Global Head, Sustainability and Social Initiatives, Wipro Ltd
The history of non-financial reporting is fairly recent, going back just a couple of decades. Till then it was understood that companies need to report primarily financial information that is of direct interest to its investors. This typically pertained to the company’s financial performance on revenues, operating and capital costs, profitability and compliance with regulatory requirements. It was only in the late nineties that this paradigm began to shift slowly with the emergence of the idea of the triple bottom line. In simple terms, the idea encompassed the notion that a company’s performance had to be viewed from a 360 degree perspective that included how well it was serving not just the shareholder but other stakeholders like customers, employees, suppliers and communities.
Initially, just a handful of companies understood and adopted this new idea. In the last decade though, we have seen a steady increase in the number of companies who have adopted non-financial disclosures in varying degrees. Companies are talking about their strategies and performance on climate change, water stress, biodiversity, employee diversity, labour rights in the workplace, human rights in the supply chain and social investments for communities. In other words, the conventional wisdom that what was good for the investors must be good for other stakeholders is being replaced by the emergent realization that what is good for the planet and society is good for the company. This change in perspective from ‘inside-out’ to ‘outside-in’ has come about because of the recognition of the unprecedented risks humanity faces from large scale environmental destruction on one hand and societal disruptions due to rising inequality on the other hand.
From non-financial to integrated reporting
While the rising trend of non-financial reporting is heartening and encouraging, in many ways it reminds one of the fable of six blind men and the elephant where each person gives a different description of the mammoth mammal. To be able to see the whole picture is to understand the idea of a company’s integrated value. To take an example – protecting employees’ interests by investing in employee health, safety and well-being, raising minimum wages to a living wage, ensuring stronger social safety nets for contract workers etc. might seem financially unviable in the short term but in reality can ensure access to a better quality talent pool, higher productivity, a more engaged and responsible workforce and eventually a more stable society that is critical for business.
Integrated value creation across financial and non-financial capitals is something that companies were always doing intuitively in some sense. What is different this time is the conscious and deliberate act of integrated reporting that can set off a virtuous feedback loop catalysing business and industry transformation. Seen from this perspective, reporting is not an end but a beginning, an anchor point, that drives changes in the way companies think about their strategy, their stakeholders and the value they create. By enabling companies to connect the dots between financial, human, manufacturing, intellectual, social and natural capitals of the company, the reporting process can bring about long-lasting changes in the company’s mindset, strategy and execution.
The above transition from financial to non-financial to integrated reporting has been a steady but gradual process. The time has now come to accelerate the adoption of integrated reporting across geographies, sectors and firm size. The IIRC has been driving this transition with great commitment and vigour for the past decade. It is because of IIRC’s relentless efforts that the notion of integrated value across multiple capitals has taken root in the thinking and actions of companies across the world. Its success can be gauged from that the fact that in India the Securities and Exchange Board of India (SEBI), the nodal regulatory body, has encouraged adoption of the International <IR> Framework for the annual disclosures of the top 1000 companies by market capital. At Wipro, we adopted the <IR> Framework more than four years back and this year, we published the fifth edition of our Annual Report based on the <IR> Framework. The key learnings for us so far have been it requires a boundaryless cross-functional approach to see how different parts of the organization combine to form a whole that is greater than the sum its constituents. Preparing an integrated report requires key functions like Finance, Human Resources, Operations, Technology Domains and Customer Units all to come together. We have also realized that an integrated approach helps in the identification, assessment and mitigation of risks in a much more comprehensive manner. We thus know that climate risks are closely connected with economic risks arising out of damage to the company’s physical infrastructure, the risk of reduced customer satisfaction due to increased employee absenteeism and risks to the health of employees.
Let me conclude by saying this - that after a decade of pioneering a new approach, in some sense the IIRC’s work has just begun. The foundation they have laid for the edifice of integrated value and reporting is going to see fruition in the coming years. It will require coordinated actions from business and government with civil society and academia providing scaffolding support. The journey will require new imaginations, new ways of seeing and doing. From the experience of the last few years, I can say that for those who stay the path, the journey will be transformational and worthwhile.