Why Non-Financial Reporting is important for companies ?

Non-Financial reporting is a structured way of presenting information about one's performance. It is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable and inclusive development. It epitomises that a company's financial health is dependent on much more than the assets on its balance sheet and the movements on its profit and loss account. Non-financial reporting is an opportunity to communicate in an open and transparent way with stakeholders. In their non-financial reports, companies report an overview of their environmental and social impact during the previous year. The information in non-financial reports contributes to building up a company's risk-return profile. Non-financial reporting includes - Board's Report Corporate Social Responsibility Report Corporate Sustainability Report During the initial phases, corporate performance was mainly judged by market capitalization, share price and certain financial ratios such as Earnings Per Share (EPS), Return on Equity (ROE), etc. Now in the 21st century, corporate performance is being judged by corporate social responsibility reporting and Sustainability reporting whose disclosure will fall under non-financial reporting. One of the critical parameters to be evaluated in this context would be the value created by the firm for society and whether such value creation is going to be enduring in nature. As a result, non-financial reporting will be extremely important for companies and its relevance is only going to increase in times to come. Just as financial reporting is not only concerned with returns but the risk return trade-off, similarly, non-financial reporting is also about the risks that one creates in the society and measures adopted to mitigate the same.