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August 5, 2012

Decision-makers look beyond the numbers

Investors and analysts are examining extra-financial information reported by companies to help analyse performance and influence investment decisions, according to a report by the Global Reporting Initiative (GRI), The Prince of Wales’s Accounting for Sustainability Project (A4S) and corporate communications consultancy Radley Yeldar.

The report, What Investors and Analysts Said, concludes that information such as disclosures on governance and environmental issues are now important and influential considerations.

The survey reveals governance information as the most relevant type of extra-financial information, with 70% of respondents rating it as very relevant. Information on natural resources is very relevant, according to more than half (64%) of respondents with 52% also judging social and community information as very relevant.

GRI, A4S and Radley Yeldar speculate the relatively lower relevance of social and community information could be due to difficulties in comparing companies’ performance in these areas. More than half of respondents (61%) said they find social information difficult to compare, whereas only 41% said the same about environmental information, with just 3% finding it difficult to compare with financial information.

A4S project director Sarah Nolleth said all three organisations are “delighted to see that the investor community is increasingly seeking extra-financial information as part of the decision-making processes” as this will “help sustainability considerations become embedded into investors’ assessments of a company’s long-term value”.

“The report highlights the importance of integrated reporting, but it’s important to remember that companies also need ‘integrated thinking’, that is, embedding sustainability into their decision-making and strategy, as the precursor to successful integrated reporting,” Nolleth noted.

GRI’s deputy chief executive Nelmara Arbex remarked that the research is “one more piece of evidence showing how organisational disclosure on sustainability impacts is popular among investors”.

Arbex confirmed GRI expects the demand for sustainability performance-related information to increase and sustainability reporting to become “standard practice”.

The report also investigated preferred communication channels and formats for receiving extra-financial information. Respondents reported using a wide range of sources to gather both financial and extra-financial information, with some channels – notably PDF publications – more popular than others.

“The research demonstrates investors and analysts rely on tried and tested channels of communication – namely reporting and dialogue with companies – though this tends to be part of a blended approach to information gathering. If they need specific details, they’ll use specialist sources. This means reporters need to clearly guide these audiences through their disclosure, which often appears in a number of places on their corporate websites,” Radley Yeldar head of sustainability Ben Richards said.


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