Author: Barbora Belova
Date of Publication: 18/04/2023
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Non-financial reporting means sharing information about a company's impact on the world around it. For example, you share how it treats its employees or affects the environment. This way you show how it contributes to the communities it operates in. Therefore, this type of reporting is becoming increasingly important. This is because more people and organizations prioritize sustainability and social responsibility.
Non-financial reporting is a way for companies to share information with stakeholders. In particular, the information is about their social, environmental, and governance (ESG) performance. Financial reporting focuses on a company's financial performance. So, non-financial reporting provides a broader
picture of a company's impact beyond
its financial bottom line.
Importance of non-financial reporting
Companies are increasingly recognizing the importance of non-financial reporting. This is because stakeholders are placing more emphasis on sustainability and social responsibility. In fact, some stakeholders make decisions based on a company's ESG performance, rather than just its financial performance. So, non-financial reporting allows companies to communicate their values and commitments to these stakeholders. Apart from that, it demonstrates their efforts to minimize their negative impact and maximize their positive impact.
Guidelines, frameworks, and institutions
Non-financial reporting can cover a wide range of topics. For instance, some examples are diversity and inclusion, human rights, environmental impact, supply chain management, and community engagement. Companies can use various reporting frameworks and standards to guide their reporting. There are examples of a short characteristic of each guideline, framework, and institutions:
1) Global Reporting Initiative (GRI)
GRI is an independent international organization that provides guidance and
standards for sustainability reporting. GRI standards help companies to disclose their
sustainability performance and impact on the environment, society, and economy.
2) Sustainability Accounting Standards Board (SASB)
SASB is an independent non-profit organization that develops industry-specific
standards for reporting on sustainability performance. SASB standards provide
investors with decision-useful information on financial material sustainability
topics.
3) Task Force on Climate-related Financial Disclosures (TCFD)
TCFD is a global initiative established by the Financial Stability Board. In particular, its
aim is to develop recommendations for disclosing climate-related financial risks and
opportunities. Thus, TCFD helps companies to report on climate-related risks and
opportunities in a consistent and transparent way.
4) United Nations Global Compact (UNGC) and Goals
UNGC is a voluntary initiative launched by the United Nations in 2000. Actually, the
purpose is to encourage businesses to adopt sustainable and socially responsible
policies and practices. The UNGC's 10 principles cover human rights, labor,
environment, and anti-corruption. The UNGC also supports the UN Sustainable
Development Goals (SDGs). More specifically, DGs are a set of 17 global goals to
achieve a sustainable and equitable world by 2030.
5) Integrated Reporting (IR)
IR is a reporting framework. So, companies are communicating how their strategy,
governance, performance, and prospects lead to value creation over time. IR aims to
provide a more comprehensive and integrated view of a company's value creation for its stakeholders.
6) European Union (EU) Directive
The EU Directive requires large companies to disclose certain non-financial
information related to ESG issues. Therefore, the directive aims to improve
transparency and accountability of companies on ESG issues and to foster
sustainable development.
7) Principles for Responsible Investment (PRI)
PRI is a global network of investors. They are committed to incorporating ESG factors
into their investment decision-making and ownership practices. What’s more, PRI
provides a framework for investors to integrate ESG into their investment processes.
They can also engage with companies on ESG issues.
8) OECD Guidelines for Multinational Enterprises
The OECD Guidelines are a set of recommendations for responsible business conduct
by multinational enterprises. The guidelines cover a range of issues, including human
rights, labor, environment, anti-corruption, and consumer protection. The
guidelines are not legally binding but are widely recognized as the international
standard for responsible business conduct.
Effectivity at non-financial reporting
Effective non-financial reporting involves:
● Identifying relevant topics and indicators
● Setting targets and goals
● Measuring and reporting progress
● Engaging with stakeholders
Companies need to ensure that their reporting is accurate, reliable, and transparent. Therefore, they needs to continuously improve their performance and reporting.
Non-financial reporting is not only beneficial for stakeholders but also for companies themselves. What’s more, it can help companies identify and mitigate ESG risks, and enhance their reputation and brand. This way they could attract and retain talent, and drive innovation and efficiency. Furthermore, non-financial reporting can foster dialogue and collaboration between companies and stakeholders. As a result, this can lead to mutual understanding and trust.
Conclusion
In conclusion, non-financial reporting is a vital tool for companies to communicate their ESG performance to stakeholders. It is also a tool to demonstrate their commitment to sustainability and social responsibility. It is a key part of a company's overall strategy and can provide numerous benefits for both companies and their stakeholders. Embracing non-financial reporting makes changes. Companies can enhance their long-term viability and need to contribute to a more sustainable and equitable future.
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