{"id":1370,"date":"2020-12-17T19:53:18","date_gmt":"2020-12-17T18:53:18","guid":{"rendered":"https:\/\/eaa-online.org\/arc\/blog\/blog\/sustainable-development-too-important-self-interest-and-political-posturing\/"},"modified":"2022-10-19T08:39:42","modified_gmt":"2022-10-19T06:39:42","slug":"sustainable-development-too-important-self-interest-and-political-posturing","status":"publish","type":"post","link":"https:\/\/eaa-online.org\/arc\/blog\/2020\/12\/17\/sustainable-development-too-important-self-interest-and-political-posturing\/","title":{"rendered":"Sustainable development is too important for self-interest and political posturing"},"content":{"rendered":"

by Carol Adams<\/a> and Charles H. Cho<\/a>
\n(this article was first published\u00a0here\u00a0<\/a>in\u00a0Responsible Investor<\/a>\u00a0on December 14, 2020<\/em>)<\/p>\n

In their\u00a0Green Paper\u00a0<\/a>Richard Barker and Robert Eccles claim to contribute, in a\u00a0\u201cneutral way\u201d<\/em>, to the ongoing debate on sustainability reporting standards and who should set them.<\/p>\n

We are not neutral. We believe that sustainable development issues are urgent, complex and that they present an existential threat to people and planet. Unless they are addressed, no one will be around to make investment returns.<\/p>\n

But Barker and Eccles are not neutral either, despite the paper\u2019s claims. \u00a0This matters because it has been used by the IFRS Foundation Trustees to inform their\u00a0Consultation Paper<\/em><\/a>\u00a0on Sustainability Reporting. \u00a0Their very title\u00a0Should FASB and the IASB be responsible for setting standards of nonfinancial information?<\/em>\u00a0is laden with assumptions and judgements. \u00a0The possibility of the Global Reporting Initiative (the longest standing and by far the most used offering) continuing to do so, with its standards becoming mandatory, is not a proposition to be entertained.<\/p>\n

The title treats sustainability reporting as a mere subset of \u2018non-financial\u2019 reporting aimed at\u00a0investors<\/em>, not, as we see it, the disclosure of environmental, social and economic impacts, or impacts on sustainable development, and the organisation\u2019s approach, strategy and governance oversight in order to be able to ascertain whether those impacts are observed, managed, addressed and monitored.<\/p>\n

Barker and Eccles list the pros as being the expertise of FASB and the IASB \u201cin setting standards for information on company performance used by investors\u201d and their being an \u201cobvious place to start, because they are the\u00a0monopoly<\/em>\u00a0providers of corporate financial reporting standards.\u201d We think these are cons.<\/p>\n

What information do investors need?<\/strong><\/em><\/p>\n

In addressing the question \u201chow best to ensure that the capital markets have the non-financial information they need to function properly\u201d Barker and Eccles privilege investors. But which investors? \u00a0Not people like us paying into pensions. \u00a0We want long term returns and to leave the planet better than we found it for the social and economic well-being of the next generation.<\/p>\n

Investors are not homogenous. \u00a0On the one hand there are the mega asset managers still investing in fossil fuels, seeking not to draw too much attention to these activities whilst minimising the costs of doing any kind of assessment of the impacts of the investments they make. \u00a0Then there are the impact investors seeking to earn strong returns\u00a0and<\/em>\u00a0make a positive impact on sustainable development. \u00a0The former probably know that physical climate change risks, pandemics, poverty and inequality have the potential to lead to civil unrest in some jurisdictions and a potentially material effect on their returns but choose to ignore it. \u00a0But would these be picked up in the standards for investors that Barker and Eccles propose?<\/p>\n

What would be in these standards?<\/strong><\/em><\/p>\n

Barker and Eccles argue that a standard must be \u201cdiscriminating and prescriptive\u201d and that \u201cit must be possible to demonstrate whether or not [it] has been met.\u201d We need a different mindset for sustainability reporting. \u00a0Being discriminating and prescriptive in sustainability reporting (as the SASB is) might follow a desire to simplify complex, interdependent sustainable development issues and reduce costs. \u00a0It might also be a convenient way of justifying the inclusion of some issues and not others. \u00a0If standards only include disclosures that are \u201cdiscriminating and prescriptive\u201d, elaborate attempts to put a monetary value on sustainable development risks, opportunities and impacts will follow. \u00a0More work for the (possibly fairly large) sub-set of accountants who think that the only unit for accounting and reporting has a yen, dollar or euro sign in front of it.<\/p>\n

Indeed Barker and Eccles bemoan that: \u201cThe picture is complicated [\u2026] by the call for non-financial reporting to be concerned with both dependency and impact, and with capturing materiality for a range of stakeholders, in order to report on materiality to shareholders. \u00a0Financial reporting, in contrast, is far less demanding in its core purpose and scope\u201d (our emphasis). \u00a0This really begs the question as to why the authors even considered FASB and the IASB, or IFRS Foundation, as a suitable body to such sustainability reporting standards.<\/p>\n

Integrating, extending and adding the \u201cnon\u201d to the \u201cfinancial\u201d is not enough. Metrics are limited in their capacity to capture the broader, qualitative and often more relevant picture. \u00a0Meeting numerical targets and ticking off on a disclosure checklist, while \u201chiding\u201d the actual poor performance through an inadequate management approach to materiality and robust governance oversight (because they are not required to be disclosed in \u201cdiscriminating and prescriptive\u201d standards) is not enough. \u00a0In fact, it will likely do more harm than good.<\/p>\n

So, what needs to happen?<\/strong><\/em><\/p>\n

Investors, whether they know it or not, or want to hear it or not, need information on their impacts on sustainability development and management approach to identify impacts, risks and opportunities, incorporating them into strategy and governance oversight of all this.<\/p>\n

In a recent Harvard Business Review\u00a0article<\/a>, Barker and Eccles with George Serafeim note \u201cwe have a large number of NGOs working\u2026 to develop standards for sustainability reporting\u201d but fail to highlight there is really only one (GRI\u2019s\u00a0Global<\/strong>\u00a0Sustainability Standards Board, GSSB) that has got global traction and that stands head and shoulders above the others in usage as reported in the most recent\u00a0KPMG (2020) survey<\/a>. This information would not support their call for the IFRS Foundation to establish a Sustainability Standards Board alongside the IASB.<\/p>\n

Our view is that, rather than starting from scratch, efforts should focus on making the GRI\u2019s GSSB Standards mandatory so that investors have information on sustainable development impacts. \u00a0The IASB should recruit skills, or work with the Value Reporting Foundation, to ensure IFRS statements and guidance incorporate the sustainable development impacts on asset valuations and liabilities are reflected in financial statements. The IASB\u2019s Management Commentary could incorporate the IIRC\u2019s integrated reporting framework with explicit reference to sustainable development.<\/p>\n

Prioritising mandating a set of sustainability standards, taking what Barker and Eccles refer to as an \u2018investor perspective\u2019 would be a backward step. \u00a0The very information that investors do need (about sustainable development impacts, risks and opportunities) would take second fiddle.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

Carol Adams is a Professor of Accounting at Durham University Business School, UK and Swinburne Business School, Australia. \u00a0She is Founding Editor and Editor-in-Chief of the Sustainability Accounting, Management and Policy Journal. \u00a0She is immediate past Chair of the GRI Stakeholder Council.<\/em><\/strong><\/p>\n

 <\/p>\n

\"\"<\/p>\n

Charles H. Cho is a Professor of Accounting and the Erivan K. Haub Chair in Business & Sustainability at the Schulich School of Business, York University, Canada. He is Editor of Accounting Forum and Accounting and Business Ethics Section Co-Editor of the Journal of Business Ethics.\u00a0<\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

by Carol Adams and Charles H. Cho (this article was first published\u00a0here\u00a0in\u00a0Responsible Investor\u00a0on December 14, 2020) In their\u00a0Green Paper\u00a0Richard Barker and Robert Eccles claim to contribute, in a\u00a0\u201cneutral way\u201d, to the ongoing debate on sustainability reporting standards and who should set them. We are not neutral. We believe that sustainable development issues are urgent, complex […]<\/p>\n","protected":false},"author":94,"featured_media":1371,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0},"categories":[128],"tags":[2],"acf":[],"yoast_head":"\nSustainable development is too important for self-interest and political posturing - ARC<\/title>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sustainable development is too important for self-interest and political posturing - ARC\" \/>\n<meta property=\"og:description\" content=\"by Carol Adams and Charles H. 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