‘Current levels of non-financial disclosure are not sufficient for assessing materiality’

The overwhelming majority of investors want European companies to be more consistent and transparent in their non-financial reporting, according to a survey by Eurosif and ACCA (the Association of Chartered Certified Accountants).

Ninety-three per cent of investors surveyed for the report What do investors expect from non-financial reporting? called for greater consistency and transparency, while 84 per cent of respondents agreed established standardised reporting frameworks need to be used by companies to achieve both those aims.

Other key findings of the survey were:

• The most important sources of non-financial information for investors are sustainability/corporate sustainability reports and annual reports.
• A majority of respondents agree that current non-financial information published by companies is linked to the CSR policy. However, they disagree that current non-financial information published by companies is linked to business strategy and risk, and disagree that sufficient information is provided to assess financial materiality.
• In order for non-financial information to be useful to investors it must be comparable across companies. Respondents state that current non-financial reporting is not sufficiently comparable and agree that non-financial and financial information should be better integrated.
• Qualitative policy statements are important to assess financial materiality, but quantitative key performance indicators (KPIs) are viewed as essential.
• Accountability mechanisms should be part of non-financial reporting, either through new board oversight mechanisms, third party assurance and/or shareholder approval at AGMs.

Gordon Hewitt, ACCA’s sustainability advisor, said: ‘The European Commission proposed new requirements from non-financial disclosures from all large companies in the EU back in April.

‘The feeling of the survey’s results is that policymakers could improve upon the Commission’s proposals by looking at introducing mandatory ESG KPIs; encouraging the use of and harmonisation of existing reporting frameworks to increase comparability; and improve accountability mechanisms for non-financial information.

‘There was also the opinion that companies affected by this proposed legislation would benefit from guidance on how to put these new measures into practice,’ said Gordon Hewitt.

Francois Passant, Executive Director of Eurosif, said: ‘Looking at non-financial aspects of an investee company is becoming the new norm for investors and one has just to look at the spreading of ESG integration practices to realise this. However, a disconnect exists between company’s non-financial reporting and investors’ expectations as highlighted by the survey. The Commission’s recent proposal represents a unique opportunity to bridge this gap but needs to be strengthened in some areas. By doing so, we are confident that Europe would bolster its competitiveness.’