The Investment Association (“IA”) has published new guidance on long-term reporting which it is encouraging companies to adopt as soon as possible. This follows on from the IA’s call some 6 months ago to cease quarterly reporting in favour of more meaningful long-term reporting. The guidance applies to companies whose shares are admitted to the Premium Segment of the Official List. All other listed companies (including AIM companies) are encouraged to follow the guidance as a matter of best practice.
The guidance comprises recommendations in the following areas:
- Business models and long-term reporting. This section reiterates the importance of longer-term performance reporting. The IA endorses the FRC Reporting Lab’s Business Model Reporting recommendations and suggests reporting should aim to clarify a company’s significant strategic issues and risks, at least over the next 3 to 5 years, although longer time frames would be preferable where possible.
- Productivity. This section sets out how companies should assess and report on the drivers of productivity within their business. The IA would like to see companies develop a set of Key Performance Indicators by which improvements in productivity can be reliably measured over time.
- Capital management. This section outlines investors’ expectations on capital management disclosures and how companies can improve reporting on the connection between capital management and its long-term strategy, promoting sustainable, long-term value creation.
- Disclosure of material environmental and social risks. This section covers disclosures relating to the board’s responsibilities and policies, procedures and verification systems to manage environmental, social and governance risks. The IA encourages companies to demonstrate how they create, sustain and protect value through the management of material environmental and social risks.
- Human capital and culture. This section sets out expectations as to how companies should report on human capital and culture. The guidance sets out minimum metrics which a company should disclose. As regards culture, the guidance notes that a healthy corporate culture is a valuable asset, a source of competitive advantage and a vital component in the creation and protection of long term value.
Andrew Ninian, Director of Stewardship and Corporate Governance at the IA, said:
“The best way to boost productivity and long-term returns in the UK is to shift the way many big companies operate away from a short-term focus, to more long-term decision-making. This will ultimately benefit the economy as a whole by creating more jobs, higher levels of growth and stronger returns for savers.
All businesses need access to long-term funding to grow, but many who take a long-term view are not currently maximising their appeal to investors. This guidance will help responsible companies get noticed by investors, by providing them with the information they need to make informed, long-term investment decisions.”
The IA’s corporate research service, the Institutional Voting Information Service, will be monitoring the implementation of the guidance analysing annual reports for year-ends on or after 30 September 2017.