Non-financial reporting is a form of transparency reporting where businesses formally disclose certain information not related to their finances, but other integral things including business model, policies, risks, results, due diligence in ESG, human rights, diversity of the board of directors and more. Other than compliance, non-financial reporting has various benefits for companies, the strongest and most important one being business risk management. Potential stakeholders, investors, and business partners can reflect on this for very important business discussions.
Companies that do not believe in addressing these concerns or issues may find themselves in deep losses in the coming future as these pre-financial risks (ESG risks) are becoming central to all business strategies. Sustainability risks are not just to be managed and put aside, they as a matter of fact tend to drive the performance, build a company into a brand and protect it from the modern consumers’ inquisitive mind. As a matter of fact, ESG activities help improve the business operations, strategy, and financial performance. For example, a good employee social security and healthcare benefits plus pensions will reduce turnover which means less training hours and larger productivity, or reducing waste reduces costs of dumping which improves the finances of a company. It also makes the company come across as more innovative and a good marketing strategy, which in turn always helps to generate new business opportunities.
The world of this century is more in touch with these trends than ever before. According to various studies, the millennials believe in buying products and services from companies that have great ESG policies and tend to avoid big multinationals who are vague in their communications, expecting much more in terms of responsibility towards the societies. 9 out of 10 people buy sustainable today!
Another definitive reason to do non-financial reporting is reputation. In today’s day and age, competitive companies are focusing largely on being transparent, which is improving their reputation and one must not be left behind in any aspect.
With the growth of heightened expectations of stakeholders, investors, regulators, consumers towards transparency. Pre-financial risks can not only be taken care of but if not they can also turn into clear as well as very tangible financial impacts when not addressed in timely. Instead use non-financial reporting to identify, measure and communicate effectively to drive business performance and protect the company’s brand and reputation. This is after all just responsible risk management.