Aug. 1, 2012
New research reveals that investors and analysts use 'extra-financial' information to analyze companies.Investors and analysts use extra-financial information reported by companies to help analyze the performance of those companies and ultimately inform investment decisions, according to new research published by GRI, HRH The Prince of Wales's Accounting for Sustainability Project (A4S) and Radley Yeldar earlier this year.
According to the report What Investors and Analysts Said, extra-financial information - such as disclosures on governance and environmental issues - has become an important and influential consideration for investors and analysts. The research partners say the results of the survey provide new insight into how financial markets source, use and are influenced by extra-financial information.
Sarah Nolleth, A4S Project Director, says: 'We are delighted to see that the investor community is increasingly seeking extra-financial information as part of their decision-making processes. The increased credibility of, and demand for, these sources of information 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 is important to remember that companies also need 'integrated thinking', i.e., embedding sustainability into their decision-making and strategy, as the precursor to successful integrated reporting,' she added.
According to the survey results, governance information is the most relevant type of extra-financial information for investors and analysts, with 70 percent of respondents rating it very relevant. 64 percent of respondents said information on natural resources is very relevant to their analyses of companies. Social and community information ranks lower, although 52 percent of respondents say such information is very relevant.
The relatively low relevance of social and community information could, the researchers say, be due to the difficulty in comparing company performance on these issues. 61 percent of investors and analysts surveyed said they find social information difficult to compare; whereas only 41 percent said the same for environmental information. In contrast, only three percent of respondents said they find it difficult to compare financial information.
Nelmara Arbex, GRI's Deputy Chief Executive, comments on the survey: 'This research is one more piece of evidence showing how organizational disclosure on sustainability impacts is popular among investors. GRI expects the demand for sustainability performance-related information to increase and sustainability reporting to become standard practice. GRI's guidance will continue to offer companies globally-recognized support to improve their sustainability reporting practice, and prepare more focused reports. This is the performance data we are all looking for.'
Talking to investors
The research also investigated preferred communication channels and formats for receiving extra-financial information.
A key finding was that investors and analysts use a wide range of sources to gather financial and extra-financial information. However, some channels - notably PDF format publications - were more popular than others for certain types of financial and extra-financial information.
Ben Richards, Head of Sustainability at communication specialist Radley Yeldar, comments: 'This research demonstrates that 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.'
The way companies communicate their sustainability performance to their investors is key - and it's something investors are definitely interested in, according to Mike Tyrrell, Editor of www.SRI-CONNECT.com, an online platform where sustainable companies meet responsible investors. 'As sustainability issues become ever more relevant to stock prices, the biggest and smartest investors globally are demanding deeper and more direct communications from companies on their social, environmental, economic and financial performance,' says Tyrrell. ''Deeper' means 'more focus on strategy and materiality'; 'more direct' means face-to-face meetings and webcasts to supplement robust GRI reporting.'
The research was commissioned by HRH The Prince's Accounting for Sustainability Project (A4S) and GRI, and undertaken by Radley Yeldar.