Non-financial financial information: key to a sustainable economySimply bragging about revenues and profits is not enough. Companies must evidence their sustainability efforts not only to continue attracting investment, but also to transform themselves and prove their commitment to a society that is on high alert as a result of climate change and an economic model that needs to change.
Photo: To receive greater investment or improve their public image, or even to remain operational in a new economy, companies will have to make a concerted effort to publish non-financial information on corporate sustainability activities. Credit: Visual Stories || Micheile | Unsplash
By José Manuel Blanco
CO2 emissions. Percentage of employees with disabilities. Adherence to the UN Sustainable Development Goals (SDGs). These are some of the categories that can be found in the sustainability report or non-financial information of a large company. Beyond revenue and profit figures (typical of financial reports), these categories tell us about the company’s commitment to diversity, good corporate governance, or the environment in which it operates.
At a time when environmental and financial sustainability have become synonymous with good corporate governance, implementing sustainable policies not only improves the future of the Earth, but their dissemination helps the corporate image given to investors and society. In addition, they help companies themselves to pursue a new economic model that inevitably involves sustainability.
“Non-financial reporting offers an opportunity for companies to transform their processes and change habits, and thus become more sustainable organizations,” explains Opinno’s Content Director, Carlos Corominas, who stresses the growing pressure for the breakdown of the impact of organizations: “In addition to society’s demand for knowledge of the effects of companies and their actions to reduce their impacts, there are increasingly demanding regulations, especially in the European Union.”
In this regard, the European and Spanish legal system legislates the disclosure of these reports; in the case of Spain, it is compulsory for public interest companies with more than 250 employees or an annual net turnover of more than 40 million euros. The companies include banks, insurance companies, those listed on the stock exchange and others with fewer employees, but which national governments have designated as being of public interest. In total, there are more than 11,700 corporations in the EU, according to the European Commission.
The interest of investors and civil society associations in sustainability is adding to the climate emergency. The latest report of the UN’s Intergovernmental Panel on Climate Change (IPCC) warns that it is essential to reduce the large number of CO2 emissions in the atmosphere to avoid major risks from climate change. In the next 20 years, greenhouse gases will increase global temperatures by at least 1.5C, according to the findings. Therefore, the pressure on companies and their environmental impact will only increase in the coming years.
What lies ahead
Currently, there is a proposal for a new EU directive (Corporate Sustainability Reporting Directive – CSRD) to increase the scope of sustainability reporting to any large company and all companies listed on regular markets, including SMEs (not micro-enterprises). In addition, the directive includes the need to audit reports and inform with more detail and according to EU standards. “There is a lot of evidence that the information that companies report is not sufficient. Reports often omit information that investors and other stakeholders consider important,” says the European Commission.
Photo: The European Union is working on reporting standards. Credit: ThisIsEngineering – Pexels
Brussels plans to publish the first set of standardized reporting rules for these non-financial reports in October 2022. If so, companies could apply these standards for the first time in 2024, in the 2023 financial year reports. If the deadlines and targets are met, up to 50,000 companies could be bound by these reports.
By using such standards, it will be easier to compare companies’ results, and investors will have more reliable information on environment-related risks: industry players want to know the environmental impact of corporate activities in order to invest accordingly. Therefore, submitting these sustainability reports will help companies to find economic financing. In addition, the Commission has warned that “if listed SMEs do not submit sustainability information, they may risk being excluded from investment portfolios.”
What to include
For the time being, while waiting for the standards, there are guidelines that are not obligatory to follow; that is, companies can use other national, European, or international guidelines for their reports. In any case, these sustainability reports must include information on:
- Environmental issues
- Social issues and treatment of employees
- Respect for human rights
- Fighting corruption and bribery
- Diversity on companies’ board of directors (age, gender, academic and professional backgrounds)
Corominas stresses that “the social and governance dimensions are already variables to be considered in addition to the environmental sphere,” and adds: “Diversity, gender equality, the treatment of suppliers and the impact on communities are fundamental elements when carrying out the company’s activities.”
Photo: Investors are increasingly interested in companies that show their commitment to sustainability. Credit: Austin Distel – Unsplash
The B Corp Movement
Today, organizations use a range of certifications to guarantee their processes and account for their activity. It is in this corporate context that the B Corp movement has emerged, a global action managed by the non-profit organization B Lab. By signing up, organizations, investors, universities, or anonymous individuals strive to transform the global economy “to benefit all people, communities and the planet,” according to the description on the B Corp Spain website. This movement includes a certification of the same name that ensures social and environmental standards in the company. “People want to work, buy and invest in companies aligned with their values. Being B Corp is the most powerful way to generate credibility, trust, and value,” the website continues. Triodos Bank, Danone, or The Body Shop, to cite three very different examples, are some of the companies that have committed to this B Corp, according to the Spanish site.
For Opinno’s Chief Operations Officer, Javier Iglesias, the B Corp certification helps transform the company and is “very valuable” for several reasons. On the one hand, “it is difficult to achieve. Therefore, companies that become certified have to implement a few actions that make them improve their social and environmental performance.” On the other hand, “it is very complete,” covering numerous aspects, “from whether you use diffusers to reduce water consumption from taps to issues such as the amount of training that employees receive or requiring sustainable practices from suppliers.”
“Non-financial reporting should not be seen as a cosmetic issue, but as an honest exercise in accountability to society,” warns Corominas. Iglesias predicts that, “when clients start to demand this type of certification from suppliers, many more will decide to take the leap.” Faced with a world experiencing a climate emergency and with citizens concerned about the future of their environment, companies must demonstrate their commitment to an economy that protects humanity. Along the way, they will succeed in transforming their own organization.