Between reporting and governance: managing non-financial company information properly

Doing business is becoming increasingly unpredictable for companies. Issues like the climate and globalization now have significant impacts on corporate development. Our economy, however, is focused on working global supply chains.

Often negative influences on these supply chains are not of a financial nature, though. For companies that want to make a forecast, this means that they need to know what is going on outside of their traditional scope of responsibilities and which external factors will have an influence on their business. Yet current political crises, acts of terrorism and the refugee crisis underline that global supply chains are becoming more and more difficult to organise and manage. This makes it clear: the influences on companies are growing in complexity.

While many companies realise that they are being influenced, they often lack data about how certain issues are developing, how these can best be measured and also controlled. The quality and topicality of non-financial company data within the company is mediocre these days; once one steps beyond the company into the supply chain, it is no longer satisfactory. External requests (for example from investors, bankers, media or even from contractual partners) for this information costs a great deal of effort for many small and medium-sized German companies. This is because there is often little possibility for contractual reasons to gather the required information, even from direct suppliers, and to test its resilience.

The market drives development

Financial company information and non-financial company information are two sides of the same coin: both aspects are required in order to understand a business and a business development. The realm of non-financial company information goes beyond the strict borders of the company – it peers into the supply chain, all the way to the consumer and purchaser, and tries to take this into perspective. And yet, the two areas are like Siamese twins: they belong together and whoever has both of these in their entirety in a similar quality has a better, more valid basis for making decisions than someone who does not take part of these important influencing factors into consideration or ignores them.

The market drives this development; the importance of risk factors and influencing factors has been recognised. Investors and market partners now demand the corresponding information as a result. Regulators are also reacting to this development increasingly: current bills and directives based on EU law require sustainability reporting. In Germany this affects a number of companies that did not address this matter in the past. And yet the trend in this new direction has only just begun: today sustainability reporting is an EU Directive, tomorrow it might be human rights, the day after that it could be water, and something entirely different in two years. The meaning, complexity and scope of sustainability information relevant for reporting will continue to grow in future, as will also the demand for quality with this information.

As a result, it is essential for a company that it be able to govern important issues itself and not have to leave these up to chance. This requires processes, data and valid reporting structures. Which is why one important requirement is integrating the issue of sustainability into the corresponding management process, into existing purchasing processes, sales processes or reporting processes, and not to view sustainability as an isolated function. This is the only way this area can be made governable and especially also monitorable.

Sustainability should not be relegated to the sustainability department

The core of this discussion is integration. A company in which sustainability is only addressed in the sustainability department is neither credible nor able to utilise the potential of this topic. Sustainability should be part of purchasing, of sales, of the company’s core processes. Conflicting goals should be identified and cleared early on, sustainability factors should be used equally for governance, planning and controlling. This is also where we begin with our solutions: our approach is to bring governance, risk, compliance, sustainability and IT to a new level and to find the solutions that are needed through a multidisciplinary approach. The aim is not to sell a compliance department or a risk management department, but to develop solution profiles from the issues at hand that suit the companies and above all, that will be integrated there. For the company, this means they do not have to set up big new departments, and ideally it will also not require new processes.

Heterogeneity and the internationality of increasingly international company structures are often an additional major challenge: if a company is active on multiple continents, it will also be faced with different sustainability challenges that cannot necessarily be made congruent with one another. As a result, companies in Germany, often small or medium-sized companies, frequently attempt to apply their views and values to the entire organisation, for example pertaining to human rights. With our production conditions in Germany, this is usually not considered to be the most important issue, though in Pakistan, India or Thailand it could have a different importance. Local stakeholders do, however, expect the German parent company to make statements pertaining to these issues. A glance at the sustainability reports shows that this has not been the case, instead the German perspective is represented. It is equally difficult to find a common denominator for cultural differences. Other countries have different approaches to corruption, bribery and gifts than Germany. All these are questions that cannot be cleared up from one’s desk. The companies need individual concepts, but also an over-arching framework. 

The blessing and curse of sustainability software

In conclusion: sustainability and handling sustainability data is becoming increasingly complex. Gathering sustainability information and sustainability data by hand and ad hoc no longer works, is too unreliable and ultimately also too expensive. In order to manage this data in a professional and efficient manner, systematic support is needed. Many companies set up sustainability software, though, as a single solution that does not mesh with the standard management reporting or controlling instruments and does not truly interface with these; there is no actual integration into other reporting processes. This only helps to manage the topic of sustainability; at most, a sustainability report can be generated from this. CSR software often means a stand-alone solution on the one hand, on the other hand it is also akin to an alibi. That’s our sustainability management, we’ve got one of those systems, after all.

The GRI4 standard/reporting standard calls for management processes for key figures to be described and reported, making it more than merely a reporting matter. This step – from support using a system when gathering data to a management system and integration into management reporting – is the step that many companies are currently facing. It could be said that the software is a blessing and a curse: yes, in general the software is a blessing because it makes things easier. At the same time, though, it is also a curse because it lulls many companies into a false sense of security – the companies believe that they have done all that needs to be done by using it. But that’s a misconception: using software is still a far cry from having a management system. 

Share