Governance
Environmental reporting "dismissed" by analysts in banking sector |
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| Governance | |
| Written by Gary Howes | |
| Friday, 13 March 2009 | |
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Analysts say social and environmental disclosures in UK banks’ annual reports are “useless” in helping them with forecasting and investment decisions says new research.
The claim was made by the Newcastle Business School at Northumbria University. Slack interviewed 19 London-based analysts in the banking sector between late 2004 and mid-2006. The ACCA-funded research uncovered “cynicism to complete dismissal” of all voluntary narrative reporting including social and environmental reports, the chairman's statement, corporate governance and risk disclosures. Analysts help institutional shareholders and other capital market groups understand the challenges facing business and to give insight into future opportunities. Slack said the study, conducted jointly with Newcastle University, left question marks over analysts’ attitudes to the environmental challenges facing business. “Social and environmental reporting was universally considered irrelevant and incapable of influencing a financial forecast,” he revealed. “There was total dismissal of the importance of environmental issues in taking decisions such as giving loans to potential polluters, for example, and I would suggest that analysts are not taking potential climate change and environmental impact seriously enough.” Slack continued: “Our findings show that analysts are dismissive of anything other than financial metrics, and they deem large sections of voluntary narrative reporting as useless or worse. Analysts have been shown up to be narrow in their approach, often formulaic and rules-driven, and highly unlikely to be a source of change in respect of social and environmental issues. Their approach should be a major concern to wider market participants given analysts’ crucial role in the information supply chain.” The findings also represent a real challenge to preparers of annual reports, Slack explained. “If it is the intention of preparers to make narrative reporting relevant and material to investors, they have some way to go or some rethinking to do,” he said. “The annual reports for 2006 of HSBC Holdings plc and Barclays plc were 458 pages and 310 pages respectively, and I would have to question the actual usefulness of this surfeit of narrative in annual reports to analysts. “Whilst some of the wider increase in narrative reporting has been driven by regulatory presence, increases such as social and environmental reporting are largely voluntary. This disclosure is seemingly not even read by analysts and raises serious concerns over its usefulness to them, or their own ignorance of the issues that such reporting seeks to address,” Mr Slack added. The research focused on the banking sector only as it is one of the four main 'volume' trading sectors in London, along with technology, pharmaceutical and oil and gas, and strategically important to the UK economy.
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