Few annual reports make it onto bestseller lists, and most certainly none should ever appear in the fiction category, yet many provide essential reading for a variety of audiences, including machines. Financial Reports have been machine-readable through XBRL tagging for a number of years now and as we know, for all reporting periods commencing on or after the 1st January 2020, issuers must publish their Annual Reports in iXBRL in compliance with ESMA's ESEF reporting requirements. And that tiny little prefix of 'i' which is already bubbling to the fore of many conversations among Company Secretaries and CFOs, is to simply make the report human-readable!
Whether complying or explaining, the content within the annual report has amassed considerable weight over recent years as it bulks up to satisfy the growing appetite of regulators as they seek out more disclosures… more about vision & purpose, business model & strategy, materiality & performance, supply chains & sustainability, governance & stewardship and perhaps even equality & Directors' remuneration. Inevitably this results in more paper to print, more pages to turn and more cross referencing as the information is consumed, digested and occasionally regurgitated.
There is no doubt that the development of an Annual Report requires agility and stamina from all concerned. As the numbers settle into their final resting decimal place, finding an acceptable tolerance to the power of '000s, the Company Secretary is also going through the motions scrutinising over all things material and accountable under the broad remit of Corporate Governance.
But before the numbers are pored over and the RemCo report is thoroughly disseminated, the reader is enticed with carefully selected pull-quotes and images to leaf through the Strategic Report where the non-financial narrative is presented in all its finery. It is here that the CEO's vision is proclaimed and the shareholder's faith put to the test as the strategy for creating value for stakeholders is laid bare. An engaging narrative will delight the reader, so long as the plot is fair, balanced and understandable.
Too often it has been claimed by many in the corporate communications sector that the Annual Report presents the opportunity for PLCs to 'tell their story' with that same many proclaiming to be the storytellers. And of course wordsmithing has its rightful place but we believe annual reports should do just that, report. We need to encourage businesses to reexamine the objective of the Strategic Report and develop a narrative accordingly. As eyelids get heavy under the weight of the endless paragraphs of editorial it is incumbent on reporting specialists to explore innovative ways with their clients to engage with their audiences. Recognising the breadth of the task for any PLC to meet the best practices of financial reporting, often with resources stretched beyond their physical limits, there is undeniable logic to adopt a formula of 'report and repeat' when the next year-end approaches. But while there are many vested interests, there is only one primary stakeholder group for which this report is of particular importance. Shareholders above all else need reassurance that their investment is being managed at a level of risk that is acceptable to them. Investors need a Business Case that they can believe in and an Investment Case that they can share in.
And when the balancing act of the financials and non-financials is finally complete, the report is signed, dated, submitted and published for the record. Over the years, indeed decades, we have witnessed the ever declining volumes of printed annual reports as shareholders opt for receiving the documents electronically. Electronically simply means producing a PDF from the same artwork that was lovingly designed, skilfully printed and meticulously thread sewn before being carefully managed into the mailing pack and sent on its carbon-emitting journey to arrive at the doorstep of the awaiting shareholder.
But, thanks to ESMA all this is about to change and we believe for the better. iXBRL is another layer of transparency, achieved through technology. The biggest change is that the standard PDF will be superseded with an xHTML file of the entire report which includes inline XBRL tagging of the Primary Financial Statements, enabling comparisons with other issuers through predefined taxonomies (and extensions where required). So with all these additional technical requirements, why is this a change for the better?
Put simply, we believe this requirement will result in more effective and engaging corporate communications as it challenges agencies and issuers to adapt to this new reporting era. While PDFs provide a universally accessible format, they are designed for print and not a digital environment. Digital offers more. It's easier to navigate; it accommodates rich media; it's measurable; it's accessible - in every sense of the word. And it's designed for its natural environment so that it is responsive, more easily findable and totally searchable. And for all those 'see more on page...' instances it is wonderfully clickable - and iXBRL, through xHTML, makes it more comparable.
The conversation is changing. The way companies must report is evolving. For those who embrace the possibilities of digital engagement with their stakeholders, the opportunities to enhance their corporate image is expanding. Digital connects better and communicates more efficiently. Content that is structured for digital channels is more readily shared and reusable across both internal and external communications, creating further value to previously once-used data.
Undoubtedly ESEF reporting requirements will have an impact on the reporting schedule and process for all listed companies. At Source, we are already having these discussions with our clients as to how best we can not only meet and deliver these requirements but develop a digital shareholder engagement strategy. Some of our clients are already leading the way in terms of their digital communications and we believe that Digital, by design, will deliver a much greater return on investment across corporate communications and stakeholder engagement.