News | 23rd November 2016

The Future(-Fit) of Extra-Financial Reporting

By Martin Rich

I’ve yet to meet a corporate CSO or sustainability team member who told me that they really look forward to filling in their annual sustainability questionnaires. In fact, the opposite is almost unanimously true.

It’s not that questionnaires don’t have their place per se; they absolutely do. But it seems like every new framework comes with yet another set of (different) questions, requiring participants to input sensitive company information into a ‘black box’ mechanism in order to get a single number or rating in return.

Yet no company submits all of its financial data to an auditor and then sits back to wait for a single profit or loss number. So why have we created such an approach for extra-financial data? It’s no wonder that I’ve heard the phrase “death-by-questionnaire!” more than a few times.

And that’s why here at Future-Fit, we’re doing things a little differently.

The Future-Fit Business Benchmark sets out 21 Future-Fit Goals that collectively define the extra-financial break-even point all companies must strive to reach to ensure they are in no way degrading our social fabric or the natural processes we depend upon. And it offers a corresponding suite of Key Fitness Indicators to help companies target, monitor and report on their progress toward (and beyond) this break-even point, in a clear, concise and consistent way.

At the heart of the Benchmark is the concept of self-assessment and third-party assurance of Future-Fit data, mirroring that of financial reporting. This has two clear advantages.

Firstly, it means that the Benchmark can serve as a valuable management tool for senior management to set targets and prioritize company action. The data that internal teams collate directly reflect the progress being made, alerting managers to areas in most need of attention. By empowering the company itself to assess progress, raw data is transformed into actionable insight.

Financial data show how income and expenditure leads to financial health – or lack thereof – and where action should be taken for improvement. Future-Fit data show how environmental and social performance leads to extra-financial health – or lack thereof – and where action should be taken for improvement.

Second, the Future-Fit Business Benchmark provides a great basis for consistent reporting of extra-financial performance to external stakeholders. To this end we are delighted to announce that Grant Thornton UK LLP is joining our Development Council as our Assurance Partner. Grant Thornton is one of the world’s world’s leading organisations of independent assurance, tax and advisory firms, with a clear commitment to sustainable business practice. The team will work with us to develop a global assurance process by which any assurance provider will ultimately be able to assure a company’s Future-Fit assessment – just like they do today with financial data.

Together we envisage a world where every company’s annual reporting features a meaningful, globally consistent and easily understandable section on extra-financial performance, centred on progress towards future-fitness. It will identify targets set, describe progress made and outline aims for the coming period. Each company’s narrative will of course vary as they seek to tell their own story. But the key elements and underlying calculations will be consistent, comparable and – thanks to independent assurance – credible, just as they are with financial data.

We are at a crossroads in the evolution of extra-financial reporting. Dwelling on today’s best practice won’t get us where we need to be. Rather, we need a clear destination to aim for, and a way to measure and report progress toward it. Developing a rigorous, robust assurance process for the Future-Fit Business Benchmark will help light the way.

We’re excited to be on this journey together, so please get in touch if you’d like to join us.

This article first appeared on Sustainable Brands.

Martin Rich Co-Founder & Executive Director

Martin is a sustainable investment specialist, with over 20 years experience in both mainstream and impact finance.

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