Nonfinancial Reports Fail to Capture Key Business Risks, Says Study

Nonfinancial Reports Fail to Capture Key Business Risks, Says Study

UK managers believe their current non-financial reporting systems are failing to focus their reporting enough on the 'most important' risks facing their organizations, according to new global research from Lloyds Register Quality Assurance.

A mere 36% of UK businesses claimed their social, environmental and governance reporting is focused on the "most important> risks, a finding which raises questions for ethical investors about the quality and reliability of the current non-financial reports.

In fact, according to the report, the research highlights the reactive, PR-led nature of current reporting:

  • Just 68% of UK companies believe their social, environmental and governance reporting is producing accurate data

  • And just 64% overall say they report good news and bad news in equal measure

  • One third (32%) agree that they currently report on too many issues

  • Just 54% of UK companies believe their business has a rigorous process for deciding what to report on.

    Deborah Evans, head of corporate reporting and assurance at LRQA, said: “The business and investment community need non-financial reporting systems which allow them to accurately assess the real risks and how business is reducing them. Investors don’t need data dumps and greenwash, but that’s what many are still getting.

    “Material data, properly validated and focused on the real business risks, is what’s required. Some companies, such as BT Group are making real strides in this area, others need to take a closer look at what the leaders are doing."

    The ‘Big Four’ Accounting firms admitted concerns the current model for reporting was broken and that particularly in the area of non-financial reporting new models were required to better capture the real risks and drivers of business value.

    “The critical issue for business is applying materiality principles to non-financial reporting,” continued Evans. “We strongly recommend that those responsible for delivering non financial reporting adopt and evolve their materiality processes,” said Evans.

    Businesses seeking to refine their non-financial reporting should review current global best practice and, in particular, may wish to study the practical methodologies and frameworks created by others.

    LRQA recently co-authored a review of reporting best practice with think-tank AccountAbility and BT Group. The report looked at a number of global corporations, including LRQA’s client BT Group, to identify emerging best practice in this area as well as a framework for materiality.
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