Investors’ interest in environmental, social and governance (ESG) issues has been growing in the last few years, and has certainly been spurred on by recent events, particularly on how companies treat their stakeholders and consider them in their decisions.
Requirements such as the Section 172 statement and reporting against the UK Corporate Governance code, have also prompted companies to better consider and engage with stakeholders and reflect how they did this in their reporting.
In light of this, the UK Financial Reporting Council’s (FRC) Financial Reporting Lab spoke to investors, including participants from the UK Corporate Reporting Users’ Forum (CRUF), to understand what information they need on stakeholders and what is missing from or can be improved in current reporting practice.
The discussions highlighted that investors are ultimately interested in understanding how a company is meeting its purpose and its prospects for success. Therefore, the information they need on stakeholders, as well as a company’s principal decisions, needs to help that understanding.
Based on these discussions, the Lab has published a report on reporting on stakeholders, decisions and Section 172. The report includes examples which reflect possible ways of addressing investors’ needs in these areas. In summary, investors want reporting that clearly sets out:
- who are the stakeholders relevant to the company’s success, and how they influence the operation of the business model and delivery of strategy (strategic relevance of stakeholders);
- how the company builds and maintains strong relationships with its stakeholders and understands their interests, needs and concerns to enable it to pursue long-term success (engagement and outcomes);
- what could affect the company’s relationships with its stakeholders, and how these relationships could affect the company’s pursuit of success (risks and opportunities);
- what is measured, monitored and managed in relation to stakeholders to understand the strength of the company’s relationships with its stakeholders and how they are contributing to the company’s success (performance and metrics);
- what the principal decisions were and how they contribute to the company’s success;
- how and why the board and management reached those decisions;
- how stakeholders were considered in those decisions;
- difficulties and challenges in making the decisions; and
- the expected and/or actual outcomes of the decisions.
Section 172 statements should be a helpful bridge between information on stakeholders and on decisions, reflecting how the company is progressing in its pursuit of its purpose and long-term success.
Although Section 172 is a UK requirement, information on stakeholders and decisions is of global interest. And while such information is targeted towards investors, it may also be of relevance to stakeholders themselves. As focus on ESG matters continues to grow, we expect related reporting to develop further to better meet investors’ needs in the coming years. The Financial Reporting Lab will continue exploring practice in this area and welcomes views from CRUF participants and other users of corporate reporting – please contact the Lab at email@example.com
Marie Claire Tabone is a Project Manager in the UK Financial Reporting Council’s Financial Reporting Lab. The Lab aims to improve the value of corporate reporting by facilitating discussions on reporting topics between investors and companies. Marie Claire is a qualified accountant and has specialised in corporate reporting and investor engagement for the last 5 years. Previously, she worked in audit in London, the Channel Islands and Malta.