Businesses need to push the envelope on where they stand on ESG, employee welfare and all other non-tangible parameters. Image Credit: Shutterstock

As businesses strive to align with global accounting practices, integrating non-financial reporting has become a must-have for organizations seeking cost-effective ways to sustain their competitive advantage.

While financial reporting is arguably the go-to fundamental aspect of running a successful business, non-financial reporting is equally critical in providing a comprehensive, bigger-picture understanding of the operations.

Investors and stakeholders are looking beyond the bottom-line to gain a holistic view of performance and, most importantly, the growth trajectory. How can companies gain a competitive edge by integrating both financial and non-financial reporting?

Include the non-tangibles

Non-financial reporting spans a variety of subjects, including human rights, employee welfare, diversity and inclusion, and civic engagement. It also includes ESG matters. Non-financial reporting fulfils a variety of functions, including transparency and accountability, risk and reputation management, and strategic decision-making, driving performance and innovation, among others.

The fact that non-financial reporting improves a company’s credibility and reputation is just one of its advantages. Companies that increasingly disclose information on ESG risks demonstrate they are devoted to moral and sustainable business practices.

According to a PwC survey, 91 per cent of business leaders believe their company has a responsibility to act on ESG issues while 86 percent of employees prefer to support or work for companies that care about the same issues they do. These figures paint a picture of why non-financial reporting is necessary for companies that are seeking to favourably compete on a global scale.

ESG compliances

With transparency and accountability at the forefront, reporting on non-financial/ESG parameters is integral to strengthen goodwill and create long-standing relationships with key stakeholders. A unified approach to financial and non-financial reporting coupled with improving a business’s non-financial aspect is likely to have a positive impact on the financial component in the long term.

The ability to assist firms to pinpoint particular areas for development is another crucial advantage of non-financial reporting. Companies might discover opportunities to save expenses, increase efficiency, and reinforce their sustainability by reporting on important ESG indicators, including energy use, water usage, and carbon emissions. Businesses can also find areas where they may be falling short and take corrective action by reporting on issues like employee wellbeing.

Integrating reporting

Financial reporting only tells a small portion of the story. By integrating financial and non-financial, businesses can comprehensively view their operations, performance, and prospects. This approach can help businesses improve their decision-making, build trust with stakeholders, and enhance their reputation - online and offline.

One way that businesses can integrate l reporting is by including ESG metrics in their financial reports. This approach enables investors and stakeholders to view a company’s financial performance in the context of its ESG performance, thus providing a more holistic view of the business. For instance, a company that reports on its carbon emissions and energy consumption in its financial report is likely to be viewed more favorably by investors concerned about climate change.

In the interest of providing a true overview of a company’s performance, threats, and opportunities, an integrated report integrates financial and non-financial information. This can assist them in establishing the trust of their stakeholders and enhance their public image.

It is essential to remember that, in addition to being required, the voluntary annual integration of non-financial reporting can help businesses align with national and international commitments to achieving Sustainable Development Goals, with a special emphasis on addressing the climate crisis. Non-financial reporting demonstrates how businesses are taking into account multiple ESG factors and integrating them into their processes and structures, whether it is done as a required practice or on a good-to-have basis.

Non-financial reporting has evolved into a critical component of managing a successful company and adhering to international standards. By giving stakeholders a more complete picture of a company’s operations, performance, and prospects, integrated financial and non-financial reporting may improve decision-making, foster stakeholder trust, and boost profitability.

It’s time for organizations to acknowledge the value of non-financial reporting and seamlessly include it with the financials for long-term success.