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Convergence on sustainability reporting standards

Climate matters have never been more important, but inconsistent sustainability reporting standards are holding back progress in the corporate world, the International Federation of Accountants (IFAC) has said.

7th Apr 2021
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Sustainability reporting
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The absence of a globally agreed set of green standards has long been a bone of contention for accounting sector watchdogs, with concerns that too many fragmented reporting frameworks are emerging in that vacuum. There are at least eight different sustainability reporting initiatives, all with their own acronyms, currently in operation.

“These multiple frameworks can be confusing for preparers of corporate reports but there are now signs of some convergence,” said Anthony Appleton, partner at BDO London.

Efforts to cut through the alphabet soup are at pace, with the IFAC’s suggestion of a new standards board that will bring the ecosystem of financial and non-financial sustainable reporting requirements together under one roof.

“This approach offers the quickest and most effective route to a baseline of internationally consistent sustainability-related disclosures for enterprise value creation developed in the public interest,” the IFAC said, calling for international collaboration with other regulators “to make this initiative a success”.

Despite sharing a common goal, the current frameworks are all markedly different. For example, each one diverges in how it defines “materiality” for a business. In one standard, “materiality” is outward looking and refers to “the impacts of the company on the world around it”. Whereas in another standard “materiality” concerns the impacts of sustainability topics on a company’s financial condition or operating performance, which is more inward-looking.

Deloitte’s most recent Climate Check report found sentiment to act on climate issues remains strong within the corporate world. While the pandemic has slowed progress, businesses are eager to push ahead with environmental sustainability actions as they feel the action of not doing so.

The impression amongst business is that governments and regulators can do more to address the challenge and increase sustainability efforts by prioritizing strategies - which includes an agreement on reporting standards.

Regulatory and political uncertainty emerged as a top climate issue facing businesses, according to the report. “Investors and companies both recognise the lack of a common, consistent way to measure and report on key Environmental, Social, and Governance (ESG) issues,” Deloitte said. “Standard setters, accountants, and various industry and regulatory bodies are actively collaborating to support the creation of a single, globally accepted system of environmental sustainability reporting.”

To begin, a working group announced by the Trustees of the International Financial Reporting Standards Foundation will soon begin the technical preparation to converge sustainability reporting standards under the governance of the IFRS Foundation. It will provide technical recommendations and develop standards for climate-related reporting and other sustainability topics.

“As companies become more aware of the need to address ESG issues, and stakeholder demand for it, there now seems to be a need for accountability and a global set of internationally recognised standards to match,” said Mark Vaessen, chair of KPMG Better Business Reporting network.

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By John Downes
08th Apr 2021 11:27

"Climate matters have never been more important"
To some.
To the more sensible among us it seems like a lot of scaremongering b*llocks.

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By SustainableFootprintsLtd
08th Apr 2021 13:56

Great article Mark

John I can understand your perspective as so much is labored on to it including a lot of marketing jargon but a common-sense approach to this isn't out of reach it just seems to be getting muddled by alot of different people jumping on the "let's create a new standard to sell" bandwagon. Admitedly I am biased as at sustainable footprints carbon and sustainability footprinting is what we do but before moving into this field i started life working in accounts (purchase ledger and project accounts) and the move felt very logical to me.

To explain what I mean in relation to carbon reporting (two pieces of legislation focus on this and energy which are SECR and ESOS both with fines attached). The ISO14064-1 standard sets the framework for this and was developed using the Sabines Oxley accounting principles so by using this in conjunction with the GHG protocol and country-specific conversion factors you should be able to produce a robustly quantifiable organisational carbon footprint that aligns with the organisational accounts structure (hence why SECR legislation requires it to be in the annual director's report etc). We do alot of these footprints and energy profiles for companies including reduction and offset strategies etc and if done correctly from the outset should move quite easily into business as usuall reporting functions with cost savings materialised through identified actions identified during the exercise.

Where it can get more tricky and jargonistic is when it moves into the wider sustainability and ESG field with the financial services sectors developing their own standards and approaches (AA1000 & SASBE, the TDCF etc) the banks and trading desks also developing various metrics for profiling businesses and normal industry and public sector working with either ISO, CDP or looking to align better with UN SDGs................and again the world drops into jargon which is maddening.

In short increased climate change regulatory reporting and market drivers are only going to increase regardless of peoples view on the reality of climate change. So with the rigor and common sense required to create a robust, repeatable and comparable carbon footprint baseline for a business etc industry would be mad not to involve accounts and accountants who work with the numbers and materiality/confidence scoring all the time from as early a stage as possible.

If it is of any use to any of you we have a number of videos on SECR & Carbon Reporting on our youtube channel (https://www.youtube.com/channel/UCTUIVzQKYXIZ3ETY43kMZbw?app=desktop ) and also have a number of free downloadable legal brief sheets on our website https://www.sustainablefootprints.co.uk/online-vault/ . Also if you have any questions im more than happy to answer them etc.

All the best Geri

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By NickBiden
08th Apr 2021 17:28

Let's not debate the relative merits of the climate debate, save to note that our local river has become markedly more prone to flash flooding in the last 12-18 months. I don't recall ever having seen such a significant variation in levels from week to week. It seems prudent for all of us to acknowledge that this planet does have finite resource and to encourage businesses and indivduals alike to be mindful of how these resources are used.

As noted in the article above there is a proliferation of reporting standards which, ultimately, isn't helpful as it simply helps to perpetuate the lack of understanding of the environmental and sustainable challenges, perceived or real.

However, I wonder whether there is a natural process that the reporting standards must go through to evolve into something genuinely useful? History is littered with government and policy led initiatives and strategies that, whilst laudable in aim, always seem to miss their mark. Think low energy halogen bulbs now obsolete thanks to LEDs. Support for halogens was government sponsored at a global level and cost the tax payer $25bn...

Let's hope that IFAC can cut through the alphabet soup and, with the help of pragmatic and sensible practitioners such as Sustainable Footprints, help the reporting standards evolve into something genuinely useful to both the corporate world and the wider public.

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