Towards a conceptual framework for non-financial reporting inclusive of pandemic and climate risk reporting

Abstract

Purpose This paper aims to evaluate non-financial reporting (NFR) frameworks insofar as risk reporting is concerned. This is facilitated through analysis of the adequacy of climate- and pandemic-related risk reporting in three industries that are both significantly impacted by the COVID-19 pandemic and are at risk from climate change. The pervasiveness of pandemic and climate-change risks have been highlighted in 2020, the hottest year on record and the year the COVID-19 pandemic struck. Stakeholders might reasonably expect reporting on these risks to have prepared them for the consequences. Design/methodology/approach The current debate on the “complexity” of sustainability and NFR frameworks/standards is critically analysed in light of the COVID-19 pandemic and calls to “build back better”. Context is provided through analysis of risk reporting by the ten largest airlines and the five largest companies in each of the hotel and cruise industries. Findings Risk reporting on two significant issues, pandemics and climate change, is woefully inadequate. While very little consideration has been given to pandemic risks, disclosures on climate-related risks focus predominantly on “risks” of increased regulation rather than physical risks, indicating a short-term focus. The disclosures are dispersed across different corporate reporting media and fail to appreciate the long-term consequences or offer solutions. Mindful that a conceptual framework for NFR must address this, the authors propose a new definition of materiality and recommend that sustainable development risks and opportunities be placed at the core of a future framework for connected/integrated reporting. Research limitations/implications For sustainable development risks to be perceived as “real” by managers, further research is needed to determine the nature and extent of key sustainable development risks and the most effective mitigation strategies. Social implications This paper highlights the importance of recognising the complexity of the issues facing organisations, society and the planet and addressing them by encouraging robust consideration of the interdependencies in evolving approaches to corporate reporting. Originality/value This study contributes to the current debate on the future of corporate reporting in light of two significant interconnected crises that threaten business and society – the pandemic and climate change. It provides evidence to support a long-term oriented and holistic approach to risk management and reporting.

The climate-related information in the changing EU directive on non-financial reporting and disclosure: first evidence by Italian large companies

“…However, findings draft the current climate-related disclosure as an early stage in complying with the EU guidelines (Communication from the Commission, 2019). Our findings enlarge previous theories on corporate disclosure (Heitzman et al , 2010; Cotter et al , 2011; Kılıç and Kuzey, 2019), proposing new insights in the light of the recent interest in the climate-related information (Abhayawansa and Adams, 2021; Bui et al , 2021).…”

“…In October 2014 the EU published the European Union Directive, 2014/95/EU (or EU directive) requiring large undertakings which are public interest entities (PIEs) exceeding the average number of 500 employees to disclose a non-financial report (www.eur-lex.europa.eu). In the current scenario, climate change is one of the most outstanding risks companies have to face (TCFD, 2017;Abhayawansa and Adams, 2021;Bui et al, 2021) and non-financial reporting could assume a pivotal role in the transition toward a sustainable economy, combining long-term profitability and environmental protection (Muserra et al, 2020). Additionally, non-financial disclosure can contribute to the development of corporate social responsibility (CSR) policies and achievement of the 2030 United Nations Sustainable Development Goals (SDGs) (ONU, 2015;Pizzi et al, 2020) as well as to the environmental accounting (Bebbington et al, 2021) Many initiatives, frameworks and guidelines on climate change-related information to be disclosed were published (Cotter and Najah, 2013;GRI, 2016;www.sasb.org;www.cdsb.net;www.cdp.net) enriching the possibility to make more transparent corporate actions.…”

Sustainability, non-financial, integrated, and value reporting (extended external reporting): a conceptual framework and an agenda for future research

“…While accountability is an important means to develop, manage, maintain and restore legitimacy (Birkey et al , 2016; Hyndman and McConville, 2018; Kim, 2019; Kuruppu et al , 2019), non-financial disclosures have been criticised to reflect impression management rather than genuine demonstration of accountability and commitment to sustainability (Adler et al , 2018; Akbar and Deegan, 2021; Cho et al , 2015a; Kuruppu et al , 2019; Melloni et al , 2017). Such concerns are echoed by papers included in this special issue, with Abhayawansa and Adams (2022) finding a lack of information on pandemic risk and a short-term focus on climate risk, and Hadro et al (2022) reporting a mismatch between information disclosed and information of interest to stakeholders. These two studies along with Dameri and Ferrando (2022) propose ways of disclosing value creation information, which could improve stakeholder satisfaction and corporate legitimacy.…”

“…The papers related to “accountability” and “legitimacy” echoes the predominant voice in the extant literature that there are differences between stakeholder expectations and disclosure content. The proposals made by the authors can help advance better reporting practices (Abhayawansa and Adams, 2022; Dameri and Ferrando, 2022; Hadro et al , 2022). Studies related to “determinants and consequences” and “external verification” contribute insights on the relatively new developments of mandatory requirements and the field of integrated reporting.…”

“…Abhayawansa and Adams (2022), Dameri and Ferrando (2022) and Hadro et al (2022) assessed the content of non-financial or integrated reports and indicated differences between expectations and disclosure. These studies propose definitions or frameworks to improve information disclosure relevant to stakeholders and communicating value creation.…”