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Governance reading essentials - Preparing for the 2022 reporting season September 2022

September 2022

Governance reading essentials - Preparing for the 2022 reporting season September 2022

Although the pace of some organisations slows over the holiday period, this year we have seen activity at the regulators speed up. The FCA and FRC have issued a plethora of material aimed at improving the quality of annual reports in advance of the 2022 annual reporting season which we bring to your attention to help you plan ahead.

In this overview we share with you this recent regulatory activity and the publications we have issued to support you as you prepare to meet the regulators’ requirements in the areas of climate disclosures, reporting on cyber and digital and corporate governance disclosures.

In the coming weeks we will share with you the findings of Deloitte’s yearly flagship annual report survey, Corporate Reporting Insights 2022 – offering insights on reporting on purpose, people, planet, prosperity and assurance. Look out also for a survey from the Deloitte Global Boardroom Program on Trust and ESG, launching in September.

Climate disclosures
At the end of July, the FCA and FRC published the findings of their first joined up, and mutually complementary, reviews of mandatory climate reporting under the new Listing Rule requirements.
The FCA sets out its expectations for compliant reporting, underpinned by the need to establish and embed adequate climate reporting procedures, systems and controls at companies. It outlines the findings from its review and highlights that it is considering whether to take regulatory action against certain listed entities for inadequate reporting.

The FCA also reiterates support for the forthcoming ISSB standards and the intention to move away from ‘comply or explain’ to mandatory disclosure alongside the adoption of those standards in the UK.
The FRC’s complementary report evaluated both the quality of TCFD disclosures and the extent of climate-related disclosures within the financial statements. It provides examples of better practice disclosures which both the FRC and the FCA encourage companies to refer to when preparing or seeking to improve their own disclosures.

Read our Governance in brief

Cyber and digital disclosures
With oversight of technological capability, opportunity and risk critical to company success, regulators are increasingly focused on how companies report cyber risk and breaches in security. The FRC’s Financial Reporting Lab published its report Digital Security Risk Disclosure in early August, and earlier this year the US Securities and Exchange Commission (SEC) also published a proposal to improve disclosure in this area.

We are pleased to present our own analysis of cyber opportunity, risk and governance reporting across the FTSE 100 which is designed to help you identify examples of good practice and offer insights about how to keep the users of annual reports informed in this important area. We last examined FTSE 100 cyber risk and governance reporting in March 2018 and we are pleased to see considerable progress in companies’ disclosures.

However, when compared to the SEC proposal on cyber reporting published March 2022 and the FRC Lab’s disclosure recommendations, it is clear more focus is needed to match the needs of investors as identified by these two market regulators.

Read Cyber risk and governance reporting in the UK: Improvement required!

Further insight on technology and digital oversight is offered by the Deloitte Global Boardroom Program, which conducted a survey covering more than 500 directors and C-suite executives and conversations with leaders, directors, and subject matter specialists to find out what’s being done in boardrooms around the world when it comes to technology. The survey revealed that many boards lack the depth of knowledge and the right information to ask informed questions about technology investments. In fact, 44% of executives said that their board directors lack the knowledge they need to provide effective stewardship over technology strategy. This lack of experience could put investment at risk, and ultimately lead to a competitive disadvantage. Conversely, a good number of board members believe their company could invest faster to gain competitive advantage.

The findings of the global survey offer some clear paths to future success.

Corporate governance disclosures
The FRC’s November 2021 Review of Corporate Governance Reporting delivered key messages and expectations for improvements in corporate governance reporting. In Corporate governance reporting highlights: Areas for future focus, we explore these messages, set out the underlying source of legal and / or regulatory requirements and provide examples of better disclosure.

The topic areas we cover are mainly those highlighted in the FRC’s 2021 Review but we have also included other hot topics and emerging areas to help you stay ahead of the game. As the FRC works towards issuing consultations on revisions to the UK Corporate Governance Code in 2023, companies will wish to ensure their existing disclosures are of a high standard and meet regulatory expectations.

We focus in this report on disclosures by premium listed companies, but of course the examples will also be useful to other companies looking for examples of disclosure in practice.

Corporate governance reporting highlights: Areas for future focus

Improving ESG data production
Recognising the focus of investors, regulators and other stakeholders on ESG matters, the FRC Lab has issued a report, Improving ESG data production, focusing on the production of ESG data by companies for both internal use and external reporting. The report highlights that while use of ESG data is valuable to external stakeholders, the greatest benefit of high-quality data is for decision-making to support longevity and sustainability within a changing landscape.

The report focuses on three core elements: what motivates a company to collect ESG data and how it identifies what is needed; how ESG data is collected and used within the company, and how it impacts decision-making? A recommended step-by-step approach is provided, together with suggested questions for boards to be asking themselves and management.

Finally, in case you missed this message in June/July with your holiday reading, you can find here On the board agenda – half year 2022, which provides an overview of some of the many challenges we will be addressing with you in the coming months.

Further information

Our library of governance publications is available to help you at www.deloitte.co.uk/governancelibrary.

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