Following the launch in early November of the Transparency & Disclosure Index (TDI) covering UK large cap companies, Insig AI has added further coverage of UK mid-cap listed businesses. Insig’s ESG Team share their key findings from the data comparison between the two groups of companies.
Documents being published: a growing haystack
Mirroring the strong trend seen among large-cap companies, there has been significant growth (around 500%) in the number of ESG-related documents published by the mid-cap companies between 2015 and 2022. The volume nearly doubled over two years 2020-2022, indicating that mid-cap companies have more recently felt the pressure ramping up to publish more documents to meet growing demand for ESG-related information from investors, ratings agencies and other stakeholders.
The average number of documents published by a mid-cap UK company has gone from 5 in 2020 to 10 in 2022, compared to an increase from 11 to 17 published on average by a large-cap company. This is being driven by various factors including regulation, often designed to trickle down from larger companies to smaller.
This implies greater transparency around non-financial information through disclosure, which is welcome. But there are two risks: companies reacting (or over-reacting) and publishing in a scattergun approach regardless of what’s material; and an overwhelming burden on analysts of collecting these documents and sifting through the haystack.
The TDI illuminates where gaps in reporting persist despite volume going up. It seeks to help companies take stock, benchmark themselves and navigate this fine line of getting the balance right between expected, comprehensive disclosure and obscuring information amid noise.
Disclosure vs market cap trend: a long way from convergence
There is a stark difference in the trends seen in the data between the UK large-cap and mid-cap groups, when looking at the number of documents published, the volume of sentences in these documents, and the size of the company.
Across the group of companies with larger market cap, there is wide dispersion across all factors, revealing a complete lack of consistency in meeting stakeholder demands for sustainability information.
Documents published range from 2 to 47; and among the UK’s largest companies alone, disclosure volumes across a company’s reports in a year swing between around 7,500 to 16,500 sentences. (Note – we estimate it would take an analyst a year and a half to read all these sentences published in 2022 by the large-caps).
Looking at the mid-cap group of companies, the trend shows that overall levels of disclosure are more consistently lower, with all but one (Investec) publishing less than 10,000 sentences. However, there is still a broad range in number of documents put out in the public domain, ranging from 1 to 30 reports, policies and other documents.
A waste of words?
The intention of the convergence to a global framework for non-financial reporting with the International Sustainability Standards Board (ISSB), and all the talk of interoperability between these international voluntary standards and emerging regulation, is to drive consistency, comparability and conciseness. This is ultimately so that both companies and investors are on the same page about what matters and should be reported, so that together they can drive long-term value tied to stewardship of people and planet. Without this goal in sight, the proliferation of words is a waste of time.
The data confirms that consolidation is urgently needed, and that we still have a long way to go. The ESG Team at Insig AI will be tracking these trends to answer two big questions:
– As regulation and stakeholder pressure trickles down, can this group of UK mid-cap companies (and others following) avoid the pitfalls that some of the first movers of the large-cap companies have fallen into?
– Are global standards and regulation having the desired effect on transparency and disclosure, or unintended consequences?
Visit the TDI to interact with the live data behind the analysis..
Email diana.rose@insig.ai
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