Much more of the value is intangible and investors are looking for greater insight into off-balance sheet value. According to new research by Lloyds and KPMG, corporate brand and reputation – intangibles - account for 25.3 per cent of the market capitalisation of the world’s leading equity market indices.
"Historic reporting regimes, sound as they are, fall short of what investors require to make informed assessments of a business and its prospects.”
In July 2020, Ocean Tomo updated its intangible asset market value study to investigate the economic effects of COVID-19 and found it has accelerated the trend of increasing intangible asset market value share, with intangible assets now commanding over 90 per cent of the S&P500 market value.
The Australian Corporations Act has long required more than just financial reporting (under s299A of the Act) but the relevance of historic information for judging a business’s future prospects is in decline.
Moreover, directors’ reports for listed entities must contain information investors would reasonably require to make an informed assessment of, among other things, business strategies and prospects for future financial years.
Arguably, these historic reporting regimes, sound as they are, fall short of what investors require to make informed assessments of a business and its prospects.
So what reporting is more valuable? Investors should be looking for integrated reporting as their primary information source, a discipline which brings in a much wider range of business indicators. In fact, an EY survey indicated investors globally already see the benefits of integrated reporting with 88 per cent confirming integrated reporting is useful.
Over 20 investor organisations globally have signed a statement of support for integrated reporting indicating their demand for the more reliable reporting across the value creation chain that integrated reporting delivers. Integrated reporting has been adopted by around 2,500 organisations in over 70 countries.
Unravelling the strands
However, some organisations have indicated they are confused about which standard or framework they should be implementing given the range of options for reporting on sustainability related information and integrated reporting is the only global framework that helps build connectivity of information across the value chain and, crucially, with financial information.
Meanwhile, the International Integrated Reporting Council (IIRC) is working with the other big players in the reporting field to clarify how the different standards and frameworks work together and the unique role organisations such as Sustainability Accounting Standards Board (SASB), CDP, the Climate Disclosure Standards Board (CDSB) and Global Reporting Initiative (GRI) have to play.