More improvements could be made to the reporting of risk, according to a UK watchdog, though investors say they have seen progress in both reporting and engagement since the financial crisis.
A new report says investors seek more disclosures on principle risks and viability. In particular investors want to know how principle risks are assessed and the kind of stress-testing that has been carried out to support their viability reports.
The reports point out that investors want to know whether risks identified are specific to the company or general, and how a company prioritises risks. Investors also want clarity on how companies explain the movement in a risk’s priority, particularly if it drops out of the “principle risk” category.
The report comes from the Reporting Lab of the Financial Reporting Council. Phil Fitz-Gerald, director of the lab, said: “It is clear that investors want comprehensive information on companies’ principal risk and viability reporting.
“They have said that risk disclosures have been more informative since the financial crisis but that more can be done to provide them with confidence that companies are managing their risk and considering their long-term prospects.
“Many companies have significantly enhanced their risk management processes to ensure that boards are able to make a statement about their viability.
“Investors encourage companies to be more transparent on how they have assessed the prospects of the company, how they have considered their principal risks, and what stress and scenario testing they have carried out to enable them to make their viability statement.”