Corporate reporting in the FTSE 100 remains dynamic, and reflective of the societal, regulatory, and stakeholder expectations on companies to communicate their actions transparently. In our Complete 100 research, we also undertook three deep dives into significant areas of interest: Materiality, Diversity and Inclusion, and TCFD.
Please find below highlights from the deep dive research that drew on our research findings that and were presented at our launch webinar on 9 June 2022. For a copy of the full report, contact Naomi Hawkins, Head of Business Development.
Materiality assessments are a comprehensive method thought which to understand the most important sustainability issues affecting a business. In its most basic form, materiality is a concept that defines why and how certain issues or information are important for a company or business sector.
Our research found that 77% of companies publish a materiality assessment. By doing so, companies can evidence how they understand stakeholder priorities and how these relate to material sustainability issues. Demonstrating this is critical for a sound sustainability strategy and adds much credibility to reporting. Consequently, we are now seeing a shift in how companies approach their materiality methodology but only an emerging few - just 10% of companies in the FTSE 100 - are applying the concept of double materiality, distinguishing between the ‘outside-in’ dimension of impact and the ‘inside-out’ outward impacts. Dual and double materiality represent opportunities for materiality to be used more strategically.
Overall, our deep dive found that – if used appropriately - materiality is a strategic tool for companies and stakeholders and can inform a long-term sustainability strategy for improving society.
Diversity and inclusion (D&I) remains an area of concern for many companies, particularly as ‘S’ issues in ESG rise in importance on stakeholder agendas: Companies can no longer afford to treat D&I as a public relations or human resources issue. Reporting on diversity provides a real opportunity to explain to investors and wider stakeholders the actions taken to improve D&I across businesses and its contribution to long-term value creation.
The gender and ethnic diversity of UK boards is an area where companies are making varying degrees of progress, as evidenced by latest updates on the Hampton Alexander Review and the Parker Review. Against a backdrop of new disclosure requirements, which will apply to companies with a financial year beginning on or after 1 April 2022, real progress has been made in gender diversity on Boards, but the Hampton Alexander Review reveals that less than 30% of FTSE 100 senior leadership positions are held by women. 89 FTSE 100 companies met the target of at least one Board member from an ethnic minority in the December 2021 census but only six CEOs across the entire FTSE 100 came from a minority ethnic background.
There is, then, a real push for companies to make progress in these areas and for this to be reflected in reporting. With the upcoming diversity reporting requirements, we expect to see far more initiatives in the future being taken to promote D&I across boards and workforces.
The Task Force on Climate-related Financial Disclosures (TCFD) has required companies to make considerable efforts to understand the impact of climate-related risks and opportunities on their business, and to disclose this information accordingly. In this year’s FTSE 100 Annual Reports we have seen varying levels of detail and scope in TCFD reporting.
TCFD compliance statements were used by the majority of companies: while 78% of December year ends included a formal compliance statement discussing alignment with the TCFD recommendations, the compliance statements were not always explicit about whether the disclosures were consistent with the 11 recommendations below the four main pillars of Governance, Strategy, Risk Management and Metrics and Targets.
And despite TCFD being ultimately focused on financial information, only 9% of FTSE 100 companies currently quantify the impacts of climate change. For those that do, these vary from general approaches with broad ranges on impacts on profits, to specific impacts on products.
We expect to see improvements in TCFD reporting over the next year with the advent of the upcoming ISSB standards, including the ISSB Exposure draft on climate which will refine and build on TCFD by asking for more detail. This should encourage deeper thinking over climate risk and how it can be communicated transparently within reporting.
The three deep dives represent ongoing challenges for our clients’ reporting, but the challenge is not just communicating these areas in a way that is authentic and compelling, but also in a way that reflects actual change across the business.
We understand how to help our clients’ reporting across these areas by working with regulations, best practice guidance and by leveraging the insights gained from our research.
Black Sun is a global group of strategic advisors, consultants and stakeholder engagement specialists. We believe that brands and businesses can have a big impact on our society – they can shape more ethical practices, build more inclusive communities and deliver more sustainable performance. Ultimately, they can spark positive change in the world.
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