With such a significant uptake in non-financial reporting amongst the top 250 companies in the world, the importance of and expectation for access to corporate responsibility information is growing. In a nutshell, non-financial reporting is fast becoming as prevalent as financial reporting.
Since 1993, the percentage of companies reporting on the CSR has grown more than six-fold, from 12% to an impressive 93% according to KPMG’s Road Ahead survey. Before we dive into the importance of non-financial reporting, let’s remind ourselves why financial reporting itself is so prevalent:
The case for non-financial reporting
With these points in mind, we can better address why non-financial reporting is increasingly prevalent. Interestingly, the reasons for its rise in adoption mirror the reasons for financial reporting’s existing popularity…
As with financial reporting, non-financial reporting helps existing and potential stakeholders make better business decisions.
Insight into all three pillars of the triple bottom line – including environmental and social considerations – provides a more holistic overview of business performance.
Crucially, companies which perform better in terms of their social metrics are more likely to prosper in other ways: they are more likely to be sustainable, and less likely to suffer from the ill effects of a lack of responsibility.
Poor social practices, on the other hand, can result in environmental risks, health risks to your employees, and product risks to your consumers. therefore, it’s best to reassure your stakeholders that you’re not one of the ‘bad guys’. As the Fast Company notes, “Investing in social sustainability allows companies to flip these types of liabilities into assets. When you provide safer working conditions, living wages, and job security, you create a more secure supply chain.”
One organisation that has understood the need for triple bottom line reporting is ClearlySo, who provides non-financial reports and strategic advice to investors looking to invest their capital in ethical business.
There is a greater thirst amongst consumers and employees alike for transparency with regards to ethical standards.
Companies who disclose their social impact are more likely to appeal to consumers, and many, especially from younger demographics, are willing to pay a premium for companies who display socially and environmentally responsible characteristics. In addition, 70% of Generation Z will boycott a brand if they act unethically towards a cause they care about and by 2020, they will make up 40% of all consumers.
Likewise, employees who work for companies with embedded CSR strategies are more likely to record higher levels of satisfaction (and therefore more likely to be retained) and perform at a higher standard.
One way of achieving transparency is to meet the standards set by industry or trade bodies. For example, members of the Ethical Trading Initiative are required to meet various targets in order to prove their social responsibility and, in doing so, are being actively transparent in their reporting.
Alongside a growing expectation among stakeholders, consumers and employees for better non-financial reporting, there is also a growing institutional and regulatory demand for compliance to defined standards.
Whilst there are regional differences in what this compliance looks like, there is an unmistakable movement towards a heightening of expectations, and companies who preempt these regulatory changes will be best positioned.
A shining example of this would be India, where it is mandatory for companies of a certain size to spend 2% of their average net profits made during the three preceding years on CSR activities.
In the UK, meanwhile, a 2016 regulatory update means that the ‘Non-Financial Reporting Directive’ requires companies of more than 500 staff to disclose certain information:
Benchmarking your reports
Reporting allows you to create a standardised score or set of scores against which the non-financial success of the company can be assessed. This might be according to a predefined framework – such as the UN’s Sustainable Development Goals, or the Global Reporting Initiative – or even a custom-built scorecard that reflects your company’s bespoke objectives.
In either case, it is important for this work to be as coherent, focused and goal-driven as possible, in order to facilitate comparison (either year-on-year or against other organisations) and improvement.
Make sure you use flexible, ‘framework ambivalent’ software which allows you to capture, track and analyse the non-financial performance of your organisation.
Impact provides a platform to do just that: allowing you to create and manage a digital scorecard of your non-financial metrics, de-centralise responsibility for capturing the necessary data, simplify the process of amalgamating the data, and better preparing your company for reporting non-financial metrics and meeting regulatory standards.