On 16 April, the European Commission proposed new non-financial disclosure requirements for all large companies in the EU, through an amendment to the Accounting Directives. Investors, being a key audience of corporate reporting, are increasingly looking to assess not just the financial performance of the companies in which they invest, but also the environmental, social and governance (ESG) performance.
In order to gather the views and opinions of the investment community on their use of ESG information and the proposed reporting regime, Eurosif and ACCA conducted a survey of European investors and financial or non-financial analysts. The survey was conducted from November 2012 to April 2013 and the results are based on 90 responses.
The key findings of the survey are as follows.
- The most important sources of non-financial information for investors are sustainability/CSR reports (91% state 'high' or 'essential') and annual reports (85%). These sources are more important to investors than information provided by ESG rating agencies, NGOs, quarterly company reports or regulatory information.
- 69% of respondents agree or strongly agree that current non-financial information published by companies is linked to the CSR policy. However, a majority disagree or strongly disagree that current reporting is linked to business strategy and risk (74%), and that sufficient information is provided to quantify the materiality of non-financial factors in financial terms (93%).
- In order for non-financial information to be useful to investors, it must be sufficiently comparable across companies. 93% of respondents disagree or strongly disagree that current non-financial reporting is sufficiently comparable.
- 92% of respondents agree or strongly agree that non-financial information should be better integrated with financial information.
- Qualitative policy statements are important to assess financial materiality (77% agree or strongly agree), but quantitative key performance indicators (KPIs) are viewed as essential (97% agree or strongly agree).
- Accountability mechanisms should be part of non-financial reporting, either through new board oversight mechanisms, third-party assurance and/or shareholder approval at general meetings. In fact 73% agree or strongly agree that non-financial information should be subject to shareholder approval.
The most important lessons for policy makers engaged with designing minimum standards for non-financial reporting by EU companies are as follows.
- Current non-financial reporting by companies is inadequate for investors.
- Reporting must be linked to business risk and integrated with financial information.
- Quantitative KPIs are essential.
- Accountability and assurance mechanisms are needed.