KCB revision - SLIDE DECK 10 - Reporting on non-financial issues Flashcards
In their report published in 2013, what do King and Roberts argue are problems with traditional corporate reporting.
Too heavy for the postman – annual reports, due to ever-increasing regulation and reporting requirements, have become so detailed and extensive that many are totally inaccessible to the average reader.
Yesterday’s story – annual reports present activities of the company over the previous financial year.
The financial picture only
Some intangibles are excluded e.g. corporate governance, brand recognition, good reputation and sound risk management
Non financial costs costs are excluded – the environmental costs of using up natural resources that can never be regenerated and of the impact of carbon emissions on climate change are excluded from financial accounting.
Different reports are prepared for different users e.g the sustainability report and the corporate governance report meet the demands of a particular stakeholder group.
Financial reporting only pushes company into short-termism
Define narrative reporting.
Narrative reporting describes the additional non-financial information which is included in companies’ annual reports, providing a wider and more meaningful picture of the company’s business, its strategy and future prospects.
What does legislation is applicable / relevant in connection with CSR reporting?
ASK ABOUT THIS AT REVISION WEEKEND - NOT 100% SURE HERE?!
The Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013 imposed a new duty on listed companies to report on their greenhouse gas (GHG) emissions as part of their directors’ reports.
Companies (Miscellaneous Reporting) Regulations 2018 - reporting on stakeholder engagement Inc. employees, customers, suppliers and others.
CA2006 - Strategic Report - to disclose info relating to environmental, employee. social, respect for human rights, anti-corruption and bribery.
What is the purpose of the strategic report and what should it be and cover?
FOUND ON FRC STRATEGC REPORT GUIDANCE 2022 - contains this info and section 172
To help assess how directors have performed their duty, under section 172 of the CA2006, to promote the success of the company’.
The strategic report should:
describe the company’s strategy, objectives and business model;
provide an explanation of the main trends and factors affecting the company;
describe the company’s principal risks and uncertainties;
include an analysis of the development and performance of the business, including key performance indicators (KPIs);
include information about the environment, social, community, human rights, anti-corruption and anti-bribery matters when material; and
include information on gender diversity.
It should:
Be fair, balanced and understandable
Be concise and only including information that is ‘material’ to shareholders so that key messages are not obscured
Include company-specific information
Link related information in different parts of the annual report
It is a criminal offence for a director to approve the strategic report knowing that it does not comply with the requirements of the CA2006.
What does s463 of the CA2006 provide in connection with this?
Section 463 of the CA2006 introduces a new safe harbour in relation to directors’ liability for the directors’ report, the strategic report and the directors’ remuneration report.
Directors are only liable to compensate the company for any loss it suffers as a result of any untrue or misleading statement in, or omission from, one of these reports if the untrue or misleading statement is made deliberately or recklessly, or the omission amounts to dishonest concealment of a material fact.
What is integrated reporting?
The recognition that it is important for a company’s long-term sustainability for it to measure and report on social and environmental performance as well their financial performance together with the greater desire for accountability by an organisation’s stakeholders has led to the development of the concept of integrated reporting.
The integrated report should record how the company has impacted (both positively and negatively) the economic life of the community in which it operated during the year, and how in the coming year it can improve the positive and eradicate or reduce the negative aspects.
In the UK, the Strategic Report regulations supported by the FRC’s Guidance on the Strategic Report provide a framework for narrative reporting that includes similar principles to those set out in the IR Framework.
What is Integrated thinking in relation to integrated reporting?
‘Integrated thinking’ is important to integrated reporting as this enables an organisation to understand better the relationships between its various operating and functional units and the capitals the organisation uses and affects.
inputs in relation to the six ‘Capitals’ (financial, manufactured, intellectual, human, social and relationship, and natural);
Financial capital – money, equity, bonds, monetary value of assets, etc. that an organisation needs to operate.
Human capital – the collective skills and experience of the people that work for the organisation.
Manufactured capital – physical means and infrastructure needed for an organisation to provide its products and services, e.g. fixed assets.
Intellectual capital – patents, copyright, designs, goodwill, brand value and knowledge accumulated, i.e. intangible assets.
Natural capital – natural resources and energy that the organisation depends on to produce its products/services.
Social capital – value added to an organisation of the social relationships with individuals and institutions that an organisation has developed through its stakeholder engagement.
Integrated thinking should take into account the connectivity and interdependencies between all those factors that have a material effect on an organisation’s ability to create and preserve value in the short, medium and long term
Summarise the benefits of integrated reporting outlined by Ecceles and Krzus in their report in 2010.
Greater clarity about relationships and commitments.
Better decisions
Deeper engagement with all stakeholders
Helps eliminate the artificial distinction between shareholders and stakeholders
Companies become aware of the interests of their different stakeholders and how those interests are in alignment or conflict with each other
Reduces reputational risk
What is triple bottom line reporting?
An accounting framework which includes information about a company’s social and environmental performance as well as the traditional financial performance when evaluating the overall performance of an organisation.
The term was first used by John Elkington in 1994 in an article in the California Management Review on win-win business strategies, in which he argued that companies, in addition to disclosing profit and loss, should disclose how socially and environmentally responsible they had been throughout their operations during the year.
Elkington argued that it was only by taking into account all three elements of what he called ‘profit, people and planet’ that an organisation could calculate the full cost of doing business.
It was further argued that by measuring the social and environmental elements companies, and in particular their boards and management teams, were more likely to pay attention to them and thus create more socially and environmentally responsible organisations.
What are the challenges to triple bottom line reporting?
Challenges to triple line reporting:
Cannot add up the three separate disclosures of financial, social and environmental information because it is often very difficult to quantify social and environmental initiatives and impacts in monetary terms.
Organisations presenting separate reports for each element: financial statements, social report and environmental report. This defeats the object of having triple bottom line reporting.
Historically, no widely accepted set of standards for triple bottom line reporting. In July 2018, the Global Reporting Initiative issued the GRI Sustainability Reporting Standards,
No requirements to independently audit social and environmental measures as there are with financial measures.
Lack of trust in the image presented by companies through triple bottom line reporting. Many companies present good news whilst withholding the bad news.
What is the IIRC on integrated reporting?
The IIRC has developed an international reporting framework and guidance on integrated reporting in an attempt to build consensus among governments, listing authorities, businesses, investors and accounting bodies on the future shape of corporate reporting.
What is the GRI sustainability stds?
GRI sustainability stds provides a voluntary sustainability framework intended to introduce some standardisation into sustainability reporting to report on their sustainability impacts in a consistent and credible way.
Includes:
organisation’s profile
strategy
ethics and integrity
governance
stakeholder engagement practices
reporting process
What are the FRC recommendations for climate change reoprting?
The FRC supports the introduction of global standards on non-financial reporting and recommended that in the interim period until this is achieved, listed companies should report against the Task Force on Climate-related Financial Disclosures’ recommended disclosures and the Sustainability Accounting Standards Board metrics for their sector.
The FCA in December 2020 issued proposals to enhance climate-related disclosures by listed companies including introducing a new rule and guidance which requires listed companies to include a compliance statement in their annual report, stating whether they have made disclosures consistent with the recommendations of the TCFD or providing an explanation if they have not done so.
Many organisations are obtaining external assurance for their CSR initiatives and sustainability reports. These
assurances provide a measure of credibility as they are performed by third parties.
List some external assurances companies may wish to consider.
The ‘KPMG Survey of Sustainability’ 2020 found that the number of N100 companies investing in independent third- party assurance of their sustainability information has now exceeded 50%
Organisations have pulled together panels or committees of experts to give credence to their reporting and help evaluate and improve the quality and credibility of its sustainability reporting.
The International Organisation for Standardisation (ISO) has established standards against which organisations can receive certification. For example, ISO 14001 for Environmental Management Systems and ISO 26000 for social responsibility.
What is an environmental profit and loss account?
The Environmental Profit & Loss Account (EP&L) was created by Puma, the sports lifestyle company and first published in 2011.
They have stated that ‘an EP&L allows a company to measure in euro value the costs and benefits it generates for the environment, and in turn make more sustainable business decisions’.
In 2015, Stella McCartney, the fashion house, released its first EP&L which was estimated to be €5.5 million. Stella McCartney described the EP&L as ‘a form of natural capital accounting that measures and monetises the negative and positive impacts on the environment generated by a company’s activities – not just within its own operations, but also across all of its supply chains’.
