FRC Lab publishes its latest project report on reporting on risks, uncertainties, opportunities and scenarios

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06 Sep, 2021

The Financial Reporting Council’s (FRC’s) Financial Reporting Lab (the Lab) has published its latest project report on reporting on risks, uncertainties, opportunities and scenarios. The report outlines what investors want to understand from corporate reporting on risks, uncertainties, opportunities and the use of scenarios.

The report provides several practical examples of corporate reporting that better meet investors’ needs. The examples in the report cover four key areas identified about which investors seek information relating to risks, uncertainties and opportunities:

  • Governance and process.  Before understanding the nature of the risks, uncertainties and opportunities, investors want to understand how the board and management identifies, monitors and manages these areas and responds in an agile way.
  • Nature.  Investors want to build their knowledge of the risks, uncertainties and opportunities through disclosure addressing:
    • Context: what is the company’s market position and how does it view macro and micro trends and themes?
    • Importance: how does it fit within the company’s plans, how big is it, what is the likelihood and what priority attaches to it?
    • Form: how does the company identify and classify the risks, how do the risks align or connect with the opportunities and the wider company narrative and reporting?   
  • Approach.  Investors want to understand how management are responding to the risks, uncertainties and opportunities. This requires information about:
    • Linkage: to the wider strategy, business models and metrics that allow the monitoring of risks and opportunities.
    • Response: what is management tangibly doing to mitigate the risk (where relevant) and take forward the opportunity, what have they already done, what will they do in the short, medium and long term and how does this affect wider viability and resilience? 
  • Scenarios and stress-testing.  Investors want to understand more fully what is on the company’s horizon and how this is integrated into the risk and opportunity process. They seek to understand how uncertainty impacts the risks and opportunities and how scenarios provide insight into the range of possible futures.  Investors want to know that such exercises are conducted by the company and whether and how they influence its strategic decisions and, ultimately, its business model.

Alongside the report, the Lab has released a one-page summary of the report and a podcast from the Lab's project manager.  Following publication of the report, the Lab is inviting companies, investors and interested parties to participate in a new project that seeks to understand the specific process and disclosure areas emerging around cyber, digital and data risk.

Please click to access the press release, the report on risks, uncertainties and scenarios, the one-page summary and the podcast on the FRC website.

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