Conscious unbundling

With the 5 February deadline for responses fast approaching, it is time for reporters and their advisers to finalise and deliver their comments on the FRC’s discussion paper on the Future of Corporate Reporting. In the paper, which is ambitious in scope and far more than just a periodic update, the FRC is seeking to reboot and retool corporate reporting for the next decade and beyond.

A radical overhaul

Some will welcome it as ‘a first step in considering the development of a principles-based framework for reporting as a whole’. The FRC’s goal is ‘to create a system of reporting that is more effective and engaging for all those with an interest in a company’. A ‘blueprint’ for a reporting system in the long term to take us to 2030 and beyond.

The scale of the FRC’s ambition is reflected throughout the text, which states that ‘further tweaks are unlikely to address valid concerns’ and calls for ‘a more radical overhaul’. The desire for change is clear but it will not happen overnight. The FRC has recently confirmed a ten-year time horizon for implementation.

Others may see it as a moment when the tide began to turn against integrated reporting, the IIRC’s framework promoting the annual report as the single, central source of truth about a business. The FRC refers to ‘unbundling’ throughout the proposals, which is surely the very opposite of integrating.

The recently announced merger of the IIRC and SASB reflects a shake-out in the ‘framework industry’ and their successor, the Value Reporting Foundation, plans another attempt at ‘offering investors and companies a comprehensive corporate reporting framework to drive global sustainability performance’. It seems the convenience of having all information relating to value creation in one place is still a holy grail for some.

Seek and ye shall find

The rise of search functionality as an enabler of quick, accurate and now often automated research has solved some of the problems with a combined report. In the past, long documents like annual reports and prospectuses, which often run to many hundreds of pages, were not renowned for their usability but they can now be combed digitally in seconds for key words and phrases. The FRC’s proposals, which are designed to ‘unbundle existing reporting’, do not therefore need to solve the problem of directing readers to the information they seek, as that problem no longer really exists.

A rose by any other name

The new network of interconnected reports proposed by the FRC could be seen as simply a ‘renaming of parts’. The network is centred on three key documents: the Business Report, which looks very much like a Strategic Report; the Public Interest Report, which looks like the responsible business section from a well-prepared annual report; and the Financial Statements… well, they look like the financial statements.

This approach to segmentation of information is not new but it remains an effective way for a company to communicate to its stakeholders and it is good to see that it lives on at the heart of these proposals.

The acceleration of digital IR and Covid-19

One cannot overestimate the impact that technology will have on every aspect of our lives, including the evolution of reporting. Clear evidence is emerging that digital sources of information are now seen as better, faster and more reliable than traditional sources. It is interesting that technology is only referred to in the last few pages of the discussion paper as a ‘supporting pillar’, which may underplay its role in shaping the future of reporting.

It is clear from our conversations with investors and IR professionals that Covid-19 has substantially accelerated the move towards digital engagement, especially for investor engagement beyond published material. Once travel and meeting restrictions are lifted, AGMs in the short term may well return to pre-Covid face-to-face norms but what happens in the medium term is wide open. The capital markets day has probably changed for ever too, with heads of IR welcoming the opportunity to reach a wider audience, not to mention the time and cost savings from eliminating travel.

What next?

When we come to look back on this period in the evolution of reporting, the long-term significance of the FRC’s proposals may lie in the commitment to creating a suite of reports whose content is shaped around users’ objectives rather than their job titles. Where content is based not on who is asking for it but why - an insight that captures the very nature of the evolving comms landscape, where the boundaries between different audiences’ interests are becoming increasingly blurred.

If you have any questions around the evolving reporting landscape please speak to Bill Krarup, Director, Investor Communications.

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