Corporate Governance - Non-financial Reporting

Question 1

What are seven Problems with traditional Corporate Reporting?

Answer 1

1. ‘Too heavy for the postman’ - Too detailed and inaccessible to the average reader.
2. Yesterday’s story - inherent focus on past FY.
3. Financial reporting only.
4. Intangibles may be excluded - corporate governance, brand/IP.
5. Non-financial costs excluded - e.g. environmental costs.
6. Different reports are prepared for different users - e.g. sustainability report.
7. Financial reporting only focuses on short-terminism.

Question 2

Who are the key Stakeholders who benefit from ESG Reporting?

Answer 2

1. Investors - assists with decision-making.
2. Governments - managing ESG issues.
3. Consumers - seeking sustainable products and services.
4. Suppliers - may have sustainability requirements.
5. Banks - may only have credit appetite for well-governed businesses.

Question 3

What specific Corporate Governance Reporting Requirements exist?

Answer 3

1. UK Listing Rules - Companies must state how they have (i) applied Code principles and (ii) complied with Code provisions.
2. Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013 - listed companies must report on annual greenhouse gas emissions as part of directors’ reports.
3. Companies (Miscellaneous Reporting) Regulations 2018 - Significant to s.172, CA ‘06 engagement factors; applicable to large companies - must state their consideration of (a)-(f) factors.

Question 4

What is the Strategic Report?

Answer 4

1. Mandated under s.414A, CA ‘06 for each FY.
2. Report should include:
   - Company’s strategic, objectives and business model.
   - Trends and factors affecting company.
   - Company’s principal risks and uncertainties.
   - Business performance analysis.
   - Environmental and social reporting.
   - Include gender diversity reporting.
3. Report should be fair, balanced and understandable.

Question 5

What is Triple Bottom Line Reporting?

Answer 5

1. Accounting framework that evaluates company social and environmental performance, alongside conventional financial performance.
2. Therefore, covers - profit, people and planet.
3. Challenges:
   - Cannot add up three reporting items as qualititative and quantitative.
   - No widely accept standards for triple bottom line reporitng.
   - No audit requirements for environmental and social issues.

Question 6

What is Integrated Thinking?

Answer 6

1. Integrated thinking is relevant to integrated reporting - enables organisation to better understand cross-operating and -functional unit relationships and capital usage.
2. Integrated thinking should hence account for connectivity and interdependencies, and the material effect on short-, medium- and long-term value creation.
3. Benefits - clarity re. relationships/commitments; better decision-making; deeper stakeholder engagement; removes shareholder-stakeholder distinction; reduces reputational risk; awareness of stakeholder interest alignments and conflicts.
4. Cf. sustainability reports that focus only on non-financial performance.

Question 7

What is the Company Secretary’s role in relation to Corporate Social Responsibility?

Answer 7

1. Developing:
   - Ensuring non-financial KPIs are developed/approved by board.
   - Working with board to agree reporting framework for adoption (e.g. GRI standards or UN Global Compact), presentation of the same and audience reporting needs.
2. Monitoring:
   - Ensuring annual review conducted and presented to board to highlight improvement areas.
   - Ensuring CSR activity risks are known and managed.
   - Liasing with internal audit to ensure MI systems include appropriate assurance.
   - Checking market intelligence from other companies.
3. Advising - Ensuring directors understand their duties.
4. Communicating:
   - Views of key stakeholders re. non-financial performance.
   - Outside company performance and benchmarking used.
   - Reporting progress against adopted non-financial KPIs.