PERG | Improving Transparency and Disclosure: Good Practice Reporting by Portfolio Companies – February 2023

Improving Transparency and Disclosure: Good Practice Reporting by Portfolio Companies – February 2023

The purpose of this report is to provide guidance for those individuals at portfolio companies who are responsible for preparing the Annual Report and financial statements, and to provide some examples of good and excellent practice for each of the Walker Guidelines.

Non-financial reporting is an increasingly important element of the Annual Report and statutory or regulatory changes are bringing more companies into scope for enhanced disclosure. Recent changes impacting large private companies, which will likely include a number of portfolio companies include the requirement for reporting on governance frameworks, reporting under the Task Force on Climate-related Financial Disclosures (“TCFD”) and also stakeholder focus on the impact that companies have on the wider communities they operate in. Portfolio companies have the opportunity to be ahead of the game through making a more full-hearted attempt to comply with the Walker Guidelines, which provide a strong foundation for the increased disclosures required.

It is important to note that ‘glossy’ formatting is not a necessity to achieve good practice, but rather a focus on clear, concise and transparent disclosures, as evidenced in our example extracts. As a first point of reference, each of the Guidelines has been broken down into specific requirements which must be addressed in order to achieve ‘basic’, ‘good’ or ‘excellent’ practice. For each, we have included an example that meets ‘good’ or ‘excellent’ practice.

Those examples that met and/or exceeded the requirements typically followed a process that started with clear articulation of the strategy. We have illustrated this process as follows:

  • Clearly articulate the strategy and business model
  • Identify meaningful key performance indicators (“KPIs”)
  • Define principal risks, their impacts and mitigations
  • Include those employee, social and community issues which most impact the business
  • Frame the business review using the strategy, KPIs and relevant risks

In addition to the points referenced above, preparers should ensure that those Guidelines which are more prescriptive in nature are addressed by including specific headings and/or signposts to the information. This includes the identity of the Private Equity house (Guideline 1), the composition of the board (Guideline 2); and gender diversity (Guideline 15). The annual report should also include an explicit statement of compliance with the Guidelines.

The Guideline in respect of social, community and human rights issues (Guideline 14) is one that which requires significant improvement based on the sample of reports reviewed in the current year. We have not identified any examples of excellent practice in this area.