New wine, new bottles: the rise of non-financial reporting

This article explores the evolution of corporate reporting, which is gradually transforming its purpose, content and readership. Non-financial reporting, complementing financial reports, is gradually becoming the norm, and a new generation of reports, which blend the financial and non-financial into one, are also moving into the foreground.

The article highlights a number of reasons, responsible for this evolution as well as trends in current reporting:

• since the birth of the modern corporation, there has been a steady expansion of corporate rights, while. far less evolution occurred on the side of obligations
• the result was an accountability deficit in which all company stakeholders – investors and non-investors – were essentially excluded from the knowledge, oversight and control associated with rapid industrialisation
• more than a half century after the birth of modern financial reporting, it is becoming increasingly clear that incremental changes in corporate reporting insufficient to correct the systemic weaknesses that persist
• for investors, current reporting simply does not deliver information on the intangible assets that today account for well over half the market’s capitalisation
• CEOs and boards that proactively step up to this challenge can anticipate recognition and rewards in the coming years
• non-financial reporting requires engagement with non-financial stakeholders: effective practitioners understand that absent systematic consultation with customers, activists, suppliers and investors, major issues will be missed and reports will be viewed as incomplete at best or misleading at worst
• companies that await the conclusive business case for non-financial reporting are missing the opportunity to strengthen what ultimately is every firm’s most valuable asset: trust – in its management, products and services.

Altogether a further rise in non-financial reporting can be anticipated, which will be characterised by the following trends:

• integration of financial and non-financial disclosure will accelerate, exemplified by the few leading firms that already see the logic and efficiency of such practice
• metrics will continue to evolve, with environmental, social and economic indicators moving steadily toward a set of generally accepted standards applicable to all companies
• sectoral initiatives that build on core metrics will be key instruments for ensuring that disclosed information is in fact material information to stakeholders
• the use of technology to communicate and access information will experience a quantum leap as companies deploy the full range of media and mechanisms to disseminate their non-financial performance information
• in a matter of a few years, indices and ratings of non-financial performance will become as commonplace as financial performance indices and ratings are today.