The Investment Association's Guide on Long-term Reporting - a quick read
The Investment Association (IA), the trade body that represents the UK’s £5.7 trillion asset management industry, has just published its new Long-Term Reporting Guidance. Following their call last year for companies to stop publishing quarterly reports and focus reporting instead on the strategic drivers of value creation, the guidance sets out members' expectations of how UK listed companies can report more effectively on the long-term drivers of productivity, capital management, human capital and culture in their business.
The guidance is applicable to premium listed companies, although other listed and AIM companies are also encouraged to apply it. It complements both the strategic report requirements contained in the Companies Act 2006 and the Financial Reporting Council (FRC)’s Guidance on the Strategic Report.
Their recommendations are as follows:
1) Business model reporting should:
- be positioned towards front of the strategic report
- explain the company’s competitive advantage
- explain how it underpins long-term strategy
- provide insight into the key inputs, processes and outputs of the company’s value chain
- show how the key assets are delivering in line with the long-term interests of shareholders
- incorporate risks that could impact the company’s long-term viability
2) Drivers of productivity reporting should:
- explain the process and criteria used to measure and monitor productivity on a regular basis
- provide a framework to explain quantitative disclosures on: 1) infrastructure, for example, capital expenditure on new equipment and machinery, 2) innovation, for example, spend on research and development, 3) skills, for example, spending on training and development, 4) culture, for example, results of employee engagement or management of human capital
3) Capital management reporting should:
- explain what the company regards as capital, what its capital position is and how it manages, allocates and reinvests its capital
- provide insight into the role of the board in setting the company’s capital management strategy
- include a table to disclose quantitative information such as working capital, investment capex, research and development, capital distribution, and investments in skills and training
- provide better insight into merger and acquisition decisions and how the company funds its M&A capital
4) Environmental and social risks reporting should:
- explain the role of the board in addressing environmental, social and governance (ESG) matters
- disclose any ESG risks that could impact the company’s short and long-term value
- describe the procedures the company uses for verification of ESG disclosures
- state whether and how ESG issues are considered when setting the remuneration of executive directors in the remuneration report
5) Human capital and corporate culture reporting should:
- disclose, if possible, total headcount, annual turnover, investment in training and employee engagement scores
- provide metrics that are segmented by market, geographic location and/or sector for enhanced transparency, if possible
- provide insight into how corporate culture is regularly assessed and reported
- explain how the company’s values, strategy and business model are aligned
Coming up with a solution on how companies can report beyond short-term financial measures of success won’t be easy. The guidance should encourage investors to adopt a longer-term approach. Companies in turn need to ensure they are reporting on these long-term drivers of success and clearly articulating how these help them to create value for their stakeholders.
Our team at Emperor can help you implement the IA’s recommendations, improve the quality of information you report and evolve your reporting in line with regulatory and industry guidance as well as current best practice.