Nonfinancial information is increasingly published by organizations globally, ranging from sustainability reports, strategic reports, management reports and integrated reports, in response to a range of stakeholder needs. In addition, digital reporting is increasing, allowing for an interactive use of information and customized reporting.
Investors say, “Tell me more.”
While the amount of nonfinancial information is growing and is increasingly being used in decision-making, evidence shows that at the same time, there is a dissatisfaction from investors with the quality of information available from companies. Although companies are gradually starting to improve the quality of nonfinancial information, it is not improving at a fast enough pace to keep up with the higher expectations from investors. As investors come to see nonfinancial information as increasingly significant, they reveal higher expectations for it to be timely, comparable and verifiable. However, investors note that the available nonfinancial information is often of poor quality, inconsistent or not verified, and is often not comparable with that of other companies.
In responding to the increasing information needs from a combination of legislation, stock exchanges, peer pressure and rankings on benchmark listings, companies are including more and more nonfinancial information in their reports. This has created a risk of information overload and makes it difficult for stakeholders to properly identify the information that is relevant to them. In addition, there can be a disconnect between a company’s strategy and the related financial and nonfinancial performance information.
This may create confusion for intended users, in particular investors, because it is difficult for them to follow the corporate story the report is trying to tell. A misaligned approach can occur as different types of disclosures are prepared and distributed via separate channels, with no clear sense of the overall performance picture and with different governance mechanisms. This may also lead to communication of inconsistent, and potentially contradictory, information.