This year our survey of FTSE companies’ annual report focuses on the hot topics that companies themselves are focusing on, including COVID-19. COVID-19 illustrates how quickly an environmental, social and governance (ESG) issue can affect financial returns, reinforcing the need for resilient business models and the importance of fostering relationships with all stakeholders not just shareholders.
The growing awareness of the relationship between purpose and profit and growing recognition by companies of the need to deliver sustained value to a range of stakeholders is redefining the social contract between business and society. ESG factors now feature prominently in boardrooms and gain ever more attention from investors.
Our survey examines reporting trends across five areas – purpose, people, planet, profit, sometimes referred to as ‘the 4 Ps’, and the pandemic. It includes insight on responses to changing report requirements, areas for improvement, regulatory hotspots and examples of disclosure.
Having come to the fore in recent years, company purpose is an articulation of why a company exists, typically capturing the way in which it aims to create a positive impact on stakeholders. In the UK, consideration of purpose follows on from the directors’ duty under s172 to promote the business’s long-term success while having regard to its reputation and stakeholders.
Companies frequently describe their workforce as their most prized asset. However, only 58% described value created for employees in their business model. The past year also saw the 2018 UK Corporate Governance Code and changes to the law introduce the need for more insight into companies’ relationships with their workforce. Another hot topic in this area relates to diversity.
Investors, regulators and other business stakeholders continue to demand better disclosures on climate change matters. 64% of companies made reference to the Task Force for Climate related Disclosures (TCFD) with 22% making fulsome disclosures in line with its recommendations. 10% adopted the new Streamlined Energy and Carbon Reporting (SECR) requirements earlier than required.
Companies operate within a wider economic ecosystem, impacting on and benefiting from economic and social prosperity. In this section we consider value creation, capital allocation, executive remuneration in relation to ESG factors, company resilience and long-term viability, Brexit, dividend policies and alternative performance measures.
The impact of the COVID-19 pandemic has been significant for companies across numerous industries and jurisdictions. In this section we look at some of the emerging trends in annual reporting for a sample of 20 FTSE 350 March year-ends. We examined board responses and governance, stakeholder engagement, the impact on risks, going concern and viability statements and the financial statements.