Value to investors of non-financial reporting: early market engagement

Tender description

The Business Frameworks Directorate in the Department for Business, Energy and Industrial Strategy (BEIS) wishes to understand what value investors place on non-financial reporting requirements in the Companies Act 2006. There has been growing interest from lobbyists and stakeholders in requiring companies to provide information on how their activities impact on wider society; and how companies could be used to deliver societal change. This has led to companies being required, via the Companies Act, to provide non-financial reporting (NFR) to allow stakeholders to assess a company's performance against several key areas. Whilst it is difficult, but feasible, to assess the costs for companies to produce this information, it has been challenging to quantify the benefit to users given that the information is provided freely. In the absence of a market for non-financial information, non-market valuation techniques are required to estimate benefits. Investors are seen as an important group driving non-financial reporting disclosures as they perceive NFR activity by preparers as a sign that preparers are engaging in risk management activity . For example, the "logic model" for non-financial reporting assumes that : • Users receive relevant and useful NFR information, • Users better understand non-financial risks, and some decisions, e.g. investment decisions, change in scope, timing or scale, as a result of this information; and results in • More informed investment, business or other decisions that lead to better social outcomes. Therefore, the NFR "narrative" places those that make investments, i.e. investors who are mainly intermediaries, as the agents by which social outcomes would be transformed by NFR. The aim of this research is to assess the extent to which this assumption is correct: in particular whether those who make investment decisions place a positive, and significant, value on NFR, and on what NFR in particular. The research will also consider direct and indirect channels for generating value. For example, NFR may add value directly through better risk management and lower costs; or indirectly through a better brand, which people are willing to pay more to "buy" into. The population of interest is investors. The group of investors should be representative of the market and include a mix of active and passive investors . Identifying the population of investors is likely to be the most challenging part of the brief and we would like to discuss ideas with potential bidders during the early market engagement. Following the early market engagement event, we would welcome individual discussions with suppliers to discuss the specification in more depth. Bidders should consider in their bids whether it would be desirable to include at least one financial reporting attribute in the attribute set to provide an accurate valuation of NFR attributes.