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FERMA Recommends Nonfinancial Reporting as a Regular Business Process

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August 13, 2018

The Federation of European Risk Management Associations (FERMA) has recommended to the European Commission that companies should report nonfinancial matters such as environmental and social performance as a regular business process and that reporting risks connected with nonfinancial elements should be aligned with the organization's objectives.

"Finding ways to achieve this goal should be a priority," FERMA has said in its submission to the European Commission's public consultation on the framework to support the Non-Financial Reporting (NFR) Directive. "Corporate risk management can support management in making the connection between the risks associated with non-financial elements and the consequences they can provoke." Member states' implementation of the NFR Directive will be discussed at the FERMA Seminar in Antwerp from October 8–9, 2018, along with the use of risk mapping for corporate social responsibility matters.

FERMA acknowledges that there is a time lag before the benefits of investing in nonfinancial matters become apparent following the initial short-term financial costs. It says that corporate risk management methodology, especially Enterprise Risk Management (ERM), can mitigate the costs because it is a precondition of ERM to identify the organization's principal risks, including those connected with good corporate citizenship, and consider how they can be mitigated.

FERMA draws the commission's attention to the implications of the framework proposals for small and medium-sized enterprises (SMEs), who could now be requested to provide more detailed nonfinancial information as a condition of doing business with large companies that have to comply with the NFR Directive. "This is an unintended effect of the Directive as the text was originally designed to preserve SMEs from the administrative burden."

Here's a link to FERMA's full response to the European Commission's public consultation.

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