The Securities Exchange Board of India (SEBI) has, over the years, undertaken initiatives to align reporting and disclosure requirements for listed companies in India with global standards, including alignment with the principles prescribed by the International Organization of Securities Commissions. On February 6, 2017, SEBI issued a circular on Integrated Reporting by Listed Entities (SEBI Circular) to strengthen disclosure standards of listed Indian companies.
What is Integrated Reporting?
Integrated reporting is a principle-based reporting framework that was developed by the IIRC. Companies in various countries globally including Japan, the United Kingdom and Australia have adopted integrated reporting.
The primary purpose of an Integrated Report is to provide stakeholders with details in relation to the following: (i) functioning of an organisation; (ii) the value created by an organisation over time; and (iii) various external factors that affect the organisation. The Framework sets out certain fundamental concepts and guiding principles that should be considered while preparing an Integrated Report.
Key Provisions of the SEBI Circular
- The top 500 listed companies that are currently required to prepare a Business Responsibility Report (BRR) under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) have been advised to adopt integrated reporting on a voluntary basis with effect from the financial year 2017-18. Historically, in several instances, SEBI has followed up a voluntary approach with requirements for mandatory compliance.
- The Integrated Reporting Framework (Framework) prescribed by the International Integrated Reporting Council (IIRC) may be followed by listed entities if an Integrated Report (Integrated Report) is prepared.
- The information included in the Integrated Report may be provided in the annual report separately or by incorporating it into the “Management Discussion & Analysis” section, or by way of a separate report (which shall be an annual report prepared as per the Framework).
- If a listed company has already provided the relevant information in any other report prepared in accordance with national/international requirements, it may include appropriate reference to such report in its Integrated Report to avoid duplication of information.
- The Integrated Report prepared by a listed company may be hosted on its website and a reference to the Integrated Report included in its annual report.
Learnings for Indian Listed Companies
Certain Indian listed companies have presented the Integrated Report for the financial year 2015-16 in line with the Framework. To optimise governance oversight and risk management, we believe that all Indian listed companies should prepare Integrated Reports, which would help them proactively engage with a wider set of stakeholders. In light of this, we also believe it may be ideal for listed companies to prepare an Annual Information Memorandum (AIM) for investors, which contains comprehensive information about the company.
SEBI has prescribed an AIM under Regulation 51A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. It requires listed companies to provide annual updates to the red herring prospectus issued at the time of an initial public offering. In 2014, SEBI released a discussion paper (Discussion Paper) which proposed the format for an AIM. However, no final format has been prescribed and as such the requirement to prepare an AIM has not been effected.
We note that other jurisdictions including the United States, United Kingdom and Singapore, prescribe disclosure requirements in the annual report similar to those proposed in the Discussion Paper. In the United States, such annual disclosures are made in a Form 10K to the Securities Exchange Commission, which sets out information, including in relation to the company’s history, about organisational structure and subsidiaries. Similarly, in other jurisdictions including the United Kingdom and Singapore, the annual reports of companies are required to contain information in relation to their business, risk factors and management details.
In view of the Discussion Paper and SEBI’s steps to strengthen disclosure requirements, we believe it would be prudent for listed companies to prepare a comprehensive Integrated Report similar to an offer document issued for the public offering, providing material information in respect of the company and its operations as may be prescribed for the AIM. Such information may include disclosures, among others, in relation to the capital structure, financial statements, legal and regulatory information, after adequate due diligence processes have been conducted.
* The authors were assisted by S. Vivek and Janhavi Seksaria, Senior Associates