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Setting the benchmark in corporate integrity

Investors want sustainable reports to be more transparent

Survey finds that a vast majority of investors in Europe find sustainable reporting essential to their investment decisions

A recent survey by two of Europe’s leading reporting organisations has shown that the majority of investors across the continent are dissatisfied with how companies are reporting on their sustainability practices.

The study – a collaboration between the European Sustainable Investment Forum (Eurosif) and the Association of Chartered Certified Accountants (ACCA) – shows that two thirds of investors use non-financial information in company reports. It also showed that as much as 89 percent of investors believe sustainable reporting is essential to their investment decisions.

Eurosif and the ACCA surveyed 94 companies across 18 countries in Europe in order to gauge the sentiment that investors show towards sustainability. They found that a vast majority were in favour of clearer guidelines, and supported the proposed regulations set out by the European Commission earlier in the year.

The new rules proposed in Europe would make around 18,000 companies throughout Europe report on their sustainability practices in much greater detail, and particularly showing their impact on communities and how they address them. They have been pushed through by Commissioner Michel Barnier, and have been hotly debated by business groups across the EU.

The ACCA’s Head of Technical, John Davies, describes the incoming European rule changes as “very timely” in light of the study. He adds: “The proposed new directive…will require companies with more than 500 staff to include within its annual report a non-financial statement containing information on the reporter’s policies and practices on environmental, social and environmental matters, respect for human rights and bribery and corruption.”

Davies says that the incoming legislation, as well as the survey results, show that public opinion is moving towards an expectation of greater transparency for companies: “The new legislative measures can be seen as an indication that society is increasingly expecting a greater breadth of disclosure from big companies about their activities, and that the value of non-financial reporting is increasingly being recognised by regulators and users.”

The survey also found that 78 percent of respondents said that current levels of disclosure by companies were not good enough, while the report also showed that investors wanted firms to link such non-financial reporting to their business strategies in a clearer manner. Davies said: “Another interesting finding from the ACCA-Eurosif survey is that 92 percent of investors surveyed thought that financial and non-financial information should be more integrated.

“This finding provides encouragement for the project currently being undertaken by the International Integrated Reporting Council (IIRC) to produce a reporting framework for a consciously integrated form of reporting, whose aim is to provide users with an assessment of performance that encompasses all material factors which are relevant to the present, past and future performance of the company.”

ACCA is very supportive of greater transparency in corporate reporting and has been championing the cause of more disclosures on sustainability matters in particular for many years. We believe that companies that are forthcoming about their activities are more likely to generate trust on the part of their stakeholders, and also that good disclosure practice can drive internal corporate behaviour for the better.

He also encourages investors to become more engaged with companies about how they report information and holding them to account: “We are left now in the situation where we look to investors to play their part in further enhancing the level of constructive engagement between companies and their owners. The primary audience for companies’ reports are their shareholders, and it is the shareholders who have the power to hold companies and their directors to account if they are not satisfied.”

He adds: “Extensive efforts are being made to encourage investors to use the information they receive in order to assume a more active role in the governance of their investee companies. There is still a long way to go to make this happen, but it is much to be hoped that the wider range of information now being disclosed by large companies, and the intentionally more decision-useful character it is assuming, will prompt a continued improvement in the quality of governance and corporate social responsibility.”

 

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