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As the year draws to a close, we reflect on some of the key developments in corporate reporting, and look ahead to what’s in store for 2020 and beyond.
By Claire Fraser, Head of Corporate Reporting
2019 has been a year of uncertainty. And it’s no different for companies, with a raft of corporate governance reforms, legislative changes and new reporting requirements to navigate, all set against an uncertain geopolitical and economic backdrop.
With significant changes around the alignment of purpose, culture and strategy, the need for workforce and stakeholder engagement, and the increased focus on directors’ duties under section 172, this represented an important evolution. For many companies, this is the first time they’ve had to formally consider a wider range of stakeholders and broader societal factors, beyond just shareholders and profits.
Having run a number of corporate reporting workshops for our clients over the summer, we heard first-hand how the new requirements are either supporting business behaviour and practices that have been in place for years, or are driving a wholesale change in approach at the top.
What were some of the challenges that cropped up in 2019?
Environmental, social and governance factors have become a mainstream concern for businesses this year, moving up the corporate agenda and into boardrooms. The main challenges we heard were around defining and articulating a clear and authentic purpose that aligns with the business strategy; the new section 172 statement and what this should look like; stakeholder engagement beyond shareholders and the workforce, particularly for Group PLCs where the head office isn’t directly involved in business activities; and the impact of stakeholder interests on board decision-making.
“No surprise, but the section 172 requirements, and where/how to cover stakeholder engagement and how to deal with stakeholder views in board decision-making have been some of the main areas this year. Looking ahead, ESG matters are likely to continue in prominence, with smaller companies in particular probably in need of guidance.”
Claire Hastie, Reporting Consultant at Emperor
“As well as section 172 and ESG/non-financial information, the key areas have been around employee engagement and identifying and communicating purpose. Properly explaining the linkage between strategy, KPIs and risk is another area I have spent a lot of the year advising on, as well as how best to repurpose annual report content for the website.”
Leon Milligan, Reporting Consultant at Emperor
“Consolidating content and considering other channels for non-material information that’s not necessarily required to sit in the annual report. Some clients, for example, have completely stripped back their annual report and moved more information online in order to make their reports more concise and focused.”
Sam Trillwood, Reporting Consultant at Emperor
Who’s doing it well?
SSE are one of our most progressive reporting clients who have factored stakeholders, sustainability and long-termism into their business strategy for years. This is reflected in the breadth and depth of their reporting, which encapsulates both financial and non-financial growth drivers and opportunities, and addresses many of the new reporting requirements in relation to directors duties; culture; board engagement with the workforce and other stakeholders; climate change; and the alignment of purpose and strategy. SSE have also invested in their online reporting platform to make information more accessible to different audiences.
Looking ahead: the big themes for 2020
For anyone who is contemplating the year ahead, it’s important to bear in mind that reporting is an output of the process that comes before it. If these topics haven’t yet found their way into your boardroom and if no action has been taken, you will struggle to report meaningfully.
Increasingly integrated thinking and reporting
The nature of recent governance and reporting reforms should naturally result in the convergence of financial and non-financial matters, if it doesn’t, something’s not working in the way it should. As Mike Barry highlighted in a recent Emperor interview, we’re entering a new period where the traditional norms have completely changed. To stay relevant and meaningful in this new era, companies must think about their financial and non-financial performance, profits and social impact, success and sustainability, as intrinsic to one another. As one company recently put it, “we don’t have a sustainability strategy, we have a business strategy to be sustainable, a key part of which is our people, our social contract and managing our external impact”.
Enhanced environmental impact and climate reporting
Mark Carney has been encouraging companies to proactively address climate risks and opportunities under the TCFD framework, and some of the more progressive companies have already done so. For those who haven’t, it’s becoming a business imperative to align with TCFD so it’s worth factoring this in to governance and risk management discussions in 2020. The FRC has confirmed that its Corporate Reporting Review team will be reviewing annual report disclosures in 2020/21 as part of a broader project on climate change.
In addition, the Streamlined Energy and Carbon Reporting (SECR) requirement, builds on existing greenhouse gas emissions disclosures and March year-end reporters will be the first companies who have to formally address this in 2020.
Culture, diversity and inclusion has gained traction over the past couple of years since the introduction of mandatory gender pay reporting, non-financial reporting, and the focus on culture and diversity in the 2018 UK Corporate Governance Code. The challenge now is for companies to look beyond the numbers and consider how they can use the data to support business decision-making and drive greater diversity across the business through succession planning and talent management, not just at board level.
European Single Electronic Format
A topic that hasn’t received much airtime this year is the incoming European Single Electronic Format (ESEF). It will require the entire annual report to be produced in XHTML, with iXBRL tagging of the primary financial statements.
This lack of attention is partly due to the assumption that it won’t apply if the UK leaves the European Union. Unfortunately, that’s not the case. ESEF and iXBRL requirements will apply from 1 January 2020 regardless of Brexit. Another reason for it flying under the radar is potentially a lack of understanding about exactly what will be required of companies and how ESEF will work in practice. For companies who aren’t familiar with it, we’ve produced a handy guide, and now is the time to consider how you’ll apply this to your 2020 year-end accounts. Note: it’s not the same as HMRC tagging and filing.
The future of corporate reporting
With constantly increasing reporting requirements, the purpose of the annual report itself is in question. Several projects are underway to look at this, most notably by the FRC and their ‘Future of Corporate Reporting’ project, with a ‘hub and spoke’ approach potentially being proposed.
Your reporting mantras for 2020:
If you’re an ambitious company looking to enhance the impact of your corporate reporting and communications, get in touch at email@example.com.