3 Aug 2020


Understanding the spirit of regulations - principles for developing good s.172 disclosure

Justine Dixon, Head of Corporate Reporting

The last couple of reporting seasons have seen a lot of regulatory change for Annual Reports. Last year with the EU NFRD, this year with the MRRs and Code, and next year with ESEF. We know... So. Many. Acronyms. 

In the early years of a new disclosure, it is common to see a divergent set of approaches until a more commonly accepted approach is adopted. With all regulatory disclosure requirements, we tend to see some companies who have really sought to understand the spirit of and drivers behind the regulations and respond accordingly. But we also see many others who - often driven by pressure from external advisers - take an overly legalistic, checklist approach. This is of course completely understandable, especially when some of the regulations themselves are written in vague terms and structured in uncomfortable ways. 

s172 reporting review

We have spent time reviewing many of the FTSE 100 December year end annual reports to understand the approaches adopted to one of the main new requirements this year - s.172. Our key findings were that: 

  • Most companies position their s.172 statement in the Strategic Report, supplementing this with further disclosure within the Governance section. 
  • Unsurprisingly, the approach is often very legalistic, with many choosing to list out the regulations word for word.
  • Often there is a lack of clarity around what the Board does and how understanding stakeholder interests impacts decision-making. 

Principles for good s.172 disclosure

With this in mind, we have set out a number of principles for good disclosure:

  1. Clearly set out how the Board engages, directly and indirectly.
  2. Articulate how stakeholder interests have been considered in board discussions and decision-making, providing evidence of actions taken as a result of engagement. 
  3. Comply and communicate - don't simply repeat the regulations, tell your story in a balanced way. 
  4. Do the work for the reader - avoid indexes that signpost to multiple locations. 

If you'd like to learn more

If you'd like to discuss your reporting requirements further, or register for our reporting newsletters, please don't hesitate to reach out to us at hello@superunion.com