Investors and analysts use
extra-financial information in decision-making, suggests new
research
Investors
and analysts use extra-financial information reported by companies to help
analyze the performance of those companies and ultimately inform investment
decisions, according to new research published today (Wednesday 25 July 2012).
Research
partners the Global Reporting Initiative (GRI) and The Prince of Wales’s
Accounting for Sustainability Project (A4S), in collaboration with Radley
Yeldar, say the research provides new insight into how financial markets source,
use and are influenced by extra-financial information.
The value of
extra-financial disclosure
According to the report What Investors
and Analysts Said, extra-financial information – such as disclosures on
governance and environmental issues – has become an important and influential
consideration for investors and analysts.
Sarah Nolleth, A4S Project
Director, said, “We are delighted to see that the investor community is
increasingly seeking extra-financial information as part of their
decision-making processes. The increased credibility of, and demand for, these
sources of information will help sustainability considerations become embedded
into investors’ assessments of a company’s long-term value. The report
highlights the importance of integrated reporting, but it is important to
remember that companies also need integrated thinking i.e. embedding
sustainability into their decision-making and strategy, as the precursor to
successful integrated reporting.”
According to the survey results,
governance information is the most relevant type of extra-financial information
for investors and analysts, with 70 percent of respondents rating it very
relevant, while 64 percent of respondents said information on natural resources
is very relevant to their analyses of companies. Social and community
information ranks lower, although 52 percent of respondents say such information
is very relevant.
The relatively low relevance of social and community
information could, the researchers say, be due to the difficulty in comparing
company performance on these issues. 61 percent of investors and analysts
surveyed said they find social information difficult to compare; whereas only 41
percent said the same for environmental information. In contrast, only three
percent of respondents said they find it difficult to compare financial
information.
Nelmara
Arbex, Deputy Chief Executive of the Global Reporting Initiative (GRI), said:
“This research is one more piece of evidence showing how organizational
disclosure on sustainability impacts is popular among investors. GRI expects the
demand for sustainability performance related information to increase and
sustainability reporting to become standard practice. GRI’s guidance will
continue to offer companies globally- recognized support to improve their
sustainability reporting practice, and prepare more focused reports. This is the
performance data we are all looking for.”
Preferred
sources and formats for extra-financial information
The research also
investigated preferred communication channels and formats for receiving
extra-financial information.
A key finding was that investors and
analysts use a wide range of sources to gather financial and extra-financial
information. However, some channels – notably PDF format publications – were
more popular than others for certain types of financial and extra-financial
information.
Ben Richards, Head of Sustainability at communication
specialist Radley Yeldar comments:
“This research demonstrates that
investors and analysts rely on tried and tested channels of communication –
namely reporting and dialogue with companies – though this tends to be part of a
blended approach to information gathering. If they need specific details,
they’ll use specialist sources. This means reporters need to clearly guide these
audiences through their disclosure, which often appears in a number of places on
their corporate websites.”
Richards goes on to say:
“The
research also highlights the need for reporters to reconsider interactive online
reports such as dedicated microsites, which appear to be less valued by investor
and analyst audiences than a PDF report. We believe there’s still a role for
online channels to deliver relevant information, but reporters need to better
understand their audience’s needs, and the role of the various pieces of
disclosure they issue, to communicate their story as clearly as possible.”
Other key findings from the research include:
• Over 80% of
investors and analysts believe that integrated reporting will deliver benefits
to their analysis or company assessments
• Nearly half of investors and
analysts (46%) state that direct engagement with the CEO or CFO on
extra-financial issues is very likely to influence their investment decisions or
company analysis, slightly more so than other corporate reporting channels such
as the sustainability report, annual report or integrated report
•
Voluntary frameworks for reporting extra-financial information play an important
role in decision-making and company analysis, especially the GRI Sustainability
Reporting Framework and the Carbon Disclosure Project
The research was
commissioned by The Prince’s Accounting for Sustainability Project (A4S) and the
Global Reporting Initiative (GRI), and undertaken by Radley Yeldar.
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