The absence of a global baseline for reporting sustainability-related information is a concern for many, as the number of signatories to a global call-to-action on the matter demonstrates, writes Fiona Gaskin
In late August, 65 companies, investors, and professional accounting firms from around the world added their voices to the call for standard-setting efforts to more closely support a global baseline for reporting sustainability-related information.
All were signatories to a statement issued jointly by the International Federation of Accountants, World Business Council for Sustainable Development, and Principles for Responsible Investment, seeking to establish greater compatibility between the concepts, terminologies, and metrics in use in current draft standards for sustainability reporting.
The statement acknowledged the important work of the International Sustainability Standards Board, US Securities and Exchange Commission, and the European Commission, together with the European Financial Reporting Advisory Group, in their efforts to advance sustainability reporting.
The number of organisations supporting the call for the convergence of standards demonstrates, however, that the absence of a global baseline for reporting sustainability-related information is a concern for many corporates, financial institutions, and professional services organisations.
The problem is very real. When various jurisdictions and standard-setters issue concurrent, but differing, standards, the users of those standards are left with varying frameworks, which can be costly and inefficient to interpret and implement. These efforts, while well-intentioned, can create confusion by adding more noise as reporting multiplies, but with different standards and objectives.
A fundamental question for those setting standards and regulations is the question of whether or not reporting should be focused on information useful to investors (i.e. the enterprise value), or information useful to a wider group of stakeholders (i.e. the impact value).
Enterprise value primarily focuses on the impact of environmental, social and governance (ESG) issues on business—in other words, how does the world affect the organisation? Impact value focuses more on the impact the organisation has on the world around it.
Both enterprise and impact value offer information that can help to hold companies accountable for their actions—whether that is to maintain or create value, or to minimise negative impacts on the planet and society.
Indeed, it is possible to argue that there is really no practical difference between these two values, and that the exposure draft of the International Sustainability Standards Board’s general disclosure requirements standard already provides a few good examples.
This is because it is reasonable to expect that a business operating in a way that has a negative impact on the planet and its people will—in the short-, medium- and long-term—have a negative impact on the business itself and, therefore, on its enterprise value. In the long run, which is where sustainability standards focus, enterprise value and impact align.
We can see first-hand that the proposed range of emerging standards are already proving to be a challenge for corporates. To start, there is the difficulty in simply gaining clarity on the reporting landscape—what has to be reported on, and by when.
Once this has been established, the need arises for an exercise in understanding the crossover between reporting obligations—in the area of metrics, for example. These requirements then need to be assessed against what the organisation is actually doing and reporting. This last step typically results in an action plan which requires time and resources to address the underlying actions.
While the statement calling for stronger alignment of regulatory and standard-setting efforts around sustainability disclosure has wide-ranging support, those creating the regulations and standards will ultimately need to continue to collaborate and respond to the call to action.
Given that we are at the infancy stage of sustainability reporting when compared to financial reporting, it would seem like such a wasted opportunity to create complexity when standardisation and transparency are what is needed.
Fiona Gaskin is Environmental, Social and Governance Leader for Assurance and Reporting at PwC Ireland