“The Lab was set up as a place in which companies and investors could come together in a safe space to improve corporate reporting. This means exploring how companies can better meet the needs of investors, and how companies can attract more investment by being more transparent and setting out their strategy in a really clear way. It focuses on a market view of good reporting rather than a regulatory view,” says Fitz-Gerald.

“The reports we produce are very practical. They don’t say this is how you comply with the rules. They say this is how you can improve communication with your investors, and they include practical, real life examples of how companies have done that. That was the concept when the Lab first started, and it remains the objective to this day.”

And the Lab has moved the dial in some really important areas over the years. Fitz-Gerald points to the work the Lab has done on climate-related reporting. That project started three years ago and resulted in a report issued in 2019 – the Lab’s first output in this area. “Since then, we've seen so much development and so much interest in this area of reporting – and rightly so,” he says, reminding us that reporting on climate-related risks in accordance with the TCFD framework will be required on a comply or explain basis for premium listed companies this year with other companies coming on board in future years. The set-up of the International Sustainability Standards Board is also imminent, and the Lab will continue to influence good quality reporting on sustainability in future years as the standards develop.

“Across the last 10 years, the Lab has worked with companies and investors to demonstrate what good practice looks like in many areas. And that's also been influential in the development of regulation,” says Fitz-Gerald. “We don’t set out to do that at the start of a project, but our work often does result in the Lab being influential in the development of policy.”

While climate reporting has been one clear example of this direction of travel, so too has technology. “We're seeing the first electronic reporting for listed companies this year,” he points out. “The Lab has been really helpful in setting out how companies and users might best benefit from technology when reporting.”

Requests for the next phase of the Lab’s activity are already coming in. “The most popular request is for us to do further work around ESG reporting. As mentioned, we've already done a lot of work on climate-related reporting, and more recently we published a report on stakeholders, decisions and Section 172 reporting, but – as standards develop and as investors increasingly seek to assess the ESG credentials of the companies they're investing in – they're asking the Lab to develop best practice in this area.”

In fact, the Lab has just started a project which looks at ESG data. Given that the systems in place to produce, distribute and consume ESG data are significantly less mature than those for financial information, the project intends to look at how companies collect it for the purposes of their own decision-making. The Lab has been inviting companies, service and systems providers, investors and other interested parties to participate in this project.

If greenwashing is to be avoided, Fitz-Gerald says that contextual information, that typically lends itself to narrative reporting, must be linked to the data that seeks to measure that contextual information. “Companies are finding it quite challenging to marry up the two,” he says. “They need to develop processes and systems to collect the data, which will then inform what they're reporting in a more narrative way. Joining that up is something that we want to explore in this ESG data project.”

By way of example, he points out that a lot of companies are setting net zero targets which reach way into the future, but they are not necessarily setting out how they're going to get there, and how they're going to measure success. “That’s one of the things that we'd like to explore more,” he points out.

And the Lab works with companies of all sizes and from all sectors, albeit that many of the participants in the Lab’s work are at the larger end of the spectrum. “We try to involve as wide a range of companies as possible, but we would really like – in the future – to engage with more large private companies, and smaller quoted companies, particularly those companies who have just come to the public market. We like to speak to companies who have recently been through an IPO and demonstrate to them how getting involved with the Lab can really enhance their communication with investors,” says Fitz-Gerald.

Commenting on whether there is a desire amongst corporates to just communicate better generally, whatever the format, he says: “On the demand side, there's increasing need from investors and others for companies to express how they're contributing to the environment and to society. And companies realise that it's not just about revenue and profits. It’s also about whether companies are managing their supply chain well, looking after their customers well, considering the environment and operating in an ethical way to support the communities they operate in.” 

Returning to the Lab’s 10th birthday, Fitz-Gerald says: “I'm delighted with the way the Lab has evolved. I've been Director of the Lab for five years. By the time I arrived at the Lab it had already established itself as a strong voice in the market for improving the quality of disclosures. Since then, we've grown the concept and established it further within the FRC. We’re constantly responding to what the market needs, as we demonstrated during the COVID pandemic. We always leave room in our agenda to react very quickly to whatever the market demands.”

What does he foresee happening next? For example, will companies increasingly harness technologies, such as virtual reality and augmented reality, to communicate non-financial information that is not so easy to represent in the annual report? 

“There’s increasing demand for companies to include even more information in the annual report. The annual report is the core information that companies produce and investors rely on it because of the assurance processes that surround it,” says Fitz-Gerald. “But there are various ways in which technology can help a company take its core information and deliver it in a way which is more accessible. It makes perfect sense.”

That’s the beauty of the Lab – it enables companies to sit in front of their investors and ask them for their thoughts on how their reporting could be improved in a safe environment and many companies have benefited from that process. But it all depends on input into the Lab’s projects. 

The Lab is inviting companies, service and systems providers, investors and other interested parties to participate in its new project looking at how companies produce ESG data. Please contact the Lab at financialreportinglab@frc.org.uk by 15 November 2021 if you are interested in taking part.