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Non Financial Reporting: An Opportunity Or A Thread?

As the attention for the environment increases year by year, due to environmental disasters and to the increasing of temperatures, entrepreneurs and consultants are asked to face a new challenge in the accounting and consulting world: non financial reporting. Non Financial Reporting is an activity that consists on collecting information on how the enterprise perform in three different areas: environment, society and governance.

Referring to the Italian legislative framework, this document has to be drawn up by corporates profit-oriented that are listed or large banking-insurance firms, compulsorily (Legislative Decree No. 254/2016 implementing the European Directive 2014/95/EU). Whilst this document is not required for a large number of enterprises, many are starting to draw it up too: why?

First of all, consumers are becoming more and more aware of the impact of their actions and the way they consume.

Many studies show that companies that keep an eye on what is best for the environment, the society they operate in, and the wellness of their employees are more likely to be successful and their products to be chosen by clients. This is why, presenting a document that aims at taking into account not only the financial performances of the firm but also the impact of doing business on the environment, the society we are working in, and the health of employees can increase the customers’ interest and, so, the probability to sell our product to a wider range of users.

Secondly, through this report companies can not only detect data on the ESG performances but also on financial ones, in particular in reference to cost reduction.

In fact, following a study conducted by the Permanent Observatory on Sustainability and Communication on 684 firms in 2018, it has emerged that thanks to Non Financial Reporting, 49% of the respondents have stated that it helps with cost reduction; 56% believed that it aids at increasing sales and the other part saw it as a valid element to reach new customers[1].

Referring to cost reduction, we can say that by accounting what is wasted is really helpful not only to underline the impact of industrial activity on the environment and to boost a change but also to highlight how to save money by reducing offcuts.

Moreover, in order to increase the profitability of a corporate it is fundamental to keep its employees enthusiasts and brand loyalists: in fact, every time a human resource leaves the company, not only his/hers skills will be lost, but also the time that has been dedicated to educating him/her will become a cost, not an asset since his/hers know-how will be used to implement a peer or a competitor. In order to avoid the exodus of important resources for the company, Non Financial Reporting is one of the greatest allies: in fact, by submitting satisfaction questionnaires and accounting for the level of satisfaction of employees and other stakeholders, not only will employees feel more involved in the running of the business but also measures can be put in place promptly to improve their working condition.

Furthermore, taking into account the impact that the corporate activity has on the social scenario it is working in can be very useful to avoid damage to the corporate image and lose customers. Thus, it follows that marketing costs can be reduced because, on the one hand, this report can be used as a way of publicizing companies' attention to issues of great relevance in the way they do business and, on the other, it can be a strong signal that they do business while respecting the values of their stakeholders.

Lastly, Europe is investing a lot into sustainability and climate change management policies. In fact, in May 2021 it has been approved the Commission’s proposal for the first European Climate Law, which aims at formalizing into law the goals contained in the European Green Deal. Through this set of laws, EU wants Europe’s economy and society to achieve net zero greenhouse gas emissions for EU countries.

The objectives of this project are, among others, creating a system for monitoring progress and take further action if needed and provide predictability for investors and other economic actors[2].

Therefore, it is clear that this change can be made, when considering corporates, by acting on the way enterprises do businesses and by extending, compulsorily, Non-Financial Reporting to the ones that are now not required to do so. In fact, thanks to it, it is easier to track down each business’s emission and impact on our planet: by doing so, then, it is possible to identify where emissions are more concentrated and why, to elaborate programs that can solve this problem for ever.

In conclusion, to be more competitive, to adapt rapidly to the European Law Framework and to the needs of the market – that will be more and more concentrated on the Environmental, Social and Governance Sustainability in the next years – we, as consultants, believe that Non Financial Reporting has to be adopted as soon as possible by entrepreneurs and managers.

Of course, this document causes the arising of more administrative costs but, we believe – firmly – that it can help with anticipating heavier costs that can derive from the non-compliance with sustainability legislation, damage to image as a result of governance issues or with the community in which the company operates, compensation due to employees or customers for mismanagement, etc.

 

[1]Sustainability: an asset to enterprises, https://www.sgei.it/blog/sostenibilita-un-asset-sempre-piu-importante-per-le-aziende

[2] European Climate Law, Climate Action, https://ec.europa.eu/clima/policies/eu-climate-action/law_en

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