Non-financial reporting paints a clear picture of a company’s performance that’s of value to investor and stakeholder

Financial reporting has long stood as the de facto standard against which business success is measured. It offers investor and stakeholder the numbers on which they decide to pin their money and their planning. However, this is no longer the only standard by which a business is measured. Non-financial reporting that focuses on environmental, social and governance (ESG) metrics has become increasingly relevant to investors, and there ‘s a move to make it more of a standardised process, globally.

Non-financial reporting is defined by Deloitte as ‘gathering and disclosing data on non-financial aspects of a company’s performance, including environmental, social, employee and ethical matters…’. It’s become an important part of how investors and stakeholders perceive a company and how they view the business model, the long-term strategy, and value creation. This shapes decision making, reputation, growth and so much more which makes it an incredibly important tool for any organisation to have in its toolkit. With it, a company can build far more robust foundations within a complex market and economy than it can without.

In fact, it’s becoming increasingly clear that non-financial reporting could very much be the reason why a company will ultimately stay in business. This view is cemented by how seriously the global community is taking this level of reporting. The Non-Financial Reporting Directive plays a critical role in boosting private sector commitment towards meeting the United Nations Sustainable Development Goals (SDGs) and the Paris Climate Agreement. In December 2019, the European Commission committed to reviewing the Non-Financial Reporting Directive as part of the European Green Deal to improve how companies reveal their climate and environmental data. The goal is to improve how companies inform their investors about the sustainability of their investments which will impact on the effectiveness of the European Green Deal.

By openly engaging with non-financial reporting, companies can move from a position where they simply comply with legal requirements to one where their performance is measured across multiple platforms, and their reputation benefits as a result. It equally introduces culpability. Organisations that commit to undertaking non-financial reporting are more likely to behave responsibly and focus on building a more sustainable future that’s aligned with green development goals.

There is another benefit to the company, beyond just reputation. Non-financial reporting can potentially unpack how a company is performing across multiple areas of the business in ways that financial reporting can’t. It can improve transparency, workplace culture, and allow for the organisation to make more informed choices around strategy, investment and behaviour. With non-financial reporting companies can judge their performance holistically and focus on value creation and long-term business sustainability. And the value of this is that it will deliver the kind of results that modern investors are interested in receiving.
While non-financial reporting has yet to become mandatory, there is little doubt of its value or how important it is for companies to be provide investors with this information. Those that step up and take the lead can potentially establish a lead in a market where leaders are needed, and help shift ESG into the forefront of boardroom conversations more effectively.