Sallie Pilot

Have we reached the tipping point for non-financial information?

 Malcolm Gladwell defines the tipping point as ‘that magic moment when an idea, trend or social behaviour crosses a threshold, tips and spreads like wildfire.’

You can’t help but have noticed the growing recognition that financials are only part of a company’s story.

In my view, this is real. This is now. This is changing. 

Driven by factors such as market expectations for further information that can provide insight to long term value creation, companies recognition that they need to respond strategically to global trends such as disruptive technology, climate change and Sustainable Development Goals (SDGs) and a proliferation of regulation, legislation and best practice requirements - to me, the momentum is clear and the financial system is shifting to reward more sustainable companies. 

Globally, there has been a surge in the amount and the variety of information reported to investors outside of financial statements.

  • Last month, Black Sun held an event with 120 FTSE companies, 77% felt that there was growing importance of broader financial metrics to investors and 98% shared that broader non-financial issues and metrics are ‘important’ to their organisation when thinking about longer term decisions
  • Monday, WBCSD and PWC released a paper, ‘Enhancing the credibility of non-financial information the investor perspective’ which explores what value non-financial information has for investors, what could make it more reliable and what role assurance can play in increasing confidence in it. 
  • Tuesday, the FRC’s Financial Reporting Lab published guidance for companies on the presentation of performance metrics in their reporting following calls for clarity from investors that performance metrics are central to questions of value creation and ultimately to valuation. 
  • Yesterday, SASB, Sustainability Accounting Standards Board, codified the first-ever industry specific sustainability accounting standards covering financial material issues at a ceremony at the London Stock Exchange. 

And momentum continues to grow around the debate about what this means for reporting

  • Last week, the Financial Reporting Council launched a major project to challenge existing thinking about corporate reporting and consider how companies should better meet the information needs of shareholders and other stakeholders, which will include reviewing current financial and non-financial reporting practices - to consider what information investors and other stakeholders require and fundamentally, the purpose of corporate reporting and the annual report. 
  • Yesterday, leading international corporate reporting standard setters and framework providers (CDP, IASB, IIRC, GRI, SASB) launched a two-year project focused on driving better alignment in the corporate reporting landscape, to make it easier for companies to prepare effective and coherent disclosures that meet the information needs of capital markets and society. 
  • And on December 11, 2018, a debate will be held at the Oxford Union regarding the “Motion: This House believes that corporate sustainability reporting should be mandated, and standardised by FASB and IASB, for it to be most useful for investors.” It will be chaired by Lady Lynn Forester de Rothschild. In proposition are Paul Druckman, Ian Mackintosh, Sir Callum McCarthy, and Anne Simpson. In opposition are Jonathan Bailey, Bob Herz, Harvey Pitt, and Tom Quaadman. 
  • In preparation a “Green Paper” titled “Should FASB and IASB be responsible for setting standards for nonfinancial information?” has been written to contribute to the conversation that has been going on for some time, concerning whether mandatory prepping standards are a prerequisite for effective ’sustainability’ or 'non-financial’ corporate reporting. 

How long it takes, I’m not certain. What is certain though is this is firmly on the agenda of corporates, investors, regulators and society alike and in my view we are at a ’tipping point’. 

Because “in the end, tipping points are a reaffirmation of the potential for change and the power of intelligent action. 

Look at the world around you. It may seem like an immovable, implacable place. It is not. With the slightest push—in just the right place—it can be tipped.”

Let’s all push!