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EXPOSURE DRAFT
GUIDANCE NOTE ON NON-FINANCIAL DISCLOSURES
Introduction
One of the principal underpinnings of good corporate governance is that shareholders
and other stakeholders are provided with detailed information on financial and operating
results in order to understand the current state of affairs, like balance sheet,
profit and loss account and notes thereto, directors report, auditors report and
management discussion & analysis.
Over the years, corporate entities have realised that users of such annual reports
have varied needs e.g. investors/lenders seek information as to whether the company
has made an effective and efficient use of resources provided to it and whether
the company has performed its obligations as to environmental, social and ethical
issues. It is increasingly recognized that relationships with key stakeholder groups
including customers, employees and communities can impact the companys financial
performance and future value. In other words, an intangible business value, positive
or negative, may be attributed to a companys relationships with its stakeholders.
As an initiative towards non-financial reporting, the Ministry of Corporate Affairs,
Government of India has issued Corporate Governance Voluntary Guidelines,
2009 for voluntary adoption by the corporate sector, wherein the Government
has recommended disclosure of certain non-financial aspects.
The purpose of this guidance note is to help those responsible for preparing company
annual reports, to make appropriate non-financial disclosures that address the major
concerns of various users of such annual reports. All companies (private or public)
are encouraged to follow the suggestions contained in this guidance note and make
appropriate non-financial disclosures in their annual/biannual reports.
This Guidance Note focuses on important non-financial disclosures and the timing
of such disclosures in annual or biannual reports as the case may be.
Mode & Frequency of Disclosures
Organizations may adopt a consistent and periodic cycle for issuing a report. For
many organizations, this will be an annual cycle, although some organizations choose
to report biannually. An organization may choose to update information on a regular
basis during the financial year. This has advantages in terms of providing various
users with more immediate access to information, but has disadvantages in terms
of comparability of information. However, organizations may still maintain a predictable
cycle in which all of the information that is reported covers a specific time period.
Reporting on economic, environmental, and social performance could coincide or be
integrated with other organizational reporting, such as financial statements. Coordinated
timing will reinforce the linkages between financial performance and economic, environmental,
and social performance.
The Companies Act, 1956 (hereinafter referred to as the Act) governs the regulation
of companies in
1.
Management Discussion and Analysis
2.
Disclosures in the Boards Report
a.
Information required to be given in the Boards report under the Act includes:
°
State of affairs of the company
°
Particulars as to the conservation of energy, technology, absorption, foreign exchange
earnings and outgo in such a manner as may be prescribed in Companies (Disclosure
of Particulars in the Report of Board of Directors) Rules, 1988.
b.
Changes to be mentioned in the Boards Report include: [Sec. 217(2)]
°
Changes in the nature of the companys business.
°
Changes in the companys subsidiaries or in the nature of business carried on by
them.
°
Changes in the classes of business in which the company has an interest.
c.
Particulars about certain specified employees: [Sec. 217(2A)]
d.
Composition of audit committee: [Sec. 292A and clause 49]
According to section 292A of the Act, the annual report shall mention the composition
of audit committee. If the company is a listed company, then such company should
meet the requirements of clause 49 of the listing agreement.
e.
ESOP/ESOS:
According to the SEBI (Employee Stock Option Scheme and Employee Stock Purchase
Scheme) Guidelines 1999, the board shall make disclosure in its report with regard
to ESOS and ESPS in accordance with the Guideline No. 12 and 19 respectively.
-
Shareholders Resolution:
If no action has been taken on any resolutions which were passed by the shareholders
in the previous meetings, the reason thereof be disclosed in the report.
g.
Change in the composition of the Board:
The appointment, reappointment, change in the office of the director on account
of any reason be disclosed.
h.
Disqualification of Director:
The disqualification, if any, of any director, due to non-compliance of any provision
of the Act including the act or non-compliance, due to which a director is disqualified
be disclosed.
3.
Environmental Statement
In terms of the Environment
(Protection) Rules, 1986, every industry, which needs to have consent under Water
(Prevention & Control of Pollution) 1974 and Air (Prevention & Control of Pollution)
1981 or authorization under the Hazardous Wastes (Management and Handling) Rules,
1989 issued under the Environment (Protection) Act of 1986, is required to submit
an annual Environmental Statement to the concerned State Pollution Control Board.
Apart from the mandatory
requirements, the organizations are encouraged to make certain voluntary disclosures
as discussed in this Guidance Note.
Contents of the Disclosures
In order to ensure a balanced and reasonable presentation of the organizations
performance, a determination must be made about what content the report should cover.
This determination should be made by considering both the organizations purpose
and experience, and the reasonable expectations and interests of the various users
of the annual reports. Both are important reference points when deciding what to
include in the report. This Guidance Note suggests a list of items that can be included
in Non-financial disclosures made by Corporates.
Suggested list of items that can be included in Non-financial disclosures
1.
Organizational Profile
Name of the organization and Location of headquarters, Principal Business, Vision
& Mission, Primary brands, products, and/or services together with the business
operational structure including location of manufacturing plants, Names of holding
companies, subsidiaries, and joint ventures, countries where the organization operates,
Shareholding Pattern indicating identity and percentage of ownership
of largest shareholders, Markets served (including geographic breakdown,
sectors and customers served) alongwith Achievements and Awards won, if any.
2.
Corporate Governance Report
(Other than those prescribed in clause 49 of Listing Agreement)
2.1
Ownership and shareholders rights including changes in control
°
Voting rights including veto powers of certain shareholders
°
Mechanism for Clarifications and open dialogue with all the shareholdersindividuals,
corporate or QIBs.
°
Reference to processes enabling minority shareholders to express opinions to the
Board
2.2
Governance Structure & Policies
2.3
Secretarial Audit
Whether the organization has carried out Secretarial Audit by an independent Professional?
If so, The Secretarial Audit Report or Certificate should be attached.
2.4
Detailed information about the Board
°
Members of the Board and key executives
°
°
Mode of Selection of Directors
°
Process for evaluation of the Board
°
Compensation Policy to the Directors
2.5
Particulars of Internal Auditors
2.6
Risk Management Framework
2.7
Internal Code of Conduct, Business Ethics & Whistle Blower Mechanism
2.8
Commitment to External Initiatives
3.
Sustainability Report
The sustainability report should provide a balanced and reasonable representation
of the sustainability performance of a reporting organization including both positive
and negative factors. In this regard, the following disclosures could be made:-
3.1
Economic Performance
°
A concise disclosure on the management approach, organization-wide goals and policies
with reference to the economic aspects such as economic performance, market presence
and economic impacts
°
Key Economic Performance Indicators
°
Dividend Policy
°
Bonus Issue Policy
°
Measures taken to align stakeholders
°
Contribution towards the growth of the economy/National Exchequer
3.2
Environmental Performance
°
A concise disclosure on the management approach, organization-wide goals and policies
with reference to various environmental aspects such as materials, energy, natural
resources, emissions, effluents and wastes, compliance etc.
°
Sustainability strategies / Initiatives and Policy of the company towards the following
environmental aspects and the impact
thereof:
°
Climate change, Global Warming & Sustainability Preparedness
°
Management of Natural Resources
°
Conservation of Energy
°
Any other environmental or ecological footprints and initiatives to improve the
same including measures taken for control of water / noise / air pollution alongwith
its impact
°
Compliance
The extent of compliance with the various environmental laws
and rules in the country such as the Environment (Protection) Act 1986, Water (Prevention
& Control of Pollution) 1974, Air (Prevention & Control of Pollution) 1981, Noise
Pollution (Regulation and Control) Rules 2000, Biological Diversity Act 2002, The
Public Liability Insurance Act 1991, Forest (Conservation) Act, 1980, Hazardous
Wastes (Management and Handling) Rules, 1989, Bio-Medical Waste
(Management and Handling) Rules 1998, The Ozone Depleting Substances (Regulation
and Control) Rules, 2000 etc.
3.3
Social Performance
°
A concise disclosure on the management approach, organization-wide goals and policies
with reference to the social aspects such as product responsibility, human rights,
inclusive development and Infrastructure Investment & services
°
Strategies / Initiatives of the company towards the following social aspects:-
°
Product Responsibility
°
Protection of Human Rights
°
Inclusive Development
°
Social Infrastructure Investments & Services
made to create enduring symbols of excellence in the field of arts, culture, sports
etc.
°
Compliance
The extent of compliance with relevant social laws and regulations
3.4
Value Statements
3.5
CSR Initiatives of the company relating to customers, employees, suppliers, shareholders
and especially to community such as self employment schemes,
women empowerment, providing minimum education to children, promotion of
sports, rehabilitation after natural calamities etc.
4.
Innovation and Strategy / Research & Development
Policy and measures for development of greener products, systems, processes and
technologies which are not only environmentally responsible but also financially
beneficial as well
5.
Business Continuity Planning including Preparedness for Disaster Management
6.
Intangible assets reporting
6.1
People / Human Resources
°
Measures for Integration of Employees into Corporate Strategies
°
Mechanism or policies within the organization for Employees Rights & Welfare
°
Work culture within the organization
6.2
Valuation
of
Intangible Assets
°
Human Resource Valuation / Human Resource Accounting
°
Valuation of brand
°
Valuation of other intangible assets
by using various methods in order to minimize the information asymmetry between
management and shareholders
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