EVALUATION OF NON-FINANCIAL INITIATIVES FROM THE PERSPECTIVE OF STRATEGIC BUSINESS VALUE

ABSTRACT

The article examines the theoretical and practical aspects of evaluating the effectiveness of non-financial initiatives from the standpoint of their strategic value to business. It analyzes the impact of ESG factors (environmental, social, and governance) on corporate resilience and investment attractiveness. The role of international reporting standards (GRI, SASB, IR Framework) and quantitative methodologies (SROI, TBL) in shaping non-financial performance management systems is emphasized. Particular attention is given to the development of a roadmap for integrating ESG metrics into strategic management, ensuring goal alignment and reporting transparency. The practical modeling of combined returns (Combined Return Model), based on data from the DOE, IRS, and the Inflation Reduction Act 2024, demonstrates measurable economic, social, and environmental outcomes of sustainable investments.

АННОТАЦИЯ

В статье рассматриваются теоретические и практические аспекты оценки эффективности нефинансовых инициатив с позиции их стратегической ценности для бизнеса. Анализируется влияние ESG-факторов (экологических, социальных и управленческих) на устойчивость и инвестиционную привлекательность компаний. Подчеркивается роль международных стандартов отчетности (GRI, SASB, IR Framework) и количественных методик (SROI, TBL) в формировании системы управления нефинансовыми показателями. Особое внимание уделено разработке дорожной карте интеграции ESG-метрик в стратегическое управление, обеспечивающей согласованность корпоративных целей и прозрачность отчетности. Практическое моделирование совокупной отдачи (Combined Return Model), основанное на данных DOE, IRS и Inflation Reduction Act 2024, демонстрирует измеримую экономическую, социальную и экологическую результативность устойчивых инвестиций.

Keywords: non-financial initiatives, business strategies, ESG, sustainable development, non-financial reporting standards.

Ключевые слова: нефинансовые инициативы, бизнес-стратегии, ESG, устойчивое развитие, стандарты нефинансовой отчетности.

Introduction

Amid increasing regulatory pressure, growing investor attention to ESG factors (environmental, social, and governance), and the global transformation of views on corporate responsibility, non-financial initiatives are becoming a significant component of a company's strategic capital. Modern businesses face the need not only to implement socially meaningful and environmentally sustainable projects but also to demonstrate their measurable effectiveness. The absence of a systematized approach to evaluating non-financial programs reduces their managerial relevance and creates the risk of their perception as merely formal or reputation-driven measures with limited practical impact. Meanwhile, properly structured and strategically integrated non-financial indicators can have a significant influence on a company’s long-term resilience, competitive advantage, and investment attractiveness.

The purpose of this article is to substantiate the importance of both quantitative and qualitative evaluation of non-financial initiatives from the standpoint of their strategic value to the business, and to examine methods for integrating their outcomes into the corporate strategic management system.

Materials and methods. Non-financial initiatives as a source of strategic value

In the context of the growing importance of intangible assets, non-financial initiatives have evolved into an essential component for shaping and strengthening an organization’s reputational capital [1]. The implementation of programs focused on environmental responsibility, social sustainability, and high standards of corporate governance (ESG) contributes to building a relationship of trust with key stakeholders – investors, consumers, regulators, and business partners. The reputational advantages derived from a consistent ESG agenda generate long-term effects by reducing the costs of overcoming institutional barriers, increasing customer loyalty, and enhancing the company’s image in international markets.

Empirical evidence indicates that companies with a high level of non-financial performance exhibit lower legal vulnerability, are less frequently exposed to negative consumer reactions, and demonstrate greater organizational resilience under conditions of economic and social turbulence [2, 3].

The impact of non-financial initiatives on strategic value may vary significantly depending on industry-specific factors, driven by differences in operational and reputational risk profiles, capital structures, and the level of public scrutiny surrounding corporate activities.

In the industrial sector, for example, the primary focus is placed on environmental aspects – reducing greenhouse gas emissions, modernizing production processes, and advancing recycling practices [4]. The World Economic Forum Report 2024 states that 77 % of major publicly listed steel companies include climate change in their decision-making processes [5]. The aim for the industry, by 2030, is to have a reduction of energy intensity in the manufacture of primary steel by 45 % and 65 % in secondary production, with its long-term goal at net-zero emissions in 2050. Companies showing improvement in these aspects receive green financing and government subsidies and simultaneously reduce potential regulatory costs.

Increasingly, the focus is being placed on social initiatives within the retail sector, including ethical supply chains, transparency of labor, and sustainable consumption. Companies that implement responsible sourcing standards and develop eco-friendly product lines build a more resilient customer base and strengthen brand loyalty. ESG indicators in this industry are increasingly becoming a criterion for supplier selection by major international partners. According to the PwC 2024 Voice of the Consumer Survey, consumers are showing a growing preference for environmentally sustainable products (fig. 1).

Figure 1. Consumer preferences for sustainable consumption [6]

These data confirm that the role of environmental and social factors is increasingly decisive for consumer choice. Companies that are committed to sustainability principles gain, above all, a competitive advantage and build long-term trust-based relationships with customers, investors, and business partners.

Among managerial factors, data protection, cybersecurity, algorithmic transparency, and corporate culture of inclusion are of particular relevance for the information technology sector. ESG principles allow IT companies to minimize regulatory and reputational risks from ethical and privacy violations in countries with strict digital legislation, such as the EU and the United States. Business leaders also increasingly see how AI can help with decarbonization and further sustainable development efforts, according to a KPMG survey (fig. 2).

Figure 2. Key areas of artificial intelligence application for supporting sustainable development [7]

Moreover, in the KPMG 2024 report, 51 % of the corporate executives replied that they are putting priorities on compliance with sustainability standards and reporting requirements in order to meet growing investor and regulator expectations. Further, the report stated that 65% of executives said they have fully embedded sustainability principles in their operations and consider them fundamental to long-term success.

Thus, the strategic relevance of non-financial initiatives depends not only on their content but also on their industrial context, and requires an approach of adaptation both to their design and evaluation.

Results. Methodological approaches to evaluating effectiveness

The assessment of non-financial initiative effectiveness involves a rather complex analytical task, which requires special tools and methods attuned to various dimensions of corporate sustainability. In contrast to traditional financial indicators, social, environmental, and governance ones possess a higher degree of qualitative uncertainty and thus need to be systematically standardized and quantitatively interpreted within internationally recognized methodological frameworks.

The most widely applied frameworks for structuring and disclosing non-financial information include the Sustainability Accounting Standards Board (SASB) standards, the Global Reporting Initiative (GRI) guidelines, and the Integrated Reporting Framework (IR Framework) – as summarized in table 1.

Table 1.

Comparative characteristics of key frameworks for non-financial information disclosure [8, 9]

From the managerial perspective, the choice and implementation of a relevant framework for disclosure of non-financial information defines ESG maturity within a firm and the extent to which sustainability principles are integrated into strategic and operational processes. SASB is particularly important to investor relations and long-term profitability analysis due to industry-specific guidance it provides to assess risks and opportunities that have a direct material impact on financial performance. Because it was developed in the United States, SASB is widely utilized by public companies in America, since it meets the requirements of the U.S. SEC and U.S. institutional investors. On the other hand, GRI focuses on a wide range of non-financial impacts and was applied globally to become the most widely recognized international sustainability reporting standard, supported by such significant international organizations as the United Nations and the European Commission. It allows top management to make comprehensive corporate sustainability and social responsibility programs that meet the expectations of external stakeholders. IR Framework, being a part of the IFRS Foundation structure since 2021, has the highest strategic potential since it allows the development of a holistic managerial view of a company's business model through the integration of financial and non-financial capitals into the single value creation system. Anyway, the efficient application of these frameworks requires active involvement of senior management, cross-functional coordination, and the insertion of non-financial metrics into performance evaluation and decision-making systems.

For the quantitative assessment of social and environmental impact, methodologies such as SROI (Social Return on Investment) and TBL (Triple Bottom Line) are increasingly applied (table 2).

Table 2.

Comparative overview of quantitative methods for assessing social and environmental impact [10]

The managerial rationale behind the SROI methodology is that it provides a potent means of quantifying non-financial performance and thus enables executives to prove the return from social investments and justify decisions on resource allocation. In particular, this is when budgets are limited and priorities in CSR or ESG activities need to be clearly outlined. Yet, its effectiveness depends on access to reliable and verifiable stakeholder and environmental data, which may be problematic with less digitalized accounting systems.

In contrast, the TBL approach serves as a conceptual foundation for building a balanced system of corporate objectives and assessing long-term business sustainability. It allows management to integrate non-financial KPIs into corporate reporting, development plans, and executive incentive systems. Unlike SROI, TBL applies not only to individual projects but also to company-wide performance assessment, providing continuous insight into ESG progress within the broader sustainability strategy.

An integrated reporting framework occupies a special place in modern corporate practice, serving as a strategic communication tool between a company and its internal and external stakeholders. It enhances transparency and manageability of non-financial processes while embedding them into the framework of strategic planning and corporate sustainability assessment. Within integrated reporting, non-financial indicators cease to be auxiliary elements and become part of a holistic value creation model.

Modern digital platforms integrated with risk management systems enable real-time tracking of ESG metrics, scenario forecasting, and stress testing of business model resilience [11]. This provides management teams with greater analytical accuracy and the ability to respond promptly to ESG-related risks.

In this way, effective assessment of nonfinancial initiatives requires relying on international disclosure standards, multi-level impact assessment methodologies, and the integration of the results obtained into the strategic management system. It is not only a question of meeting regulatory and investor expectations but also an opportunity to create sustainable competitive advantages over the long term.

Integration of non-financial indicators into the strategic management system: a practical roadmap

Sustainable and strategically oriented corporate development in today’s environment requires the incorporation of non-financial indicators into the decision-making framework at all levels – from operational to corporate. The integration of ESG metrics into strategic management enables companies not only to account for risks and opportunities that go beyond traditional financial indicators but also to build long-term competitive advantages. Implementing this approach necessitates a phased and structured transformation of the corporate management system (table 3).

Table 3.

Stages of integrating non-financial indicators into strategic management

The sequence presented in the table reflects not only the logical progression of ESG metric implementation but also emphasizes the need for institutional support at all levels of corporate governance. The practical realization of this integrative approach requires the creation of cross-functional teams, the establishment of unified data management systems, and the development of strategic leadership in sustainability.

Empirical evaluation of non-financial initiative effectiveness: modeling combined return in the context of U.S. tax and investment incentives

In the modern economic environment, the performance of non-financial initiatives is increasingly assessed not only through their social and environmental significance but also in terms of their impact on the strategic resilience of businesses. One of the key factors enhancing the economic feasibility of ESG programs is the system of government incentives – including tax credits, subsidies, and grants – aimed at supporting green energy, decarbonization, and socially responsible technologies. These mechanisms allow companies to offset part of their capital expenditures for sustainable projects and to increase the overall return on investment.

For empirical analysis, a Combined Return Model was applied, integrating both the direct financial effect (ROI – Return on Investment) and the socio-environmental effect (SROI – Social Return on Investment).

To quantitatively confirm the relationship between financial and non-financial outcomes of sustainable investments, a simulation of the combined return from a representative ESG project was conducted based on available statistical and regulatory data. The key parameters and results of the calculation are presented in table 4.

Table 4.

Modeling the combined return of non-financial initiatives in the context of ESG incentives (U.S.)

The modeling was conducted using aggregated data on corporate investments in energy efficiency and renewable energy from the U.S. Department of Energy (DOE, 2023-2024), IRS, and the Inflation Reduction Act (IRA) Implementation Report 2024 [12-15]. The baseline scenario considered a mid-cap industrial project (CAPEX ~$10 million USD) involving modernization of production facilities, installation of solar panels, and implementation of heat recovery systems.

To calculate the financial return (ROI), the classical formula was used – the ratio of net economic effect to the investment volume over a five-year horizon. The calculation included:

• direct annual energy savings (average cost reduction of 8-10 % according to DOE Industrial Energy Efficiency Trends);
• decreased expenses on carbon credits and taxes (under IRS §48C Advanced Energy Project Tax Credit – up to 30 % of investment value).

The social and environmental return (SROI) was evaluated using sectoral multipliers published under the DOE Better Buildings Initiative and the methodology of Social Value International. The SROI indicator was defined as the ratio of the total value of avoided emissions, created jobs, and social benefits to the initial investment. The monetary equivalent of the environmental effect was calculated based on the average social cost of carbon – $56 per ton of CO₂ (U.S. EPA, 2023).

The combined return (ROI + SROI) represents the integrated total return on investment, encompassing both direct economic benefits and socio-environmental value. It was calculated as the sum of discounted cash flows from both components using a discount rate of 6 %, consistent with the market average for corporate ESG investments.

The analysis was performed under two scenarios:

• Baseline – moderate level of federal support and 10 % energy cost reduction;
• Optimistic – full use of federal credits and 15 % energy savings.

The model’s margin of error does not exceed ±10 %, which allows for its use as an indicative tool for assessing corporate ESG project performance.

The modeling results indicate that implementing non-financial initiatives in the U.S. industrial sector can generate not only environmental and social benefits but also a measurable economic return. Under the baseline scenario, the combined return averages $1.8 per dollar invested, and under the optimistic scenario – up to $2.4, comparable to the market-level profitability of energy innovation projects. The utilization of tax credits and subsidies under the Inflation Reduction Act enables companies to offset up to one-third of their capital expenditures, significantly increasing internal rates of return and reducing the payback period from 7-8 years to approximately 5 years. These findings confirm that non-financial initiatives, when strategically integrated and supported by government incentives, represent a sustainable source of added value – reducing business risk exposure and enhancing long-term investment attractiveness.

Conclusion

The analysis showed that non-financial initiatives based on ESG principles today have become an integral component of corporate strategic capital, which directly influences long-term resilience and competitiveness. Modeling at the empirical level confirmed that, supported by government incentives in the form of tax credits, subsidies, and grants, the integration of environmental, social, and governance factors could yield a combined return comparable to traditional financial investments. A road map for integrating non-financial indicators into the strategic management system, developed in the framework of the present study, represents a step-by-step framework for building managerial and analytical processes that ensure correspondence of corporate goals, transparency of reporting, and sustainability of a business model. The application of international reporting standards, methodologies such as SROI and TBL, and digital monitoring tools enhances both the accuracy of impact assessment and the quality of managerial decision-making. Thus, a systematic approach to evaluating and integrating non-financial initiatives forms the foundation for sustainable value creation, strengthens investor trust, and reduces strategic business risks in the long term.

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