SBL Notes Corporate Reporting Pankaj Khandelwal

Chapter 6 CA, CFA, CIA

Why Corporate Reporting:

Corporate reporting helps ensure accountability by allowing directors to report to shareholders on how they
have managed the company.

Today, reporting has expanded beyond financial results to include information relevant to a wider range of
stakeholders, with Integrated Reporting (IR) providing a more complete view of organisational performance.

ICGN Principle 7 on Corporate Reporting:

It requires boards to provide transparent, reliable, and balanced corporate reports covering both financial and
sustainability information. The aim is to help shareholders and other stakeholders understand the company's
performance, strategy, risks, and long-term value creation.

Board's Responsibilities:

• Present a fair, balanced, and understandable report.

• Report on both financial and non-financial matters (e.g., people and the environment).
• Confirm that the annual report gives a true and fair view of the company's financial position
and future prospects

What Should Be Reported?

• Human Capital: Employee policies, goals, and performance.

• Sustainability: Environmental and social impacts using recognised reporting standards.
• Capital Allocation: How the company invests its money to create long-term value, including:
o Governance and decision-making
o Cost of capital
o Major investments, mergers, and acquisitions
• Financial Health: Confirmation that the board has assessed the company's solvency, liquidity, and
risks to ensure it can continue operating.

Evolution of Corporate Reporting:

Traditionally, corporate reporting only meant publishing financial statements required by law. Today, it also
includes non-financial information to give stakeholders a complete picture of the company's performance.

Types of Corporate Reports:

• Integrated Report – Financial and non-financial performance together.

• Sustainability Report – Environmental, social, and governance (ESG) performance.
• Environmental Report – Impact on the environment.
• Governance Report – Corporate governance practices.
• Remuneration Report – Directors' and executives' pay.
• Corporate Website – Additional business and performance information.

Mandatory vs Voluntary Reporting:

Information that companies must disclose, such as:

• Required by law
• Accounting standards (e.g., IFRS)
• Stock exchange rules
• Corporate governance codes

Voluntary Reporting: Information disclosed beyond legal requirements. It is usually descriptive (narrative)
rather than just numbers and helps stakeholders better understand the business.
SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

Reporting Policies:

Reporting policies decide what information a company shares with stakeholders and how much it discloses. The
level of disclosure depends on the needs and influence of stakeholders.

How Different Stakeholders Influence Reporting:

• Customers: Want information about social and environmental practices. Lack of transparency may lead to
customer boycotts.
• Institutional Investors: Expect more information about strategy, risks, and ESG (Environmental, Social &
Governance) performance.
• Society: Expects companies to report their impact on the environment, ethics, and communities.

Example - Apple

Apple requires its suppliers to honestly report their labour, health & safety, and environmental practices.
Suppliers who fail to meet these standards may lose their business with Apple.

Global Reporting Initiative (GRI):

The GRI provides internationally recognised Sustainability Reporting Standards that help companies report their
environmental, social, and economic impacts in a consistent and reliable way.

ACCA's Principles for Good Corporate Reporting:

In November 2021 ACCA issued a policy paper laying out 9 principles- corporate reporting standards should:

1. Cover financial and sustainability impacts.

2. Use clear and consistent definitions.
3. Balance principles with comparable metrics.
4. Avoid excessive or unnecessary disclosures.
5. Ensure benefits outweigh reporting costs.
6. Provide global standards that countries can build upon.
7. Achieve reporting which is capable of assurance.
8. Be suitable for SMEs.
9. Make effective use of technology.

Sustainability Reporting:
Sustainability reporting goes beyond financial results and explains a company's environmental, social, and
governance (ESG) performance and its long-term impact on society.

Key Developments

• Triple Bottom Line (TBL): One of the first frameworks to measure People, Planet, and Profit,
not just financial performance.
• Integrated Reporting (<IR>): Introduced in 2013 to combine financial and non-financial
information into one holistic report.
• The Task Force on Climate-Related Financial Disclosures (TCFD - 2017): Framework for
reporting climate-related risks and opportunities.
• GRI Standards: Voluntary global standards for sustainability and corporate responsibility
reporting.
SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

• The Climate Disclosures Standard Board (CDSB): Encouraged companies to give natural capital
(environment) equal importance as financial capital.
• The Sustainability Accounting Standards Board (SASB): Developed industry-specific
sustainability reporting standards; now part of the ISSB.
• International Financial Sustainability Standards Board (ISSB - 2021): Created by the IFRS
Foundation to develop global sustainability reporting standards for investors.
• IFRS S1 & IFRS S2 (2023): First ISSB standards for sustainability and climate-related disclosures.

Note: You only need to know the purpose of these frameworks. The Integrated Reporting (<IR>)
Framework is the most important one for the exam.

The Integrated Report:

An Integrated Report (IR) is a short and clear report that explains how a company's strategy, governance,
performance, and future plans create value in the short, medium, and long term. Key features include:

• Combines financial and non-financial information (strategy, governance, performance, and

sustainability).
• Prepared using the <IR> Framework.
• Can be a separate report or part of the annual report.
• Focuses on the connection between different aspects of the business, not just financial results.

Goals of Integrated Reporting:

• Improve the quality of information for investors.

• Provide a complete (holistic) view of the business.
• Increase accountability for all types of capital.
• Show how different resources (Capitals) are connected.
• Support better decision-making and long-term value creation

International <IR> Framework:

Purpose:

• Provides guiding principles and content for preparing an Integrated Report.

• Explains what information should be included and why it is important.

Key Points

• Mainly designed for for-profit companies, but can also be used by public sector and non-profit
organisations.
• Reports claiming to follow the <IR> Framework should follow its guiding principles unless:
o Information is unavailable,
o Law prohibits disclosure, or
o Disclosure would seriously harm the company's competitive position.
• Every Integrated Report should include 8 key content elements.

The Six Capitals:

Integrated Reporting measures value creation using six capitals: Financial, Manufactured, Intellectual,
Human, Social & Relationship and Natural Capital, that help an organisation create long-term value.
SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

Capital Simple Meaning

Financial Capital Money available for running and growing the business.

Manufactured Capital Physical assets like buildings, machines, and infrastructure.

Intellectual Capital Knowledge, patents, technology, systems, and brand value.

Human Capital Employees' skills, experience, talent, and motivation.

Relationships with customers, suppliers, communities and other

Social & Relationship Capital
stakeholders.

Natural resources such as land, water, energy, and the

Natural Capital
environment.

Guiding Principles of Integrated Reporting:

The <IR> Framework is based on 7 guiding principles, which ensure Integrated Reports are strategic,
connected, stakeholder-focused, material, concise, reliable, and comparable:

1. Strategic Focus & Future Orientation – Explain the company's strategy and how it will create
value in the future.
2. Connectivity of Information – Show how different parts of the business are connected.
3. Stakeholder Relationships – Explain how the company interacts with and responds to key
stakeholders.
4. Materiality – Report only information that has a significant impact on value creation.
5. Conciseness – Keep the report clear, relevant, and brief.
6. Reliability & Completeness – Include all important information (good and bad) accurately.
7. Consistency & Comparability – Present information consistently so it can be compared over
time and with other companies.

SCSMCRC

Pro Tip – How to remember: Strategic Companies Support Meaningful, Clear, Reliable Communication

Content Elements of Integrated Reporting:

An Integrated Report should cover 8 key content elements. These are connected and should explain
how the organisation creates long-term value, not just act as a checklist

Content Element Simple Question Answered

1. Organisational Overview What does the company do and where does it operate?

2. Governance How does leadership support value creation?

3. Business Model How does the company create and deliver value?

What are the major risks and opportunities, and how are they
4. Risks & Opportunities
managed?
SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

Content Element Simple Question Answered

5. Strategy & Resource

What are the company's goals and how will it achieve them?
Allocation

6. Performance How well did the company achieve its objectives?

What future challenges and opportunities does the company

7. Outlook
expect?

How was the report prepared and what information was

8. Basis of Preparation
included?

Pro Tip: How to remember: “Our Good Business Runs Smoothly, Producing Outstanding Benefits”

Usefulness of Integrated Reporting:

Benefits of Integrated Reporting

• Explains how the company creates long-term value for investors.

• Combines financial, social, and environmental performance in one report.
• Provides information on the company's strategy, business model, risks, and future
outlook.
• Helps stakeholders compare performance over time and make better decisions.

Limitations

• No legal requirement for the board to guarantee the report's reliability.

• No standard KPIs, making comparisons between companies difficult.
• Companies may not disclose all information to protect their competitive advantage.

Punchline: Integrated Reporting gives stakeholders a holistic view of long-term value creation, but
its usefulness is limited by lack of standardisation, assurance, and full disclosure.

Audit of Integrated Reports:

Current Position

• Integrated Reports are generally not legally required to be audited.

• An independent assurance report would increase credibility and reduce greenwashing
(misleading sustainability claims).

Challenges in Auditing:

• Covers financial and non-financial information, requiring specialised expertise.

• Many disclosures are subjective and future-oriented, making them difficult to verify.
• Environmental and sustainability data may require external experts.
• Companies often audit only the financial and measurable sections of the report.

Trends

• Assurance of non-financial (ESG/sustainability) information is becoming more common

worldwide.
• Non-financial information usually receives Limited Assurance, while financial statements
receive Reasonable Assurance (higher level).
o Reasonable Assurance: High level of confidence (used for financial statements).
SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

o Limited Assurance: Lower level of confidence (commonly used for sustainability

reports).

Social and Environmental Effects:

Economic Activity: Economic activity is the production and distribution of goods and services.

• It affects GDP, corporate profits, prices, inflation, and interest rates.

• Production uses resources such as raw materials, energy, water, and labour.
• Resources can be:
o Renewable (e.g., solar energy, timber)
o Non-renewable (e.g., oil, gas, iron ore)
• Economic activity creates products and waste, so recycling and sustainable use of resources are
important.

Environmental (Ecological) Footprint:

Environmental Footprint (EF) is the impact of a company or person on the environment, including
resource use, waste, pollution, and emissions.

Key Points:

• Measures how much natural resources are used and how much waste is created.
• A growing business usually has a larger environmental footprint, but sustainable technologies
and recycling can reduce it.
• Environmental impacts are mainly:
o Consumption – Using natural resources.
o Emissions – Releasing waste and pollution into the environment.

Examples of Environmental Impact

• Air pollution
• Water pollution
• Soil degradation
• Climate change (greenhouse gases)
• Noise pollution

Measuring Environmental Footprint

• Measured in Global Hectares (gha), showing how much land is needed to support resource use
and absorb waste.
• For organisations, key areas include:
o Paper use
o Energy use
o Transport
o Buildings
o Water use

Limitation

• EF measures environmental impact only; it does not measure social well-being.

SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

Sustainability and Social Impact Assessment

What is Social Impact Assessment (SIA)?

• SIA measures how an organisation's activities affect people and communities.

• It helps organisations make decisions that support sustainable and fair development.

Social Footprint (SF)

• Measures an organisation's social impact, unlike the Environmental Footprint which measures
environmental impact.
• Focuses on improving Anthro Capital (people-created capital):
o Human Capital – Health, skills, education, knowledge.
o Social Capital – Relationships, trust, communities.
o Constructed Capital – Roads, schools, hospitals, infrastructure.

Sustainable Development

• Definition: Meeting today's needs without harming future generations' ability to meet
theirs.
• Requires a balance of economic, social, and environmental goals.

UN Sustainable Development Goals (SDGs)

• The 17 SDGs are global goals adopted by the United Nations to achieve sustainable
economic, social, and environmental development by 2030.
• Businesses use SDGs to measure and improve their social and environmental impact.
• Companies focus on the SDGs most relevant to their industry.

SDG Simple Goal

1. No Poverty End poverty everywhere.

2. Zero Hunger End hunger and promote sustainable agriculture.

3. Good Health & Well-being Ensure healthy lives for everyone.

4. Quality Education Provide quality education and lifelong learning.

Achieve equal rights and opportunities for women and

5. Gender Equality
girls.

6. Clean Water & Sanitation Ensure clean water and sanitation for all.

7. Affordable & Clean Energy Provide reliable and sustainable energy.

Promote jobs, innovation, and sustainable economic

8. Decent Work & Economic Growth
growth.

9. Industry, Innovation & Infrastructure Build resilient infrastructure and encourage innovation.

10. Reduced Inequalities Reduce inequality within and between countries.

11. Sustainable Cities & Communities Make cities safe, inclusive, and sustainable.
SBL Notes Corporate Reporting Pankaj Khandelwal
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SDG Simple Goal

12. Responsible Consumption &

Use resources efficiently and reduce waste.
Production

13. Climate Action Take action to fight climate change.

14. Life Below Water Protect oceans and marine life.

15. Life on Land Protect forests, biodiversity, and ecosystems.

16. Peace, Justice & Strong Institutions Promote peace, justice, and accountable institutions.

17. Partnerships for the Goals Strengthen global cooperation to achieve the SDGs.

Internal Management Systems

A management system is a structured way of managing an organisation by assigning responsibilities
and following processes to achieve specific goals.

Four steps in Management system:

• Plan – Set goals.

• Do – Implement the plan.
• Check – Monitor results.
• Act/Review – Improve based on results.

Types of Management Systems:

• Occupational Health and Safety (OHS) Management System – Improves employee health
and safety.
• Quality Management System (QMS) – Ensures customer satisfaction and product quality.
• Environmental Management System (EMS) – Reduces environmental impact.
• Integrated Management System (IMS) – Combines multiple management systems into one
holistic approach.

Standards:

Standards are agreed rules or guidelines that help organisations ensure quality, safety, reliability, and
consistency.

ISO Environmental Standards

The ISO 14000 family provides standards for Environmental Management Systems (EMS).

• ISO 14001 – Requirements for an Environmental Management System.

• ISO 14004 – Guidelines for implementing EMS.
• ISO 14005 – Phased implementation of EMS.

ISO 14001 Requirements:

An organisation should:

• Measure its environmental impact.

• Monitor environmental performance.
• Continuously improve environmental performance.
SBL Notes Corporate Reporting Pankaj Khandelwal
Chapter 6 CA, CFA, CIA

Benefits of ISO 14001

• Ensures legal compliance.

• Improves environmental performance.
• Gives a competitive advantage.
• Reduces environmental risks and costs.
• Increases credibility and reputation.
• Supports continuous improvement.
• Can be integrated with Quality (QMS) and Health & Safety (OHS) systems.

Eco-Management and Audit Scheme (EMAS):

• EMAS is a voluntary EU standard that promotes continuous environmental improvement
through legal compliance, independent audits, and public reporting.

Requirements:

• Comply with environmental laws.

• Implement an Environmental Management System (EMS).
• Publish an independently verified environmental report.

Environmental Audit:

• Measures environmental performance.

• Compares actual results with targets.
• Reports compliance and areas for improvement.

Why is EMAS More Credible than ISO 14001?

EMAS is considered more credible than ISO 14001 because it requires legal compliance, public
reporting, official registration, and independent verification

• Checks legal compliance with environmental laws (ISO 14001 does not require this).
• Requires a verified and publicly available Environmental Statement.
• All EMAS-certified organisations are officially registered.
• Requires an Initial Environmental Review to identify environmental impacts.