{"id":1399,"date":"2021-01-05T17:57:13","date_gmt":"2021-01-05T16:57:13","guid":{"rendered":"https:\/\/eaa-online.org\/arc\/blog\/blog\/my-comment-letter-ifrs-foundation-about-consultation-paper-sustainability-reporting\/"},"modified":"2022-10-19T08:39:30","modified_gmt":"2022-10-19T06:39:30","slug":"my-comment-letter-ifrs-foundation-about-consultation-paper-sustainability-reporting","status":"publish","type":"post","link":"https:\/\/eaa-online.org\/arc\/blog\/2021\/01\/05\/my-comment-letter-ifrs-foundation-about-consultation-paper-sustainability-reporting\/","title":{"rendered":"My Comment Letter to the IFRS Foundation about the Consultation Paper on Sustainability Reporting"},"content":{"rendered":"
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The PDF version of my letter can be found on the IFRS Foundation\u2019s website<\/a> or here<\/a>, and is also attached to this blog.<\/p>\n

———————————–<\/p>\n

December 31, 2020<\/p>\n

IFRS Foundation
\n7 Westferry Circus
\nCanary Wharf
\nLondon E14 4HD
\nUnited Kingdom<\/p>\n

Re: IFRS Foundation Consultation Paper on Sustainability Reporting<\/strong><\/p>\n

Dear IFRS Trustees,<\/p>\n

I write you as Professor of Accounting and Erivan K. Haub Chair in Business & Sustainability<\/a> (an endowed research chair) with over 17 years of experience in teaching and researching the sustainability, social and environmental accounting and reporting (SSEAR) field in multiple countries, which enabled me to gain insights on the international dimension of the field. I am currently a member of the Executive Council<\/a> for the Centre for Social and Environmental Accounting Research (CSEAR)<\/a>, and the Chair of its International Associates Committee. In addition, I am an Editor of Accounting Forum<\/em><\/a>\u2014a leading journal published a substantial volume of rigorous qualitative and quantitative research on SSEAR for decades, and a Section Editor of the Journal Business Ethics<\/em><\/a>\u2014a journal included in the prestigious Financial Times 50<\/em> list. Google Scholar<\/a> currently lists citations of my published work at over 6100 and I was recently recognized as one of the top 2% of scientists in the world<\/a> for 2019 in the accounting field.<\/p>\n

I would like to explicitly state that whereas I am writing this response to your Consultation Paper on my university\u2019s letterhead, I am expressing my views here as an individual<\/u> academic researcher<\/strong>; therefore, my response does not<\/u><\/strong> engage my university or business school.<\/p>\n

After much reflection, I opted to write a broader response on some specific points rather than responding to each question posed in the Consultation Paper because (1) I am a signatory on the Open Letter<\/a> from Professors of Accounting researching Sustainability Accounting and Reporting; (2) I am a member of the European Accounting Association\u2019s Stakeholder Research Committee<\/a>, which has produced a response here<\/a>; (3) I am\u2014as indicated above\u2014a member of the Executive Council of CSEAR, which has also produced a response (submitted, not yet on website but can be found here<\/a>); and (4) I endorse the individual responses from Carol Adams<\/a>, Sumit Lodhia<\/a>, Carol Tilt<\/a> and the Accountability Sustainability and Governance Research Group at the University of Bristol<\/a>. These responses include consistent and converging answers to those specific questions.<\/p>\n

My overall key concerns<\/u><\/strong> revolve around:
\na) your definition, position and perspective of what you mean by \u2018sustainability\u2019<\/em>, \u2018sustainability reporting\u2019<\/em>, and \u2018standard setting<\/em>\u2019;
\nb) your definition, scope and position of what you mean by \u2018stakeholder\u2019<\/em>;
\nc) your definition and scope of what you mean by \u2018materiality<\/em>\u2019;
\nd) your Consultation Paper being inadequately informed (misinformed) due to ignoring the existing substantive body of peer-reviewed independent academic research<\/em>.<\/p>\n

Sustainability, sustainability reporting (and standard setting)<\/u>
\nThroughout your Consultation Paper, it seems clear to me that\u2014similar to the \u2018Sustainability\u2019 Accounting Standards board (SASB)\u2014the undertaken definition of \u2018sustainability\u2019 is primarily about the \u2018sustainability\u2019 of<\/em> the business as a going concern<\/em> issue; that is, ensuring a long-term financial growth and prosperity for the company and its shareholders, vs. business and\u00a0<\/em><\/strong>sustainability of<\/em><\/strong> the planet (or planetary, environmental and social sustainability, for which the United Nations Sustainable Development Goals<\/em><\/a> were developed). Similar to what I heard when speaking at a recent panel symposium with the Chair of the SASB (he at least acknowledged<\/em> \u00a0that it was about the sustainability of the business and its investors), the definition of sustainability is (overly) simplified, yet so disconnected and narrowed down to going concern issues that the premises of the proposals included in the Consultation Paper are fundamentally flawed.<\/p>\n<\/div>\n

This naturally also leads to the clear misunderstanding about what is meant by \u2018sustainability\u2019 reporting<\/em>. In your Consultation Paper, such reporting is depicted as \u2018broadening\u2019 the scope of information provided only to investors about non-financial issues\u2014which may adversely affect corporate performance, hence their<\/em> (financial) risks and eventual decisions. But the focus is again on investors only<\/em> (as abundantly expressed in your text and language). One could argue to call it \u2018non-financial<\/em> reporting\u2019 instead but given the very narrow<\/em> perspective of what you mean by \u2018sustainability\u2019, this is (naturally) called as such. If \u2018sustainability\u2019 was about \u2018planetary<\/em>, environmental<\/em> and social<\/em> sustainability\u2019, the related reporting would naturally take a much broader<\/strong> stakeholder<\/em> perspective\u2014to address their<\/em> concerns, their<\/em> risks and hold whomever is harming our planet and society accountable<\/em>. However, your Consultation Paper barely discusses such implications, and even the words \u2018ecology\u2019<\/em>, \u2018planet\u2019<\/em>, and \u2018society\u2019<\/em> are hardly even mentioned anywhere.<\/p>\n

With regards to setting \u2018standards\u2019 and the corresponding creation of a \u2018Sustainability Standards Board\u2019, much has been said in the aforementioned responses above. A \u201cglobal set of internationally recognised sustainability reporting standards\u201d already exists\u2014in fact, it has existed for over 20 years under the umbrella of the Global Reporting Initiative (GRI)<\/a>. Whereas it is always perfectible (which standards are not, including the IFRS themselves?), they do take the imperative stakeholder<\/em><\/strong> perspective better than any of the other bodies today because they were originally designed and set as such. These standards need support in becoming mandatory<\/em>\u2014and getting enforced<\/em>. The IFRS Foundation, via the International Accounting Standards Board, could play a determining and highly influential role by using its relationships with regulators and policymakers. However, there is no need to \u2018reinvent the wheel\u2019 and the Foundation has no role<\/em> in \u2018setting\u2019 such standards. I would also like to remind you that simply replacing \u2018financial\u2019 (reporting) by \u2018sustainability\u2019 or adding the \u2018non\u2019 to the \u2018financial\u2019 does not<\/strong> solve the matter. Sustainability and sustainability reporting are very complex, and such desire to (over)simplify this notion and practice constitutes a major step backwards towards making the world more sustainable (or less unsustainable).<\/p>\n

Whereas your Consultation Paper briefly mentions the importance to \u201cbuild upon the established work\u201d of the existing standard organizations specialized in these standards, the process (what, how, when, who) remains extremely vague<\/em>. This question was posed during the IFRS Foundation workshop on November 17, 2020 and the response remained similarly vague and unclear.<\/p>\n

Stakeholder<\/u>
\nAs indicated above, a one<\/em>-stakeholder (i.e. investor) only perspective is fundamentally flawed, and is in fact dangerous. Such narrow mindset will likely cause human catastrophes\u2014in fact, it already has (profit before<\/em> planet and people\u2026). I urge you to broaden your definition and perspective of \u2018sustainability\u2019, hence \u2018stakeholders\u2019 to include at the very least<\/em> firm employees, customers suppliers, governments, non-governmental organizations, civil society and the physical environment\/ecosystem.<\/p>\n

Materiality<\/u>
\nSimilar to reporting issues, your Consultation Paper relies much on the notion of financial<\/em> materiality and makes some future attempt to simply apply the concept to \u2018sustainability\u2019 issues. In other words, a simple risk assessment and threshold application to determine whether an \u2018item\u2019 is deemed \u2018material\u2019\u2014but for what<\/em> and for whom<\/em>? From your Consultation Paper\u2019s perspective, the answer is clearly: \u201cfor the financial statements<\/em>, the investors<\/em> and their<\/em> risks\u201d.<\/p>\n

Beyond the \u2018material for whom<\/em>\u2019 issue, materiality has become a key rationalization for immoral activities<\/strong>, which can used to conveniently hide things under the carpet. Is it material to a multinational company that it destroys \u2018only\u2019 1000 acres of pristine habitat? What about when it employs \u2018only\u2019 1000 child laborers or records \u2018only\u2019 50 fatalities if they represent 1% (or say 5%) of a company\u2019s workforce? Should they report these in their sustainability or annual report\u2014or not\u2026because they are deemed \u2018immaterial\u2019?<\/p>\n

Ignoring the existing substantive body of peer-reviewed independent academic research<\/u>
\nAnnex B of your Consultation Paper is \u201cResearch considered by the Trustees<\/em>\u201d and lists:<\/p>\n