The Investment Association (IA) has set out guidelines for how FTSE-listed companies should report on long-term performance, as part of its campaign to deter short-term behaviour.
Having consulted with its members, the trade body published its recommendations in reaction to concerns over difficulties investors face in understanding a company's long term planning strategies.
The IA has previously proposed that companies stop publishing quarterly reports and earnings because it can encourage short-termism.
The requirement on UK companies to report on an interim basis came to an end on 7 November 2014 following a landmark change in the EU Transparency Directive. Quarterly reports have long been criticised for encouraging short-termism, a position that was highlighted in the 2012 Kay Review. While some companies have decided to drop quarterly reporting, the majority continue to do so.
The IA's paper on the guidelines said: "Our members believe that reporting that is concentrated on short-term performance is not necessarily conducive to building a sustainable business, and can inadvertently embed an inappropriate short-term focus in management decision-making, potentially at the expense of investments in the long-term drivers of productivity and sustainable value creation."
Instead, it wants companies to use longer time horizons in reporting and ensure information on business models is linked to long-term objectives, to help investors to better identify companies which deliver long-term returns.
The guidance covers a number of areas that affect a company's long-term performance, including productivity and capital management strategy, human capital and culture, as well as environmental, social and corporate governance (ESG) issues.
The IA said it believes that disclosing ESG issues in annual reports can have a significant and positive effect on businesses' long-term ability to deliver value for shareholders. As a result, it said companies should outline how they are creating and sustaining value through their management of these risks.
The association's director of corporate governance and engagement, Andrew Ninian said: "This guidance focuses on companies and how they can illustrate to shareholders how they are managing their businesses for the long term. The ultimate goal is to drive greater long-term returns for pension savers."
The Investment Association is encouraging all UK listed companies to adopt the guidance as soon as possible. It will use its institutional voting information service to monitor implementation, starting with company annual reports for year-ends on or after 30 September 2017.
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