The Financial Reporting Council (FRC) has been busy over the past 12 months publishing several documents on non-financial reporting topics. Most recently, the FRC’s two flagship publications were issued: the Annual Review of Corporate Reporting – supported by its Key Matters for 2022/23 Annual Reports and Accounts – and the Annual Review of Corporate Governance Reporting. In addition to these annual reviews, the FRC has published reports on Creating Positive Culture: Opportunities and Challenges and Modern Slavery Reporting Practices. The FRC’s Financial Reporting Lab has also published reports on Supply Chain Disclosure, ESG Data Production, Digital Security Risk Disclosure and Structured Digital Reporting.

With so much information to consider, this article is designed to give companies some pointers for their front-half reporting as they prepare for the forthcoming 2022/23 season.

Be unambiguous about the impact of economic and political uncertainty

This is particularly important in light of the economic and political uncertainty that businesses currently face, including rampant inflation, rising interest rates, supply chain issues and challenging labour relations. The FRC expects “an unambiguous description in the strategic report of risks facing the business, their impact on strategy, business model, going concern and viability … cross-referenced to relevant detail in the reports and accounts”.

Provide fulsome climate change disclosures

Climate change continues to rise in importance.

The FRC expects:

• “specific, balanced and well-integrated information about the impact of climate change on the company in narrative reporting, and appropriate reflection of material climate-related commitments, risks and uncertainties in the financial statements”; and
• “clarity about the relationship between assumptions and sensitivities considered in any Task Force on Climate-related Financial Disclosures (TCFD) scenarios (including any Paris-aligned scenarios) and those applied in the financial statements”.

Many governance reports are disconnected from the strategic report despite many of the principles set out in the Corporate Governance Code (‘the Code’) crossing over – for example alignment of purpose to strategy, values and culture, stakeholder engagement, section 172 duties, and risks and internal controls.

Robust governance processes are a key part of any company’s story as they provide the foundations for strategic success and therefore should be integrated into the strategic report narrative more thoughtfully.

In the FRC’s Annual Review of Corporate Governance Reporting, the regulator has set out the following expectations:

• Moving away from declaratory statements and providing specific disclosures.
• Providing clear and meaningful explanations when departing from the Code. This is in line with the guidance set out in the February 2021 FRC report Improving the Quality of ‘Comply or Explain’ Reporting, which emphasised a need for companies to be transparent about departures from the Code by providing clear and meaningful explanations that provide context, a convincing rationale and timescale to full compliance.
• Demonstrating how the company’s culture is aligned to its purpose, values and strategy. This is in line with the guidance set out in the FRC’s December 2021 report Creating Positive Culture: Opportunities and Challenges, which encourages companies to attain positive culture through honest conversations, psychological safety and by building trust. 
• Reporting on engagement with shareholders and stakeholders, and how their views have been considered.
• Making clear linkages in the report to policies or disclosures that relate to stakeholder matters. Points 4 and 5 build on the recommendations set out in the FRC’s report Reporting on Stakeholder Decisions and Section 172 (July 2021), which concluded from interviews with investors that they were ultimately interested in understanding how companies are progressing towards fulfilling their purpose and achieving long-term success.
• Reporting on diversity, including at a senior leadership level beyond the recommended external targets, including objectives and targets.  
• Explaining how the board or a committee has reviewed the effectiveness of the risk management and internal control systems. This links with the FRC’s expectations to report unambiguously about the impact of current economic and political instability.
• Reporting on how the executive remuneration arrangements align with the company’s purpose, values and strategy.

Basic communications and reporting principles can often be forgotten among all the technical reporting guidance that is published. The quality of your narrative reporting will improve if you focus on four basic principles – connection, transparency, specificity and accessibility.

Tell a connected financial and non-financial story

At the start of the project, try to develop a detailed structure and content plan for the strategic and governance reports, considering how the two reports relate to one another, and in turn to the financial statements. Consider how the annual report is hardwired. Does it have a ‘golden thread’ that pulls the story together? Do the strategic report, governance report and financial statements all talk to each other? Do all the content owners know what they need to cover in their sections and how their contribution fits into the broader story?

Be transparent and honest

Painting a balanced picture of strategic and financial progress and allowing stakeholders to hold you to account is incredibly important in building trust. What are your commitments, targets and metrics, how much progress have you made during the year, and what have you yet to achieve? Set out a plan of action for the next 12 months and beyond so that you can continue to report progress transparently.

Be specific and provide evidence

Boilerplate disclosures should be avoided at all costs. Think about why a disclosure requirement exists and also consider the specifics that relate to your organisation. How does it affect you? Why does it matter? What have you done or are you doing about it? As noted above, information on impacts and outcomes from actions taken in response to something – say stakeholder feedback – is of more value than simply regurgitating regulatory disclosure requirements.

Provide clear evidence and proof points to support progress, impact and outcome reporting. What metrics and KPIs do you use to measure progress? Have you met your targets? Include case studies that bring your story to life to make it relatable and tangible.

Make information accessible

Information is only useful if it is easy to find and easy to understand. Consider if there is a better way to present information. Could a tabular or more structured layout, an infographic or diagram replace or supplement long-form narrative? Do you have a clear information hierarchy? Do you have clear navigation devices for wayfinding and cross references to further information either within the annual report, other reports and documents or website?

To find out more, visit brunswickgroup.com