When standing still is moving backwards
The 17th edition of Black Sun's Complete 100 analyses the FTSE 100’s corporate reporting for trends, themes, and insights.
Earlier this year we hosted a webinar to launch this year’s Complete 100 research – When Standing Still is Moving Backwards - during which we discussed developments in the reporting landscape – most notably touching on the upcoming ISSB standards – as well as the six principles of trust, three deep dives on materiality, diversity and inclusion, and TCFD, and finally, a Q&A session taken from polling questions.
Importantly, the research not only consolidates our thinking around themes and developments but enables us to view the FTSE 100’s reporting from a broader perspective.
This is invaluable for informing the advice we provide to our clients, helping us better understand the context in which companies operate in, and how they should best disclose their information.
Key findings from our research
Overall, we are seeing bigger shifts in the expectations on companies by their stakeholders, particularly around responsibility, diversity and inclusion, sustainability, and climate change, evidenced in our research findings.
Purpose
Purpose continues to guide companies’ decision making. This year, we saw 97% of companies explicitly linking purpose to their strategy. Best practice around purpose in corporate reporting includes the use of purpose frameworks linking purpose to strategy, stakeholders, culture, values, and remuneration. There are opportunities to enhance reporting on purpose by providing commentary on how the Board monitors the embedding of purpose, potentially using a similar reporting approach to the assessment and monitoring of culture and commenting on the role purpose plays in informing what not to do, or in driving a change of direction.
Purpose
Purpose continues to guide companies’ decision making. This year, we saw 97% of companies explicitly linking purpose to their strategy. Best practice around purpose in corporate reporting includes the use of purpose frameworks linking purpose to strategy, stakeholders, culture, values, and remuneration. There are opportunities to enhance reporting on purpose by providing commentary on how the Board monitors the embedding of purpose, potentially using a similar reporting approach to the assessment and monitoring of culture and commenting on the role purpose plays in informing what not to do, or in driving a change of direction.
Culture
Culture remains an important element of effective reporting because it allows companies to demonstrate how investments in people drive growth and support business performance. Establishing a dynamic culture remains a high priority issue for boards, with 88% of companies discussing culture in their governance section, up from 80% in 2020, demonstrating the awareness of the importance of this issue. Companies are also evidencing their commitment to culture through investment in people-focused initiatives and the adoption of culture-related KPIs.
Culture
Culture remains an important element of effective reporting because it allows companies to demonstrate how investments in people drive growth and support business performance. Establishing a dynamic culture remains a high priority issue for boards, with 88% of companies discussing culture in their governance section, up from 80% in 2020, demonstrating the awareness of the importance of this issue. Companies are also evidencing their commitment to culture through investment in people-focused initiatives and the adoption of culture-related KPIs.
Cognitive Diversity
The importance of diversity in the current business environment is critical; D&I was accordingly selected as one of our three deep dive topics for this year. In reporting, we are seeing diversity targets being employed as a way of reflecting actions - 72% of companies are now commenting on diversity targets. With new FCA diversity disclosure requirements being introduced, we expect this to continue to rise. We continue to see extensive and detailed reporting on gender and ethnic diversity, but interestingly, reporting beyond these areas remains the exception.
Cognitive Diversity
The importance of diversity in the current business environment is critical; D&I was accordingly selected as one of our three deep dive topics for this year. In reporting, we are seeing diversity targets being employed as a way of reflecting actions - 72% of companies are now commenting on diversity targets. With new FCA diversity disclosure requirements being introduced, we expect this to continue to rise. We continue to see extensive and detailed reporting on gender and ethnic diversity, but interestingly, reporting beyond these areas remains the exception.
Stakeholder Engagement
Stakeholder engagement reporting enables companies to explain which stakeholder relationships are critical for sustaining the activities of the business, and how these relationships link to governance & strategy. Understanding stakeholder relationships – and integrating them into strategic decision making – are important drivers of long-term value creation. The requirement to include a Section 172 statement has advanced reporting and some companies are commenting on challenging as well as positive decisions affecting their stakeholders, and the outcomes arrived at.
Stakeholder Engagement
Stakeholder engagement reporting enables companies to explain which stakeholder relationships are critical for sustaining the activities of the business, and how these relationships link to governance & strategy. Understanding stakeholder relationships – and integrating them into strategic decision making – are important drivers of long-term value creation. The requirement to include a Section 172 statement has advanced reporting and some companies are commenting on challenging as well as positive decisions affecting their stakeholders, and the outcomes arrived at.
Responsible Business
The term responsible business encompasses many factors from climate to sustainability and employee relations and ethics. The most significant recent change in reporting here is the introduction of mandatory TCFD reporting and the ISSB sustainability standards already mentioned. Sustainability is increasingly seen as a pivotal element of strategy - 60% of companies now include sustainability as one of their strategic pillars or priorities, and 35% included a materiality assessment, a method of assessing material sustainability-related issues. Both TCFD and materiality are deep dive topics we looked at this year as part of our Complete 100 research, reflecting the importance of these areas in reporting currently.
Responsible Business
The term responsible business encompasses many factors from climate to sustainability and employee relations and ethics. The most significant recent change in reporting here is the introduction of mandatory TCFD reporting and the ISSB sustainability standards already mentioned. Sustainability is increasingly seen as a pivotal element of strategy - 60% of companies now include sustainability as one of their strategic pillars or priorities, and 35% included a materiality assessment, a method of assessing material sustainability-related issues. Both TCFD and materiality are deep dive topics we looked at this year as part of our Complete 100 research, reflecting the importance of these areas in reporting currently.
Transformational & long-term planning
In response to the roll out of mandatory TCFD reporting, the focus for companies is on quantifying the long-term risks and opportunities of climate change: we found that just 9% of the FTSE 100 included costed financial impacts of climate change, with 14% providing a net-zero roadmap. Companies establishing science-based targets to develop a net-zero transition plan represent good examples of using long term planning to address pressing challenges. With net zero transition plans to be mandatory in the UK from April 2023, we expect to see further progress in the efforts to plan the long-term strategies for achieving net-zero emissions. Areas for improvement in reporting include identifying and eventually costing milestones to achieve net zero targets.
Transformational & long-term planning
In response to the roll out of mandatory TCFD reporting, the focus for companies is on quantifying the long-term risks and opportunities of climate change: we found that just 9% of the FTSE 100 included costed financial impacts of climate change, with 14% providing a net-zero roadmap. Companies establishing science-based targets to develop a net-zero transition plan represent good examples of using long term planning to address pressing challenges. With net zero transition plans to be mandatory in the UK from April 2023, we expect to see further progress in the efforts to plan the long-term strategies for achieving net-zero emissions. Areas for improvement in reporting include identifying and eventually costing milestones to achieve net zero targets.
For a copy of the research, please get in touch with our Head of Business Development, Naomi Hawkins.