At a time when the FRC has expressed concerns about a widening quality gap1 in corporate reporting between FTSE 350 & AIM Listed companies - what might AiM companies learn from developments in Main market reporting’s rules, requirements and practices?
The rate of change in corporate reporting continues at speed, with a raft of requirements - reflecting stakeholders’ sustainability concerns - adding further complexity to reporting.
Focusing on the now well-known myriad of acronyms, Main market preparers will certainly have their eyes on:
Against this backdrop there is a perception that AIM still lags behind the standards set by larger main market listed companies - not least because of the lighter regulatory touch and due to larger companies falling under additional mandates not uniformly required of AIM-listed companies.
Despite investor’s higher expectations of larger listed companies, these pressures driving Main market reporting development are just as relevant and likely to influence AIM reporting too. So, is now the time to get more comfortable with a Sustainability mindset?
With limited explicit requirements for sustainability reporting in the Listing Rules themselves, the more recent requirement for a recognised Governance code seems to be the only real driver providing a rationale for the reporting of sustainability factors e.g. QCA code, Principle 4: “...wider stakeholder interests, including social and environmental responsibilities”.
Despite this weaker incentive however, Sustainability reporting for AIM companies is steadily improving, with the use of established frameworks increasing - alongside the growing inclusion and improvement in climate-related measurements.
Yet a wide variation in quality and the ‘desire to disclose’ exists. Leaders in the field are understandably companies for whom sustainability is more material to their operations or to their brand. Smaller companies often trail behind, just ticking the compliance box, providing only minimal sustainability reporting.
Most importantly, is the view that improvements need to be made to the numbers as well as the narrative, but many AIM-listed companies lack detailed metrics or measurable targets within their sustainability story.
Within this current environment then, what challenges do AiM companies face which need to be overcome if they are do embrace sustainability reporting?
Resource constraints: insufficient financial and human resources to dedicate to sustainability initiatives and reporting can result in more superficial and disparate disclosures.
Knowledge Gaps: limited in-house expertise or guidance on sustainability reporting frameworks can hinders the ability to provide more comprehensive disclosures.
Balancing Short-Term and Long-Term Goals: AIM companies are often growth-focused and resource-constrained and may prioritize short-term financial goals over long-term sustainability objectives.
Regulatory Ambiguity: fewer regulatory requirements for sustainability reporting (compared to main-market companies), can lead to inconsistency and a lack of accountability.
Considering the challenges faced, what incentive is there for AiM reporters to improve their sustainability reporting? You don’t have to - Regulators are not forcing you to. So why would you drive stronger sustainability reporting especially if you are resource-tight and focused on growth?
In short? Investors
As the figures show, investors are increasingly focusing on sustainability credentials in the companies they are reviewing and limited or inconsistent sustainability reporting can deter investors looking for that transparency.
It’s not just about investors though
The stakeholder groups in today’s reporting world span a much broader range than just the investor group. Poor reporting against sustainability factors can negatively impact perceptions across current and potential employees as well as suppliers and other stakeholder groups AiM companies need to embrace.
Longer term, addressing this sustainability ‘credibility gap’ to reassure investors and all stakeholders, will continue to be an increasing imperative - driving AIM companies to increasingly ‘want-to’ - rather than ‘have-to’ - improve their sustainability disclosures.
If you need help in delivering or enhancing your AiM reporting, please call on our expertise and do get in touch, we would love to hear from you.
