What is non-financial reporting and its importance for companies in Russia

What is non-financial reporting?

Non-financial reporting, also called sustainability reporting, is a method by which businesses or other organizations share information about their environmental, social, and economic impacts, as well as their performance.

ESG is an acronym for environment, society, and governance. This framework is used to assess the risks and opportunities associated with changes in environmental, social, and economic systems. It helps to understand how a changing climate, stakeholder expectations, and local business conditions affect companies and their dependencies.

In its most general sense, non-financial reporting provides an opportunity to see the overall environmental impact of a business beyond the usual financial indicators and demonstrates more ambitious goals and social achievements.

Non-financial reporting allows consumers, employees, and regulators to adequately assess a company’s commitment to sustainable development and its ability to cope with climate challenges, and aligns these practices with financial and corporate goals.

The Effectiveness of Non-Financial Reporting

Non-financial indicators offer several benefits for assessing the performance of enterprises with additional context and accuracy, such as:

– improved risk management;

– increased portfolio efficiency;

– positive impact on nature;

– increased innovation and flexibility;

– compliance with legislation;

– contribution to achieving global sustainable development goals.

What does non-financial reporting include?

Non-financial reports focus on aspects of a business’s performance other than financial indicators, sometimes outperforming their financial counterparts.

According to the ESG concept, which stands for environment, social development, and governance, this report should cover relevant aspects of an organization’s activities:

1. The environment section should cover global warming and pollution issues, including:

• rational use of resources;

• reduction of greenhouse gas emissions;

• control of the use of hazardous substances;

• waste management;

• compliance with regulations and standards;

• industrial ecology issues.

• The social dimension examines the impact of business on society and culture, focusing on equality and fairness, including product safety and customer data protection, as well as support for local communities.

• Corporate governance should demonstrate management’s responsibility for managing risks and the ethics of business, including transparency on compensation.

International sustainability disclosure standards such as IFRS, SASB and GRI are also important in the context of ESG reporting.

Eleven recommendations focus on aspects such as governance, approach, risk mitigation and metrics. They are now integrated into IFRS standards.

The European Sustainability Reporting Standards (ESRS) are mandatory for companies to report, unlike previous recommendations. The ESRS includes two main standards: the first covers the concepts and structure of reports, and the second covers disclosures on business operations and ESG assessments. In addition, there are ten standards that address specific ESG topics.

The UN Global Compact bills itself as “the largest corporate sustainability initiative,” focusing on integrating business strategies with ten principles on human rights and the environment. The Labor Disclosure Initiative offers a platform for sharing data on labor management practices.

In the face of climate change, social inequality, and biodiversity loss, non-financial reporting is becoming critical to sustainable development. There is growing pressure for stronger integration of non-financial and financial reporting, as well as for harmonized reporting frameworks to improve transparency and accountability.