The interest towards sustainable development is growing. In order to respond to this increased need of relevant information, companies could opt for non-financial reporting.
Non-financial reporting is closely linked to corporate social responsibility practices and procedures, to a company’s business strategy, as well as to its risk management policy.
Global Reporting Initiative (GRI) have developed a reporting framework aimed at facilitating investors, governments and civil society organizations a common understanding and grounds for a pertinent comparison across corporate performance, no matter the industry or business model. Currently, GRI operates with two reporting frameworks known as GRI G3.1 and G4. However, from January 1, 2016, G4 will be the only one accepted by GRI.
Any sustainability report that meets GRI’s requirements in terms of quality and that could pass any of the two available tests (the materiality check or the content index check) must include accurate, reliable and comparable data, as well as detailed information on the policies and procedures a company follows in managing its own business and across its supply chain.
As any reporting process, this is also a recurring exercise. It is usually conducted annually, and it consists of:
- stakeholder engagement process (examples of stakeholders include: investors, employees, public authorities, non-governmental organizations, sub-contractors);
- an analysis of risks and opportunities;
- a materiality matrix (developed based on the inputs collected from stakeholders);
- agreement on the report content and material key performance indicators;
- content development;
- assurance (recommended);
- validation (as mentioned above, GRI offers two services: a materiality check and a content index check);
- report launch;
- comments from stakeholders; and
- preparation for the new reporting process.
In 2014, both the European Parliament and the Council of the European Union have adopted a directive (2014/95/EU) regarding the disclosure of non-financial and diversity information by large undertaking and groups. According to the EU Directive, large companies (defined as those entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year) “shall include in the management report a non-financial statement containing information to the extent necessary for an understanding of the company’s development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employees matters, respect for human rights, anti-corruption and bribery matters, including:
- a brief description of the undertaking’s business model;
- a description of the policies pursued by the undertaking in relation to those matters, including due diligence processes implemented;
- the outcome of those policies;
- the principal risks related to those matters linked to the undertaking’s operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks;
- non-financial key performance indicators relevant to the particular business.
Impact Evaluation of the work or projects implemented by a for profit, non-profit or public organization through Social Return of Investment (SROI) methodology
Social Return on Investment (SROI) represents a way to measure economic, social or environment value produced or damaged by the organizations activity or projects. In a SROI analysis, the amplitude of the value produced or damaged is based in part on the perception and experience of the stakeholders, in part on the observable indicators of the change registered. Where possible, a SROI analysis permits the monetization of that change, which means that a ratio between the investment and the resulted value can be calculated.
The keystone of the methodology lays in the seven principles to be observed:
- Involve stakeholders.
- Understand what changes.
- Value the things that matter.
- Only include what is material.
- Do not over-claim.
- Be transparent.
- Verify the result.
”Value the things that matter,” or the monetization principle is unique to the SROI approach and includes the use of financial proxies and monetization of value. It is based on the assumption that the price is a proxy for value.
The use of monetary proxies to measure the social, economic and environmental value has the following benefits:
- it facilitates the alignment and integration of the performance management system with the financial system;
- it eases the communication with internal stakeholders, especially with those responsible for finances and resource allocation;
- it induces transparency through the clarification of the values included and those left aside from the analysis;
- it leads to the identification of key resources of value, thus streamlining performance management.
The disadvantage of using these financial proxies is the concern that monetization allows comparison of the end number at the expense of understanding the actual method by which it was arrived at. Such comparison is highly irrelevant.
As it informs the decision-making process on optimization of social, economic and environmental impact of an organization, the use of SROI analysis could assist to reduce social inequality, environmental degradation and to improve the quality of life of individuals and members of the community where the organization conducts its business.
Depending on the objectives of the SROI analysis, it can:
- take many different forms;
- be carried out as an in-house exercise or it can be led by an external researcher.
- be brief (for internal purposes), or a full report (for external stakeholders) that meets the requirements for verification.
Depending on the moment it takes place, there are two types of SROI analysis:
- evaluative – conducted retrospectively and based on already established outcomes, and
- forecast – it predicts the level of social value that is created if the intended outcomes would be achieved.
You may request a quote for our Non-financial Reporting Services by e-mail: LBotezatu [a] csrmedia.eu.