Benefits of non-financial reporting, going ahead the compliance

With sustainability issues gaining increased attention from investors, regulators, activists, and the media, organizations can not afford to ignore the topic. From 1 January 2017, large public-interest entities with more than 500 employees are required to disclose certain non-financial information.

The new EU directive requires those companies to disclose information on business model, policies, risks and results, including the implemented due diligence as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors. In the Czech Republic, this directive has been transposed into the amendment to the Accounting Act that also came into force on 1 January 2017.

The bulk of the companies for which the rules are binding have already been issuing some form of a sustainability report. There has been unlimited liberty so far in how to prepare the report; but with the new regulation the report should have a legal basis and a legally-set minimal structure. We help clients to address those requirements and make the most of the reporting process.

Apart from compliance, the benefits for companies are numerous. One of the strongest reasons is based on business risk management. Investors and potential business partners take this non-financial report as a very important part in business discussions. The Deloitte whitepaper on how CFOs can manage sustainability risks and create long-term value, states clearly that environmental, social, and governance (ESG) risks increasingly demand the attention of chief financial officers (CFOs).

Companies that are not addressing these issues may be caught flat-footed as these pre-financial risks become central to business strategy. Sustainability risks are not just concerns to be managed. They can also drive performance and help to build and protect a company’s brand. For example, managing environmental resources can help avoid business interruptions, just as managing the workforce helps to avoid turnover, or understanding a company’s supply chain can help reduce the risk of brand damage.

In addition, these activities may have a positive impact on a company’s operations, its strategy and financial performance. For instance, we have assisted an energy firm in creating its sustainability strategy, in integrating sustainable development into its corporate strategy and non-financial reporting. This involves, for example, the goal of reducing emissions or waste or better utilizing materials and thereby decreasing their consumption which inherently has a positive impact on the company’s financial performance. Last but not least, the company is seen as being innovative, with a positive relation to customers which may generate new business opportunities.

Another interesting trend is that the young generation is more perceptive to how an employer presents itself than the previous generations were. According to Deloitte Global’s sixth annual Millennial Survey published in 2017, youngsters view business positively, but believe multinational businesses are not fully realizing their potential to alleviate society’s biggest challenges, expecting more from their responsibility towards society. Almost 9 in 10 (86 percent) believe the success of a business should be measured in terms of more than just its financial performance. It is, therefore, encouraging that the vast majority (82 percent) of millennials report their employers are directly involved in issues of personal concern, or are supporting charities and other social initiatives in the area. Such involvement is more prevalent in larger businesses with education, skills, and training being the areas of greatest focus.

Did you know? Practical tips

  • Non-financial data should be included in a section of the report on the activities of the company (statement on non-financial information) or may be presented in a separate report: GRI report, integrated report, impact report, etc.
  • Preparation of the first non-financial report takes about 4–5 months.
  • The average non-financial reporting process in accordance with the guidelines of the GRI involves about 20 people in the organization.
  • On average, approx. 60–80 indicators are collected.

On top of the clear business impact, reputation is also a reason why a non-financial report is positive for the company. There are several competitions focused on non-financial reporting and when a company ranks high in such a competition, it contributes to strengthening its good reputation. The Deloitte Green Frog Awards have been rewarding the excellence in reporting for more than 17 years, the second edition of the unique Czech SDGs Awards also counts with a category for reporting, in which we contribute as members of the Jury.

Considering the growth of  heightened expectations among shareholders, regulators, communities, and other stakeholders towards transparency , the mentioned pre-financial risks could turn into clear and tangible financial impacts if not being addressed on time. Yet there’s no reason that certain risks—effectively identified, measured, and communicated—shouldn’t help drive corporate performance and protect a company’s brand and reputation. Companies that address these issues can be better prepared to create enterprise value while meeting ESG reporting demands and broader stakeholder expectations of responsible risk management.

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