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Annual Report Insights: Almost half of companies now value success factors beyond profit

28 October 2019

More companies than ever are setting out their company purpose in their annual report, according to new analysis from Deloitte.

Deloitte’s Annual Report Insights, which analyses 100 year-end reports across the FTSE, found that almost half (46%) set out values beyond making profit for shareholders, up from 32% in 2018. These companies describe their purpose as going beyond financial drivers to incorporate other factors, such as their environmental and societal impact.

Over half (57%) of the companies surveyed referred explicitly to ‘climate change’, despite only seven naming it within their principal risks.

Veronica Poole, Global IFRS leader and UK head of corporate reporting at Deloitte UK, said: “Businesses are facing increased scrutiny of their impact on people and the planet. The expectation of business is changing, and the licence to operate can no longer be taken for granted.

“Climate change is likely to have a profound impact on business and on us as individuals; it will lead to significant market corrections and changes in the coming years. Failure by business to respond to the risks has significant implications, such as disruption to supply chains, loss of asset values and market dislocation.”

One of the biggest changes to requirements this reporting period is the introduction of the ‘section 172 statement’. As of 1 January 2019, all large UK companies must set out how directors have promoted the long-term success of the company whilst having regard to the impact on a broad group of stakeholders such as employees, customers, suppliers, the environment and community. The report found that 31% of companies were already referring to ‘section 172’, while 97% identified stakeholders other than investors.

Unsurprisingly, Brexit featured heavily in risk concerns, with 86% of companies discussing it in their risk reporting. The most common concern was the broader macroeconomic impact of the UK leaving the EU (mentioned by 62%), although 29% of those discussing it concluded that Brexit was not a principal risk. Despite Brexit, the most commonly identified principal risk was cybercrime (71%).

Of those surveyed, 39% disclosed gender diversity in the executive committee and their direct reports, in line with the Hampton-Alexander review’s expectations. This has more than doubled from last year (15%), and half of FTSE 350 companies surveyed now meet the requirement.

Poole concludes: “Looking ahead, next year should see a substantially higher number of companies disclosing these gender diversity figures as this becomes a requirement of the UK Corporate Governance Code.

“In addition, IFRS 16 will become effective for most of the companies surveyed in the next reporting season. Last year, only three companies had adopted the standard early.”

Encouragingly, 67% had quantified its expected impact – a significant improvement on the previous year’s eight.

End

Notes to editors

About the study
The findings of the survey are based on 100 annual reports of UK companies. The sample includes 19 FTSE 100 companies, 37 FTSE 250 companies, and 44 companies outside the FTSE 350 and reports analysed for the financial years ended between 29 September 2018 and 31 March 2019.

About Section 172
Section 172 of the Companies Act 2006 (s172) currently requires directors to consider broader non-financial matters, such as employee interests and the impact on the community and environment, whilst promoting the success of the company for its shareholders. The Companies (Miscellaneous reporting) Regulations 2018 will require all large UK companies to describe in their annual reports how their directors have had regard to the matters set out in s172 for periods beginning on or after 1 January 2019.

About Deloitte
In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity.

Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is a subsidiary of Deloitte NSE LLP, which is a member firm of DTTL, and is among the UK's leading professional services firms.

The information contained in this press release is correct at the time of going to press.

For more information, please visit www.deloitte.co.uk

Member of Deloitte Touche Tohmatsu Limited

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