Traceability of non-financial information

Traceability of non-financial information

Caring for employees, working to reduce environmental impact… are signs that a company wants to be sustainable. We have already commented in a previous article on how Law 11/2018 has favoured accountability.

The CNMV, the body that oversees listed companies and which received its annual reports in June 2020, states that the quality of information is improving. This is logical: since the entry into force of the new law, reports have to be verified by an independent provider. But every light has a shadow: the supervisor has also said that there is room for improvement in the reliability of the data provided.

Auditors put it more accurately: companies are getting limited assurance for non-financial information, while for their financial accounts they are getting reasonable assurance. In fact, the CNMV has requested more detailed information on social and environmental issues from three Ibex 35 companies; last year it requested it from six.

In relation to the environment, what type of information does the CNMV monitor most closely? According to the new law, the companies concerned must provide

“… detailed information on the current and foreseeable effects of the company’s activities on the environment, and, where appropriate, health and safety, renewable and/or non-renewable energy use, greenhouse gas emissions, water consumption and air pollution”.

Law 11/2018

From a practical point of view, this requirement can be fulfilled by looking at four indices:

  1. Direct emissions of greenhouse gases.
  2. Indirect emissions (employee mobility, travel, transport of goods).
  3. Water consumption.
  4. Waste generation.

And this is difficult. First, because this is a recent concern, and managers are not environmental experts. Second, because internal management and information systems are very weak. Alberto Castilla and Alberto Andreu, from Ernst & Young, have written that “in many companies, non-financial information (…) is scattered in multiple Excel sheets filed on the computers of employees or suppliers of the company, which can lead to a lack of updating and quality of information”.

Digitisation has a key role to play in ensuring the quality and traceability of data. Automating processes is the best investment for a company of any size that wants to grow sustainably, and to be able to communicate this in a transparent way.