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water etc.

6. Activities for Social and Inclusive Development: Depending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations.

Question 13.
You have been recently appointed as a Company Secretary of a large company which has incurred expenditures on various CSR activities during the year. Advise the Board about the particulars to be ensured in Annual Report for disclosures on Corporate Social Responsibility (CSR) under Companies Act, 2013 by the Board.
As per Section 134 of the Companies Act, 2013, the Board of the Company is mandated to prepare a CSR Report.
The Companies (CSR Policy) Rules, 2014 provide for the format for reporting CSR activities annually. The format for the annual report on CSR activities is as follows:

  1. A brief outline of the company’s CSR policy, including overview of projects or programs proposed to be undertaken and a reference to , the web-link to the CSR policy and projects or programs.
  2. The composition of the CSR Committee.
  3. Average net profit of the company for last three financial years.
  4. Prescribed CSR Expenditure.
  5. In case the company has failed to spend the two per cent of the average net profit of the last three financial years or any part thereof, the company shall provide the reasons for not spending the amount in its Board report.
  6. A responsibility statement of the CSR Committee that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company.
  7. Details of expenditure incurred on CSR activities during the financial year.
  8. Total amount to be spent for the financial year.
  9. Amount unspent, if any.

Governance Risk Management Compliances and Ethics Notes