Video transcript: PwC’s annual review of corporate reporting in the FTSE 350 in 2021/22

Transcript

Mark O'Sullivan
Hello, and thank you for taking the time to find out more about the findings from our annual review of FTSE 350 reporting practices.

Companies are having to deal with uncertainty and change in a way that they've not experienced for many years. At the same time, society's expectations of them continue to increase, with companies being pressed to step up and play their part in tackling environmental and social issues. Against such a challenging backdrop, we set out once again to see what impact this is having on the company's reporting.

So now in its 16th year, Ollie, what are the headlines from this year's review?

Ollie Law
There are a number of headlines Mark. But the one that I would really like companies to take away from this and from the report is that they have positively responded to the significant increase in scrutiny, but also to the increase in ESG regulations - we've seen a lot more useful information as part of the narrative disclosures.

However, and there's always a however, we have seen strategic reports increase in terms of length; we've seen innovation within the strategic report stall; and we've seen a minimal change in terms of quality. And that's a story we've seen over a number of years. So a bit of a mixed picture.

Mark O'Sullivan
This year, Rachel, we set out to actually talk to some of the preparers out there to hear their views on the annual report and the process for pulling it together, as well as trying to understand some of the root causes of our findings. Can you give a flavour of what we heard?

Rachel Price
Yes, absolutely. So we heard a real commitment from preparers to do as good a job as possible, but frustration at how difficult that actually is in practice.

So I'm just going to pick up on a couple of those themes that we heard, and the first one was really around reporting requirements, and there's just been a constant stream of those. So this year we've had the climate change reporting requirements being added in. And we've got the emerging proposals coming from the UK Government from their consultation on restoring trust in audit and corporate governance. And then we've also got the global developments from the International Sustainability Standards Board. So from that perspective, there's been a lot going on.

Another theme that we heard was around feedback. Obviously companies put a huge amount of effort into their annual reports each year, but they actually don't get that much feedback on their annual report, and without that, it's really difficult for them to understand where they might need to improve their disclosures, and it actually has a really important role in positively reinforcing all that good work and helps companies to really continuously innovate and improve their reports.

Mark O'Sullivan
Because I suppose without feedback, there's a perception that there is an absolute lack of value in what they produce. You both mentioned it, we can't do any webcast without referring to it, but ESG and more specifically, climate change has just dominated the whole reporting agenda, and with all the changes coming in, that's set to continue. Ollie, can you give us a flavour again of what the actual impact on the annual report this year was around this agenda?

Ollie Law
Absolutely. As I alluded to earlier, it has had a bit of an impact on the annual report, and actually as part of the interviews that we conducted. It has had a massive impact on companies as well in terms of getting different departments into the same room to talk about such a pervasive subject that affects pretty much every area of a company. And that's really been reflected in the reporting.

ESG-related disclosures now make up 26% of the strategic report, which is quite staggering considering how much else is in there, and that's up from 21% last year. So even last year when a lot of these regulatory requirements weren't mandatory there were significant amounts of information going into the report. What that's now doing is that companies are really struggling to articulate how this ESG information is embedded in their strategy - whether it's a pillar, section or whether it underpins the actual overall strategy.

So companies are going to have to take a step back, they are going to have to challenge themselves on the materiality of this information, how they assess that internally, but also how they disclose that in their annual report, and then subsequently to stakeholders. Also they will need to assess whether they need to use a different channel. So whether that's a sustainability report, climate change report, their website, whatever sort of mechanism they want to use to articulate this information, while still being able to articulate the golden thread that pulls all of this report together.

Mark O'Sullivan
So there really is no end in sight to the new technical requirements that we see coming down the line. And it feels to me that the time is right almost to draw a line in the sand, to take a new approach to the preparation of annual reports. With that in mind, we set out in our report some practical suggestions for how companies can begin to change the way that they approach their annual report and indeed what they produce.

Again, without giving too much away, Rachel, can you give a teaser to what some of those suggestions are?

Rachel Price
Absolutely. The practical suggestions fall into four buckets. We have got to report smarter, not harder, create a feedback loop, having clarity of audience, and then also having clarity of voice. And we believe that these practical suggestions could absolutely work within the existing reporting framework that we have, but also will help companies to future-proof for what's coming down the line with all the new reporting requirements.

Mark O'Sullivan
That's great. Thank you. So communicating in a time of such uncertainty is challenging, and I encourage you to take a look at our full report, which you can find on our webpage. Thank you for listening. We hope you found it useful. Goodbye for now.