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Non-Financial Reporting: An Explanation and Examples from Ukraine

Summary

By: Jessica Levine, UN in Ukraine

As corporate social responsibility (CSR) initiatives become more widespread and corporate behavior shifts, the public needs clear ways to evaluate a company’s social, economic and environmental performance. Non-financial reporting is essential for public stakeholders to gauge how well companies are performing in these areas as they instill accountability in firms, drive sustainability improvement and contribute to the development of better corporate practice…

Commitment to CSR and non-financial reporting varies widely. Many companies that recognize their social and ethical obligations have corporate responsibility programs; other companies implement CSR for financial, employment or brand reasons. Recent evidence, such as Harvard Professor Michael Porter’s work, suggests CSR can be a source of opportunity and competitive advantage for companies. Porter claims business and social objectives are interdependent and can optimize success and long-term sustainability. He also claims stakeholders have begun to highlight poor social performance and its financial risk (Kramer and Porter 2006). Non-financial reporting broadcasts responsible corporate behavior, which can contribute to long-term business sustainability, promote a brand and please stakeholders.

It is difficult to measure the success or impact of CSR initiatives due to the fact that reporting practices are not standardized, among other reasons. Still, many companies attempt to create comprehensive reports to publicize their CSR developments. The UN Global Compact (UNGC) which focuses on promoting human rights, labor, environmental and anti-corruption initiatives, supports the Global Reporting Initiative (GRI). The GRI has a framework for non-financial reporting that includes a method to evaluate companies’ economic, social and environmental performances coherently and strategically. The GRI can be used by companies new to CSR and non-financial reporting as well as by those with a long history of corporate responsibility.

General CSR reports are produced by many companies worldwide, but reports lack consistency or indicators to allow comparison. The UN Global Compact continues to strive towards standardized reporting by requiring all member organizations to complete a Communications on Progress (CoP) report annually and share information about their sustainability efforts. The UNGC promotes GRI-compliancy, and the GRI framework includes flexible requirements that fit all types of organizations, indicators for success and supplements for particular industries.

The Ukrainian Experience

Corporate responsibility and reporting initiatives in Ukraine are small and growing. In countries like Ukraine, which include areas of economic flux in need of new income streams and social development aid, the ethical and responsible behavior of corporations is essential for economic and social development. Prior to the financial downturn, Ukraine was experiencing a positive trend in CSR and corporate behavior. The advent of the UN supported GRI has promoted more transparent non-financial reporting of corporate initiatives by some large companies. GRI compliancy attempts to overcome the general issues of non-financial reporting, such as inappropriate indicators and inaccurate data, while better informing the public of sustainability activity. Reporting has provided needed insight as to the role corporations are playing in Ukrainian development.

Companies currently producing GRI-compliant reports and CoPs are creating the foundation for reporting, sustainability and information exchange in Ukraine. While some international corporations understand the importance of corporate responsibility and non-financial reporting, none conduct reporting in Ukraine. National companies that do create non-financial reports are often unaware of the multitude of aspects they should consider in their evaluations. In April and May 2010, the UNGC Ukraine promoted an initiative through which the CSR Ukraine Community evaluated all existing CSR, social, sustainability, and progress reports in order to realize the state of reporting and how it might be improved.

A relatively small numbers of companies create non-financial reports in Ukraine (38 companies with 55 reports, 47 UN Global Compact Communication on Progress reports and 7 GRI-compliant reports). Still, the number of non-financial indicators reported continues to grow and early trends are shaping Ukrainian practice. Most companies report on working conditions, human capital development, environmental protection, philanthropy and local community engagement. Few have found ways to discuss corruption, poverty, economic paternalism from Soviet traditions, product responsibility or innovation. The UN Global Compact prioritizes improving non-financial reporting by large corporations, which can be achieved through increasing awareness and stakeholder pressure.

System Capital Management (SCM), Nadra Bank, DTEK, Oblovon, and Metinvest are the national leaders who have created GRI-compliant reports in Ukraine. SCM, a leading investor and the nation’s largest managing company, released a Communications on Progress document in 2006, a GRI- influenced Sustainability Report in 2007, and two GRI-compliant reports, including one in March 2009. Their non-financial reports discuss employment, the environment, and cooperation with society, while exhibiting a continual effort to become GRI compliant. In fact, the 2007 report includes a table exhibiting compliance with GRI guidelines (SCM 2006; 2007).

SCM provides an example of a Ukrainian company incorporating non-financial reporting into general practice. A report completed by the CSR Ukraine Community demonstrates that managers who partake in non-financial reporting have developed trust with stakeholders, contributed to reputational capital development, enabled dialogue and improved CSR strategies. Continued reporting and analysis of non-financial reporting will both create national social leaders and allow the Ukrainian public to recognize their positive work.

GRI guidelines and reports can promote improved non-financial reporting and it is our hope that increased transparency and knowledge from non-financial reporting will result in stakeholder pressure, better corporate performance and positive effects for Ukrainian people.

For more information, please contact Iryna Butiaha, Global Compact Associate, UN in Ukraine.