Integrated reporting sets out to provide an answer to the increasingly complex and fragmented state of corporate reporting, by promoting a more decision-relevant approach to communicating value creation. But are investors jumping onboard?
Corporate reporting has never before been so complex, with increased mandated content and listing rule provisions, resulting in increased length and complexity of annual reports.
Push and pull
Because integrated reporting is a market-driven initiative, providers of financial capital play a central role in driving the widespread adoption of <IR>. Few studies examine integrated reporting from a demand perspective. We draw on rare access to senior level investors, to gain that view.
Familiarity with, and demand for, <IR> among investors are mixed. Buy-side fund managers involved in ESG funds are the most knowledgeable and on-board; sell-side equity analysts remain uniformly cynical, reflecting perhaps the shorter-term horizons and incentive structures on the sell-side.
However, consensus does emerge, all would welcome a form a corporate reporting that is more closely linked to business strategy, and focused on long-term value.
Challenges and recommendations
|Lack of critical mass in <IR> adoption among preparers||Further research to examine investor demand for granulated KPIs, links with business strategy and metrics into market benefits|
|Lack of familiarity with <IR> among investors||1) Build <IR> awareness among investors at senior levels|
2) Increase coverage of <IR> at capital market presentations
|Capital market culture and prevalence of short termism||1) Use influence from the <IR> Investor|
2) Network to push for long-term outlook in investment decision-making
|Misunderstanding around the capitals model||1) Present the capitals model in a practical, jargon-free way|
2) Inclusion of <IR> in financial services staff training programmes