I am pleased to present the first edition of GreymatterFinch’s newsletter, sharing our perspectives from the corporate reporting world. The theme for this edition is ‘change’, which is apt for a world where the pace of change continues to pick up. As I write, the headlines are dominated by the Ukraine Russia conflict, resulting in rising global tensions, volatile stock markets and a rocketing oil price. While the outlook for the conflict is unknown, persistent inflation, continued COVID-19 impacts and a weakening global economic recovery are certainties.
Expectations for corporate
reporting are shifting
While news coverage on climate change has been eclipsed recently, it remains a major global threat. Investors want investee companies to recognise this threat and its potential risks to their earnings. In his annual letter, Larry Fink, CEO of the world’s largest investment firm BlackRock, earlier this year urged companies to disclose how they are transitioning to a net-zero economy by 2050. According to the United Nations Principles for Responsible Investment Annual Report 2021, investor signatories identify climate change as their number one environmental, social and governance (ESG) concern.
Climate change is certainly not the only ESG concern. There are early discussions on corporate disclosure of bio-diversity-related financial information, among other topics. Companies face increasing pressure from investors for greater transparency and reporting across the breadth of ESG matters.
Untangling the reporting jungle
Research from the PwC Global Investor Survey 2021, indicates that most investors prefer that investee companies select an established framework to report their ESG disclosures against. This can prove challenging, with a plethora of sustainability reporting frameworks, what should companies select?
The answer will depend on the industry, the audience for the report and investor preferences for that sector. We can help clients make the right choice.
HOW WE HELP
clients navigate the reporting landscape
clients navigate the reporting landscape
At GreymatterFinch we work with clients to assist them to select the appropriate reporting framework and embed these in their reporting suite.
We also orientate boards and executive teams to better understand the various frameworks and investor expectations.
In 2021, we completed an exciting research project where we analysed a local listed firm’s sustainability reporting against a global and international industry peer group. This analysis resulted in a three-year reporting road map for the company.
A global standard
Fortunately, there is momentum toward a simplified global corporate reporting system covering non-financial performance. In November 2021, The IFRS Foundation announced the establishment of the International Sustainability Standards Board (ISSB), a sister board to sit alongside the International Accounting Standards Board. The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
Closer to home, in December 2021, the JSE released its Sustainability Disclosure Guidance and Climate Change Disclosure Guidance. The JSE has aligned its recommendations with global best practice while acknowledging the importance of our South African context. These documents were welcomed by investors, listed companies and the local reporting community. We strongly recommend you give these documents a read.
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South African listed companies compare favourably with developed nations in our adoption and application of ESG metrics. This article examines year-on-year trends in companies using ESG metrics in executive incentive plans, particularly changes in connection with the COVID-19 pandemic and increasing market pressure for companies to increase their focus on ESG.Harvard Business Review: We need universal ESG accounting standards
Most companies understand that sustainability must be made core to strategy and capital allocation decision-making, but are often confused by how best to report on ESG progress in a way that will be credible to shareholders and other stakeholders. What is needed is a uniform set of standards for measurement and reporting, just as we have for financial performance.Wharton Education: How financial reporting affects consumers
The next uptick in your firm’s sales could be in the days after its earnings announcement. In the 10 days after an earnings announcement, publicly held firms see an average increase of 1.1% in consumer footfalls at their brick-and-mortar stores and in online sales, according to a recent research paper.
The world’s 250 largest companies are not doing well in recognising and measuring financial risks related to climate change, according to a new report. The report Towards Net Zero shows that just 56%, acknowledge climate change is a financial risk. About 1 in 5 are reporting the impacts of climate-related risks using scenario analysis. Only 12% are reporting risk analysis in line with global warming scenarios while only 17% use a clear timeline.