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Financial Stewardship and the Investors

Introduction

The history of financial disclosures through annual and financial reports can be largely attributed to the voluntary disclosures of business performance from a few companies in the U.S. and U.K. to their providers of financial capital in the 19th century. Over the subsequent decades, accounting and reporting methods were refined and institutionalized. In the last couple of decades, progressive calls for transparency and accountability have led stock exchanges to enforce a number of requirements for corporate disclosures.

The King Report on Corporate Governance (1994, 2002, and 2009) is widely regarded as the first integrated reporting framework on corporate governance and performance, covering both finance and non-financial disclosures. Compliance with the Kings framework is required by companies listed on the Johannesburg Stock Exchange. Similarly, in India, the National Voluntary Guidelines released by the Ministry of Corporate Affairs have been adopted by the Securities and Exchange Board of India for listed companies to publish a Business Responsibility Report (BRR) as part of their annual financial report. The International Integrated Reporting Council (IIRC), a global coalition of regulators, investors, companies, standard bodies, the accounting profession and NGOs, is facilitating adoption of integrated reporting framework as the new corporate reporting norm. One of the core elements of the framework is accountability and stewardship of the stocks and flows of the six forms of capital: financial, manufactured, intellectual, human, social and natural. The first two forms of capital are covered in almost all annual reports while the others are covered to varying degrees by some organizations depending on their context and understanding of impacts to significant stakeholders.

The increasing recognition that social and environmental risks can affect a company’s operational strength and continuity has prompted active engagement from investors, regulators and government. Investors are increasingly incorporating ESG criteria (Environmental, Social and Governance) into their investment decision frameworks. Over the last decade, this has manifested in at least four different ways as shown in the chart below.

In this section, we primarily focus on our engagement with the investor community and how accountability and good business conduct are integral implements of financial stewardship.