Non-Financial Information Reporting

The relationship between companies and their stakeholders is evolving at a frightening pace. With investors having an ever-increasing range of global invetsment options to choose from, successful companies are likely to be those that focus their resources on building long-term relationships with investors based on trust and regular transparent communications.

Equality, Diversity & Inclusion (EDI) information as part of the emerging global trend for non-financial information, is increasingly being taken into account by companies in decision-making, with the board, management and shareholders all requiring trustworthy, robust non-financial data as part of any analyses of corporate governance risks and opportunities and their likely impact on the economic performance of an investment.

Increasingly, forward-looking companies are those seeking to ensure their non-financial information (NFI) reporting in the area of Diversity is as robust and reliable as their financial information. To achieve this, companies must enhance their resilience to diversity related risk by professionalising and automating their diversity data management systems and internal audit processes.

What Changed?

In 2014, the Council of Europe adopted changes to the Accounting Directive relating to non-financial information reporting in Directive 2014/95/EU. The directive comes into effect in the last quarter of 2016 and aims to provide consistency and conformity across Europe in relation to disclosure requirements - providing investors and other stakeholders with a comprehensive picture of a company's performance. The directive applies to concerns with more than 500 employees and requires that they publish details concerning their performance on human rights, the environment, corruption and anti-bribery and of-course, diversity.

The Financial Reporting Council's, UK Corporate Governance Code is being updated accordingly to reflect these changes and a number of new non-financial reporting frameworks have also emerged. Most prominent among these in the UK, is probably the Red Lines Voting Initiative, which offers pension scheme trustees (and other asset owners) the opportunity to direct the voting of UK listed shares they own on behalf of their members, to an extent which has not previously been possible.

The Red Lines cover a broad range of environmental, social, diversity and governance areas where failure to meet reasonable standards is seen as evidential of long term risk exposure to the company and its shareholders.

What should companies be doing?

Companies need to now apply high quality standards to their diversity reporting and disclosures. The standard or framework under which diversity information is captured, compiled, analysed and published also needs to be reported.

Additionally, an annual diversity audit or review should ideally be conducted by an independent, competent and knowledgeable diversity practitioner to provide external and objective assurance to the board and shareholders that the diversity report/disclosure accurately represents the diversity position and performance of the company in all material respects. In order for diversity information to be useful to investors, it should be capable of comparison across companies.

Currently no one standard exists and while the EU Directive is intentionally vague on the precise content and format for diversity disclosures, the NFI Reporting Frameworks that have emerged, which include the Global Reporting Initiative, ISO 26000, the OECD Framework for Multinational Organisations and the Red Lines Voting Initiative, all focus on the important issue of women and minority representation and progression within the organisation, particularly at the board and senior management levels.

Under-representation, under-utilisation and poor progression rates amongst these groups are all a function of two variables which can be measured and controlled: Namely, barriers which dissuade, discourage and deter otherwise qualified applicants from applying and selection bias that disproportionately excludes entry and progression. InclusionQuery is one of a few platforms currently available on the market which can accurately measure, monitor and manage these two variables.

What is InclusionQueryStandard?

InclusionQueryStandard is a framework for excellence in diversity performance management and reporting. It provides a high level of assurance over the diversity data and information it certifies, meeting fully the diversity reporting and disclosure requirements of all the leading NFI Reporting Frameworks.

InclusionQueryStandard provides metrics covering a number of core EDI disclosure areas, including:

  • Capture and monitoring of all employment equalities data
  • Representation and progression rates of diversity groups at the board, senior management and shop floor levels
  • Fairness and transparency of the selection process
  • Measurement of bias, discrimination and employment barriers

Underpinned by the InclusionQuery smart analytics and real-time performance dashboard, it provides full transparency for both internal and external users, allowing data to be sliced and diced, and performance comparisons made of different business units, divisions and reporting periods.

How does InclusionQueryStandard help?

InclusionQueryStandard combines its smart data analytics and performance dashboard feature with a robust third party verification capability. Providing assurance to the board and shareholders that the corporate diversity disclosure is accurate, balanced, timely, accessible, comparable and free from any material mis-statement. And that it has been prepared in accordance with the applicable reporting criteria of the reporting framework in question.

10 Step Plan to Diversity Risk Assurance

  1. Sign up to Nominate a portfolio holder to undergo the User Training Programme
  2. Enter your company workforce demographic data. Undertake the Availability test to establish the representation baseline
  3. Review results and consider implications of the Availability test and disseminate internally
  4. Automate the capture of employment equalities data for all recruitment events over the reporting period 
  5. Conduct the Barrier and Bias Tests on all recruitment events within the reporting period to establish the presence of statistically significant barriers and or selection bias.
  6. Review results and consider implications. Conduct additional qualitative research where required to establish the precise causes of any barrier/bias detected and develop appropriate remedial interventions.
  7. Feed data, evidence and interventions taken into Diversity Strategy and Action Plan.
  8. Repeat all tests at least once every quarter and reveiw and report internally on progress.
  9. Arrange an external audit of Diversity performance by an independent Diversity Specialist/Analyst who will advise on preparation of the Corporate Diversity Report/Disclosure in accordance with the chosen NFI Reporting Framework
  10. Seek board approval and publish Diversity Report/Disclosure

About the author

Glanville Einstein Williams, Diversity & Inclusion Specialist