BIS reveals strategic reporting requirements

22nd October 2012


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  • Management ,
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  • Corporate governance

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IEMA

Company directors will have to sign off a new annual report describing their firm's business strategy from October 2013, under proposed changes to the Companies Act

The business department (BIS) has published draft regulations amending the Act, and outlining requirements for firms to publish a standalone report replacing the “business review” element of the directors’ report.

The new strategic report will incorporate the vast majority of information currently covered in the business review, including an analysis of the company’s performance and the principal risks it faces.

For quoted firms, however, there is an extended requirement to include a description of the company’s business strategy and its business model, alongside information about the firm’s environmental impacts and those factors likely to affect future development.

BIS says feedback from firms revealed that the business review was the part of the directors’ report that stakeholders were most interested in reading, but that under current reporting rules reports were not structured in the most usable way.

In the paper accompanying the draft regulations, BIS also confirms that while current legislation doesn’t require firms to report their business strategy, the majority of quoted firms are already doing so, in line with guidance from the Financial Reporting Council.

The legislative changes will help to spread best practice and “re-energise” business reporting, according to parliamentary under secretary Jo Swinson.

“Annual reports are shareholders’ key tool for holding companies to account. Without transparent and useable reports shareholders cannot do this, and the effects may be widely felt,” she said.

“The paper sets out the detail of our package to reenergise reporting. It recognises and encourages the best in reporting, of which there are many examples, and without stifling innovation, guides others in the right direction, through regulation, best practice and guidance.”

Swinson calls on firms to contact BIS with any feedback on the draft regulations by 15 November. The new rules were welcomed by IEMA as a helpful move in getting businesses to consider the environment as a strategic issue.

“The proposal for a directors’ strategic report will help to ensure that more companies recognise the link between their long-term success and how they integrate environment into their governance and decision making,” said Martin Baxter, IEMA’s executive director of policy.

Meanwhile, KPMG has warned that many of world’s largest firms are not considering the impacts of water scarcity strategically. In an analysis of corporate responsibility reports from the top 250 companies listed on the Fortune Global 500, the accountancy firm concluded that 60% failed to demonstrate a long-term strategy to deal with water scarcity.

Only 10% of the companies report that they are adapting their businesses to cope with changes in water availability or to mitigate the impacts of scarcity, according to the research, with just 44% detailing specific plans to cut water use.

“Many companies have not yet fully grasped the importance of strategic planning or communication in relation to long-term water supply mitigation and use,” said Vincent Neate, head of climate change and sustainability at KPMG. “Investors are becoming more aware of the risks and opportunities that water scarcity represents within their portfolios and are increasingly looking for companies to build responses into their longer-term strategies.”

Firms in the US, Canada and China are least likely to consider water strategically (20% or less), while 75% of UK companies had a water strategy in place.

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