Opinions

Global trends in non-financial reporting

Non-financial reporting is today an important element of best business practice, as evidenced by the history and current trends of non-financial reporting. The reports help not only to have a dialogue with key stakeholders, but also to improve the quality of the strategic management of the company, quickly responding to potential and probable risks, which is an important factor for investors, the government and business partners. 

According to a study conducted by the E&Y audit company, 71% of investors in the world consider non-financial reporting in the decision-making process regarding the company's future activities, and about 80% of respondents believe that non-financial reporting is essential for improving decision-making. 

And if earlier sustainability reporting was perceived rather as a moral obligation to society, now many companies regard it as a primary business requirement. Today, companies are demonstrating that such reporting increases financial gain and stimulates innovation - this confirms the well-known saying "what is measured can be managed." 

Obviously, companies that do not yet publish such reports are reviewing their position in the interests of business and are forced to start preparing these reports in the nearest future. Sustainability reporting will continue to become increasingly important not only for maintaining the competitive image of a company, but also forgetting a clearer picture of their impact on the business efficiency, contributing to reducing costs and finding new opportunities. 

As many non-financial reporting analysts and experts note, the Global Reporting Initiative (GRI) remains the most recognized platform used effectively in providing information compatible with other reporting systems. GRI standards offer tremendous benefits to businesses, governments, and stakeholders and can be adapted to the needs of any organization. Those who use this information for practical purposes can be sure: they are based on the views of many stakeholders and on best practices in reporting. At the end of 2019, 13341 organizations and 52470 non-financial reports were registered in the GRI database. 

Since the signing of the Paris Agreement, actions in the direction of combating climate change among states, companies and public associations have significantly intensified. The most dynamic shifts were reflected in non-financial reporting. One of the oldest climate reporting initiatives is the Carbon Disclosure Project (CDP). At present, it creates and maintains the largest pollution reporting database in the world. The project annually collects data on the activities of companies on greenhouse gas emissions and climate strategies, the treatment of water and forest resources. Since 2003, the number of companies participating in reporting campaigns has increased by more than 30 times - from 220 to 7016. Data is provided to 650 institutional investors ($ 83 trillion). It has been proven that investments in companies that actively manage and plan actions to slow global warming have an 18% higher return on investment (ROI) than companies with lower rates. This trend indicates a proactive approach to risk management in the financial community. 

In 2018, a new powerful trend evolved, as noted by all researchers and analysts: companies started to turn to the 17 UN Sustainable Development Goals (SDGs) as an ideological basis and targets for non-financial reporting. Many companies have begun integrating SDG related topics into their reports. “The business that is among the first to bring its strategies in line with the SDGs has an advantage over others during the next 10-15 years,” said the Executive Director of the UN Global Compact. A review of the World Business Council for Sustainable Development (WBCSD) concluded that 79% of the 157 analyzed companies recognize the SDGs to some extent; 45% started aligning their sustainable development strategies with the SDG criteria at the target level; 6% agreed on their strategy and goals with specific SDG criteria at the target level and measured their contribution to achieving relevant goals. 

Thus, well-prepared non-financial reporting becomes a kind of Roadmap for commercial organizations, indicating the routes of interaction with stakeholders in the framework of creating sustainable strategies aimed at transforming business models, products and services, as well as local communities in the regions of operation. The main results from the implementation of non-financial reporting in corporations are as follows: 

— improvement of ratings, in particular the rating of corporate governance, which, in turn, helps to attract debt capital to the company; 

— strengthening the international reputation and conducting a successful IPO on Western stock exchanges, as well as in attracting institutional investors (such as pension, mutual funds, etc.) as shareholders; 

— the possibility of attracting cheaper and "longer" loans (for example, obtaining loans from banks that follow the Equator principles is impossible without assessing the level of environmental responsibility); 

— increasing investor interest not only in the company, but also directly in management, which, using non-financial reporting, has demonstrated the quality of its corporate governance, corporate sustainability, high level of non-financial risk management and the ability to effectively interact with stakeholders; 

— increasing the degree of trust in the company's relations with interested parties, which helps to prevent potential threats and conflicts with interested parties