The Movement to Report Non-Financial Information
The movement to report on non-financial information actually originated in the 1950s to early 1960s in response to the needs of information users, later called "stakeholders, for information beyond what was presented in financial statements to better explain the value-creation process of the organization as well as its material non-financial risks.
An organization's stakeholders include all those who are affected by its actions and include its employees, managers, owners, customers, suppliers, society, government, and creditors. According to stakeholder the ory, business can be understood as a system of how value is created for stakeholders in contrast to the idea that a corporation's sole responsibility is to maximize value for its shareholders. The stakeholder worldview connects business and capitalism with ethics, 30
Over the years, two separate but compatible concepts have emerged, one becoming "corporate social re- sponsibility" and the other becoming "sustainable development." Corporate social responsibility focuses on organizations impacts on society, and sustainable development focuses on organizations' meeting the needs of the present without compromising the ability of future generations to meet their own needs.
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150 26000, Guidance on Social Responsibility, is an international standard that was introduced in 2010 and aids organizations in structuring, evaluating, and improving their social responsibility, including their stake- holder relationships and community impacts. It sets forth society's expectations about what constitutes socially responsible behavior.
ISO 26000's definition of social responsibility incorporates sustainable development under the umbrella of social responsibility. According to ISO 26000, social responsibility is an organization's responsibility for the impacts of its decisions and activities on society and the environment through transparent and ethical behavior that:
1) Contributes to sustainable development, including the health and welfare of society,
2) Takes into account the expectations of stakeholders,
3) Complies with applicable law and is consistent with international norms of behavior, and
4) Is integrated throughout the organization and practiced in its relationships.
ISO 26000 provides guidance on how an organization can be socially responsible, but it does not provide a framework for reporting on social responsibility. The earliest framework for reporting on social responsi bility and sustainable development activities was introduced by the Global Reporting Initiative (GRI), GRI ca non-governmental organization (NGO), founded in the U.S. in Boston, Massachusetts in 1997 to support The Nemic, environmental, and social sustainability. Since 2002, GRI has been headquartered in Amsterdam, The Netherlands. The flas, and social Sincetanability Reporting Guidelines on Economics Since. The Gintal, and Social Performanporting guidelines, and has updated them several times since The GRI framework has bermance, were launched in 2000d for reporting on environmental and social re sponsibility, including sustainability, and economic performance.
Reporting Requirements
The U.S. has no mandatory non-financial reporting requirements other than some required disclosures about mine safety and conflict minerals. However, many of the largest U.S. companies prepare non-financial reports on a voluntary basis.
Many countries outside the U.S. have mandatory non-financial reporting requirements. Some examples follow but are not exhaustive.
In 2014, the European Commission issued a Directive (Directive 2014/95/EU) on disclosure of non-financial and diversity information by large, public-interest entities (listed companies, banks, insurance companies, and other companies designated as such by authoritative bodies) and generally having more than 500 employees. Each EU-member country was required to adopt the Directive into its own legislative require- ments, though member countries were allowed some flexibility in adapting the terms. Affected companies were required to apply the Directive under the terms legislated by their own countries as of 2018 for fiscal years beginning on or after January 1, 2017.
Covered EU companies are required to report on policies, risks, and program outcomes related to environ mental protection, social responsibility, treatment of employees, respect for human rights, and anticorruption and bribery matters. Companies licensed to trade securities must also issue a diversity report containing information about age, gender, and professional and educational backgrounds at different man- agement levels. Non-financial statements may be presented to stakeholders either in the company's annual report or as a separate report published alongside the annual report or within six months of the balance sheet date. The Directive requires a statutory auditor or an audit firm to verify that the required non- financial disclosures have been published, but it does not require an auditor's assurance report with respect to the content.
South Africa was the first country to include integrated reporting in its official reporting requirements. The King Code of Governance for South Africa 2009 (King III) stated that "the board should appreciate that strategy, risk, performance, and sustainability are inseparable" and recommended that companies prepare an integrated report including non-financial information along with financial information. The principles of King III were incorporated into the listing requirements of the Johannesburg Stock Exchange (JSE), and listed companies are required to prepare an integrated report or explain why they are not doing so. How- ever, King III did not contain guidelines on how the report should be structured or what it should include.
The reporting requirement coupled with the dearth of guidelines led to the birth of the Integrated Reporting Committee (IRC) of South Africa, a national body that brought together accountants, companies, internal auditors, directors, institutional investors, the JSE, and others with an interest in corporate reporting. The IRC of South Africa developed a framework for an integrated report in 2011, and that framework was used as a starting point for the development of the International Integrated Reporting Council's (IIRC) Interna- tional <IR> Framework, which was issued in 2013