Non-financial data about culture and trust have become increasingly important among investors, a study undertaken by EY has found. Financial directors and CFOs should put measures in place to ensure this data is communicated to investors in corporate reports.
Research has found that there has been a growth in demand from investors for more transparency and actionable insights into culture and trust to be included in corporate reports.
The study from professional services firm EY found that while most finance leaders (79%) have the data volumes to give stakeholders insight into company culture, just 37% actually report quantifiable key performance indicators (KPIs) in this area.
The importance of this data for investors, however, was made clear by the fact that 74% said that they use non-financial information in their decision making.
Peter Wollmert, EY Global and EY EMEIA FAAS Leader, said: “Finance leaders are under no illusion that the shift in investor focus toward company culture means there is a pressing need for them to realign corporate reporting to focus more on long-term value.
“No longer seen as a ‘soft’ issue that has little to do with the value of their organizations, 83% of EY survey respondents say that a healthy corporate culture in which values or behaviours are consistently embraced is critical to building trust, and 81% say it helps reduce risk. But despite this acknowledgement, what we see is a lack of action turning the need for these insights into reality.”
The report, titled ”Does corporate reporting need a culture shock?” is EY’s sixth Financial Accounting Advisory Services (FAAS) global corporate reporting survey, and gathered the views of 1,000 CFOs or financial directors of large organisations with revenue greater than US$500m, spanning 25 countries.
Respondents showed a willingness to use technology to meet the needs of greater transparency and more insight into company culture, but it also highlighted a concern about building trust into data analytics and AI. 60% of group CFOs said that they did not trust the quality of financial data in the same way that they do with existing finance systems.
The top risks cited by respondents in turning nonfinancial information into reporting information were:
Wollmert said: “Transparent, forward-looking information – based on a wider balance between financial and nonfinancial information – requires changes, not only to frameworks and practices, but also to mindset and culture. In other words, a change of attitude is required if corporate reporting is to offer stakeholders open and transparent information about value creation.”
The report advises that businesses should put in place a robust approach to corporate reporting, invest in the right mix of talent to drive change and to build trust and ethical algorithms into AI that provide the insights investors are looking for. By doing so, a business will embed the critical role of culture in corporate reporting.
