Non-financial disclosure

The demand for corporate non-financial disclosure

The imperative for companies to understand and be transparent about their environmental, social and economic impacts on the world around them, and on their financial performance, is greater than ever. And it extends beyond their own boundaries to include impacts occurring along their supply chains.

Important  drivers of disclosure are the Paris Agreement on Climate Change; the UN Sustainable Development Goals; and the report of the Task Force on Climate-related Financial Disclosure.

At the same time company leaders are motivated to make non-financial disclosures  to build corporate reputation with customers,  and to comply with the government regulation such as the European Directive on non-financial reporting which has been transposed into national legislation in most EU states.

A growing body of research supports a positive correlation and a causative link between performance around material non-financial (otherwise known as ESG) issues and financial performance.  In fact the link between ESG and financial performance is now widely accepted by the investment community. 

Most large to moderate sized public companies are being evaluated and ranked based on their ESG performance by third party organisations such as Bloomberg and the Dow Jones Sustainability Index. These service providers produce a wide range of ratings, indices and research reports announcing their assessments of individual companies which are used by institutional investors, asset managers, financial institutions and other stakeholders to assess and benchmark corporate ESG performance and how it changes over time.

We assist clients develop their business case for non-financial disclosure by identifying the main drivers for disclosure and recommending options for responding to the demands of investors, regulators and other key stakeholders. 

Climate change dominates non-financial disclosure.

 Climate change has become the leading sustainability issue on the global agenda as evidenced by its prominent placing in the World Economic Forum’s 2017 report on global risks, and reflected in efforts by nations, companies, NGOs and numerous other groups working to operationalise the Paris Agreement at a global and local level.

Climate change risk is acknowledged by most large companies and is identified as a material issue for most industry sectors.

The influential report of the G20’s Financial Stability Board’s Task Force on Climate-related Financial Disclosure in June 2017 encourages companies to disclose information about their climate risks and in a way which is meaningful to the finance sector. In Australia regulators such as APRA are paying closer attention to climate risks.

Assessments are that national commitments made by nations under the Paris Agreement will not nearly be sufficient to meet the agreement’s 2 degree C or lower goal. Consequently it is widely expected that the future will see tougher government policies and regulations aimed at limiting climate change impacts and increasing transparency around corporate performance.

The frontier for leading climate change disclosure has moved beyond reporting on a company’s carbon footprint to include putting a price on carbon, science based targets and scenario analysis.

We assist clients to identify climate change risks and opportunities; to integrate the recommendations of the Task Force on Climate-related Financial Disclosure; and to make meaningful disclosures through corporate reports, CDP and other reporting frameworks.

UN Sustainable Development Goals

The UN Sustainable Development Goals were adopted by 193 member states in 2015. Governments have a key role in implementing the 17 SDGs but businesses are also critical to addressing many of the goals. The SDGs offer companies a way to link their sustainability efforts to globally agreed priorities for sustainable development. They can assist in the identification of material sustainability issues and provide the necessary context to sustainability reporting. They also provide a window on areas which will likely provide opportunities for future growth.

Larger companies including in Australia are beginning to engage with the SDGs with many aligning their sustainability activities with the goals and considering them in their sustainability reports.

We assist organisations to understand how they impact on the SDGs, how to integrate the SDGs into their business, and how to build the SDGs into their communication and reporting to stakeholders.

Slavery and other emerging topics for non-financial disclosure

 Other ESG issues are gaining increasing attention. Progress on human rights has led to the introduction of mandatory reporting on the due diligence and remediation processes undertaken by companies to ensure modern slavery abuses do not occur in their businesses or their supply chains. (Modern slavery covers slavery, servitude, forced labour, trafficking in persons, forced marriage, child trafficking, debt bondage and other slavery-like practices.)

Legislation has been passed in the UK (the UK Modern Slavery Act 2015), France and the Netherlands, and is under consideration in other jurisdictions. The Australian Government has announced that it proposes to enact an Australian Modern Slavery Act to apply to companies over a certain size operating in Australia.

Other new issues are emerging including for example sugar and its link to obesity; deforestation particularly as a supply chain issue; banking and ethics; geopolitical instability; and inequality and global equity.

We assist organisations to remain abreast of emerging ESG issues that are relevant to them. We are tracking progress on the development of the Australian Modern Slavery legislation and can assist clients to consider its implications and to prepare for and make related disclosures.

Progress in the adoption of frameworks to guide reliable non-financial reporting

Most large companies in Australia and worldwide are making non-financial disclosures through their annual reports, specialized corporate responsibility or sustainability reports, or other mechanisms. Over 90% of ASX200 companies made some disclosure on their non-financial performance in 2016.

A potentially confusing array of frameworks including principles, standards, guidelines and indices has been developed to assist in non-financial disclosure. The leading frameworks which are being adopted broadly across industry sectors include:

  • The Global Reporting Initiative (GRI) Standards for Sustainability Reporting – This remains the most frequently used framework for sustainability reporting and has been adopted by three quarters of the world’s largest companies and around one third of ASX200 companies. In 2016 a set of GRI standards was released to replace the previous G4 guidelines.
  • The International Integrated Reporting Framework – The IR framework was released in 2013 by the International Integrated Reporting Council (IIRC) with the aim of providing more disclosure of non-financial information by companies in a way that is useful to investors. The IIRC reports a modest growth in the number of integrated reports published in 2016. South Africa is the exception as integrated reporting is required by the Johannesburg Stock Exchange.
  • The Sustainability Accounting Standards Board (SASB) Standards – After five years of collaborative development SASB released a set of Exposure Draft Standards in late 2017. These will be finalised soon for voluntary use by all companies making mandatory disclosures to the US Securities Exchange Commission. By identifying material issues and accompanying metrics for 79 specific industries, the standards also have broad application for corporate ESG disclosure, particularly where disclosure is targeted at investors.l
  • The United Nations Global Compact – The UN Global Compact is the world’s largest sustainability initiative. It has grown to 13,000 organisations including 9,000 companies. There are 155 Australian members and of these one third are small or medium-sized enterprises. Organisations must issue an annual Communication on Progress disclosing progress they have made in implementing the ten sustainability principles of the UN Global Compact.
  • The UN backed Principles for Responsible Investment (PRI) – This network of over 1800 financial organisations, including 170 in Australia, work together to promote a sustainable global financial system through the widespread adoption of six Principles of Responsible Investment. They must report annually following the PRI reporting framework.
  • CDP – CDP (formerly the Carbon Disclosure Program) provides the most widely used platform for climate change disclosure. It is utilised by over 6,000 companies worldwide representing 60% of the market capitalisation of the world’s 30 largest stock exchanges and nearly one fifth of the global greenhouse gas emissions. In Australia 95 companies participated in the program in 2017. CDP also provides disclosure programs covering water, forestry and supply chains and these are growing in terms of participation.

We consider  there is no one best framework for non-financial reporting. Rather we assist companies to develop their own strategy for non-financial reporting based on an understanding of the range of available frameworks, and designed to meet their business objectives, the needs of their stakeholders and the available resources.  We help clients to develop non-financial disclosure strategies; prepare corporate responsibility reports and other disclosures following recognised guidelines  and standards; participate in the UN Global Compact, CDP, PRI, DJSI and other non-financial disclosure programs; and  undertake supporting activities such as materiality assessment; climate change risk analysis; benchmarking and stakeholder engagement.

The Middle Way is a Gold Member of the Global Reporting Initiative and has participated in their work since becoming an Organisational Stakeholder in 2002.

We also contributed to the development of the International Integrated Reporting Framework through participation in the Australian Business Reporting Leaders Forums, and to the development of SASB standards through membership of the Sustainability Standards Accounting Board’s sectoral working groups in the USA.

To learn more about the current state of non-financial reporting, the drivers, issues and frameworks for disclosure, please request a copy of our report “Frameworks for Non-Financial Reporting Four Years on – Fitting the Pieces Together, 2018” by emailing Dr Pamela Stark at or phone 612 9980 9747.