Two hoodie businesses each make $500 profit this term. One sends bags of scrap vinyl to landfill and buys from a supplier that will not say where its hoodies are made. The other cut its waste in half, buys locally where it can, and donated hoodies to a school clothing swap. Their income statements look the same, but most people would not call them the same business. Non-financial reporting is how a business shows the part of its story that dollars cannot.
What non-financial reporting measures
Non-financial measures are usually sorted into three groups, often shortened to ESG: environmental (how the business affects nature), social (how it affects people and communities), and governance (how it is run, and whether it is run ethically and fairly). Each measure should be something you can count or check, not just a feeling.
| Group | Example measures | Unit |
|---|---|---|
| Environmental | Waste sent to landfill; packaging recycled or reused; energy or water used | grams, kilograms, percent of orders |
| Social | Volunteer hours; items or money donated; local suppliers used; accessibility improvements | hours, items, number of suppliers |
| Governance and ethics | Customer complaints resolved; a written code of conduct; customer data kept private; suppliers checked | percent, yes/no, number checked |
This idea is sometimes called the triple bottom line: a business is judged on people, planet and profit, not profit alone. Corporate social responsibility (CSR) is a business's choice to take responsibility for its effects on people and the environment.
Why stakeholders care
- Customers may choose a business whose values match theirs, and will pay attention to whether its claims are true.
- Employees want to work somewhere they can be proud of, which helps a business hire and keep good people.
- Lenders and investors see waste, unsafe suppliers or poor governance as risks that could cost money later.
- The community lives with the business's noise, traffic, waste and jobs.
- The owner uses the measures to spot where to improve, just like using cost per unit.
Designing and calculating impact measures
A good impact measure has four parts: what you are measuring, how you measure it, a baseline (the starting value to compare against), and a target. Then you report the change. Percent change compares the new value with the baseline.
| Measure | How measured | Baseline (Sept) | Now (Dec) | Change |
|---|---|---|---|---|
| Vinyl scrap per hoodie | Weigh scrap bin each week, divide by hoodies made | 40 g | 25 g | −37.5% |
| Orders sent plastic-free | Count orders in paper mailers | 40% | 90% | +50 percentage points |
| Local suppliers | Count suppliers within 50 km | 1 of 3 | 2 of 3 | +1 supplier |
| Hoodies donated | Count from the order log | 0 | 5 | +5 |
| Sizes offered at no extra charge | Count sizes on the order form | 5 (S to XL) | 7 (XS to 3XL) | +2 sizes |
Reporting honestly and avoiding greenwashing
Greenwashing is making a business sound more environmentally friendly than it really is, through vague words ("eco-friendly!"), hidden trade-offs, or claims with no proof. It is the non-financial version of leaving expenses off an income statement. In Canada, the Competition Act prohibits false or misleading claims to the public, and that includes environmental claims. Honest reporting builds the same trust that honest financial statements do.
- "Our hoodies are 100% eco-friendly!" (no proof, no definition)
- Reporting only the measures that improved
- A green leaf logo with no change in how things are made
- Claiming "zero waste" while scrap vinyl still goes to landfill
- "We cut vinyl scrap from 40 g to 25 g per hoodie this term."
- Reporting every measure, including ones that got worse
- Explaining how each number was measured
- Naming what is still a problem and the next target