The investor ‘blind taste test’ on Integrated Reporting

Posted
5 May, 2015

The long-term success of Integrated Reporting requires active engagement with investors, who in turn value the benefits it brings as part of the investment decisions they make.

Recent PwC research asked investment professionals to rate the importance attached to a range of information disclosures. An overwhelming majority placed importance on broader information – clear links between strategy, goals, risks, performance and financial statements (87%) and on the dependencies on key relationships and resources (75%). These are central concepts to <IR> and suggests that investors will welcome the scope and level of information provided by integrated reports – it is the investor equivalent of the ‘blind taste test’ familiar to foods and beverages markets. And a forthcoming report from EY shows increasing investor interest in wider information about value creation.

It is very encouraging to understand how <IR> can meet investor needs with the potential to enhance investment decisions. But we need to use these shifts to harness wider benefits – a shift to the long term, to sustainable capital markets. <IR> can act as a magnet, pulling investors in this direction by aligning their information needs to wider goals. Stewardship and corporate governance codes – such as those now being released in Japan – provide a context for this direction.

We are advocating for a long-term approach to investment as set out so well by the initiative Focusing Capital on the Long Term. This is also increasingly consistent with the views of investors. For example, speaking at the launch of First State Investments’ Responsible Investment and Stewardship Report 2015, both chief executive Mark Lazberger and global head, responsible investment Will Oulton spoke about a long-term commitment to great returns to clients and a context of adding value to society to meet a ‘new age of expectations’. In this world, we need to move our focus to an era of outcomes, linked to responsible stewardship, and the behavioural and cultural aspects of the business.

These issues are explored in our new publication Creating Value. While we do not record a tidal wave of change, we do note the benefits to investors of wider information on value creation. Professor John Kay recently said that the role of investors needs to be more strongly located in search (of good investment prospects) and stewardship. In this way, good investor returns can be more aligned to wider goals of financial stability and sustainable development.