The world’s largest sovereign wealth fund has thrown its weight behind the US plan to allow companies to move to semiannual reporting instead of the current quarterly reporting arrangements.

Carine Smith Ihenacho, chief governance officer at Norges Bank Investment Management, and Snorre Gjerde, lead stewardship manager, write in an article that a switch from mandatory disclosures four times a year to semiannual reports can allow management to stretch strategic planning horizons.

“We believe that under the right circumstances reduced reporting frequency can allow management to redirect attention from the quarterly earnings cycle to long-term strategy, providing less frequent but more thoughtful updates that offer enhanced insight into a company’s value creation prospects.”

Ihenacho and Gjerde add that other jurisdictions have already ended quarterly reporting. “The flexibility to choose semiannual reporting may be particularly well-suited to companies where quarterly financial results are less informative than other indicators of long-term prospects, for example capital-intensive companies with long investment cycles, or companies where clinical, regulatory, or product milestones are the primary value drivers.”

While there is much opposition to the phasing out of quarterly reports, Norges Bank joins a clutch of US not-for-profits in backing change.

‘Structural costs’

Earlier this month, FCLTGlobal, a campaign group for long-term investment, came out in favour of the reforms, launched in a consultation by regulators at the US Securities and Exchange Commission (SEC).

Sarah Keohane Williamson, FCLTGlobal chief executive, said: “The proposal reflects a well-grounded recognition that the existing quarterly mandate imposes structural costs on long-term investment and that a one-size-fits-all approach does not serve all companies or investors equally.”

SEC chair Paul Atkins has argued that the end of quarterly reporting would give companies “increased regulatory flexibility”, while adding that the “rigidity” of mandatory quarterly reports had “prevented companies and their investors from determining for themselves the interim reporting frequency that best serves their business needs”.

The International Corporate Governance Network (ICGN), a club for global investment firms, has made a case for retaining quarterly reports.

CEO Jen Sisson said: “We are not supportive of the proposals to allow companies to voluntarily report on a semiannual basis and recommend that the current quarterly reporting requirements be maintained.”

ICGN argues less reporting could cause “volatility” in stock prices and has failed to ensure “better valuations, better capital raising or a healthier IPO market,” elsewhere in the world.

Donald Zakrowski, chief accounting officer at pharmaceutical giant Eli Lilly, has given his backing to the change and says that, if its goes ahead, the company will change its reporting frequency.

“We believe the proposal will result in a reduction of administrative burden… with very minimal impact on the investor community.”