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Debate has been ongoing for some time now over whether reducing the periodic reporting requirements for companies from quarterly to semi-annually could save them time and money. Some people have suggested that reducing the frequency of financial reporting would dissuade short-termism, as companies would no longer focus on meeting analysts’ expectations on a quarterly basis at the expense of long-term performance. This issue has also been debated in many regions of the world. More recently, the US SEC requested public comment on this topic. For this reason, CFA Institute conducted a survey of its global membership on the topic as well as a roundtable discussion.
The majority of survey respondents state that investors heavily rely on earnings releases because they are generally issued before quarterly financial reports. Respondents, however, indicate that quarterly reports remain more important to investors than earnings releases.
These quarterly reports provide a structured information set that follows accounting standards and regulatory guidelines and include incremental financial statement disclosures and management discussion and analysis.
Given that investor interest in sustainability and environmental, social, and governance (ESG) disclosures by public companies is increasing, the CFA Institute also asked its members about their views on ESG reporting.
Following is a sampling of survey comments:
-If companies are not breaking laws they should be allowed to provide information that they believe is relevant and exclude what they feel is not relevant. Most of the issues addressed by ESG are subjective in their importance to the value of a company. These are issues that should be handled by legislatures (and most of them are already), not unelected regulators. Any ESG reporting that a company wishes to do should be voluntary.
-The risks of a changing climate and the risks of poor governance are very important for long-term investors and therefore need to be standardized.
-Governance disclosures (especially as it relates to compensation) are very important to investors (they help understand management’s incentives). The impact of environmental and social issues on the profitability of a business (and therefore its attractiveness as an investment) is much more subjective and less useful to investors.
-ESG is important from a social perspective—just generally doing the right thing is positive for society. That said, companies should not be forced to dedicate all the time and resources to measuring and reporting ESG considerations to the investment community.
-ESG is a very important risk and return consideration for my fund specifically and it is a strongly evolving philosophy within my firm.
-ESG is defined differently by different investors, it is a qualitative factor and should not be standardized—it is like social moral hazard issues—two people can differ on what is morality.
-ESG disclosures should be tailored to individual company/sector risks and updated for material changes as they emerge rather than only updating on a periodic basis.