Great article in Harvard Business Review on interview with Professor Bob Eccles from Harvard Business School on “how the world of accounting can help build a sustainable economy” as we move toward integrated reporting as a best practice for corporate disclosure…
Professor Eccles is considered to be one of the foremost experts in corporate reporting and has for the past five years been working to create sustainability accounting standards for the investment community (he is also the chairman of ESG asset management firm Arabesque Partners).
In the interview with HBR -- Professor Eccles discusses how current corporate sustainability reporting is not focused on the needs of the investment marketplace but is focused on meeting the needs of other stakeholders and therefore not relevant to Wall Street in its current format. (My editorial comment: The data disclosed is also not in a machine-readable format such as XBRL for analytical consumption and comparison like the financial data currently is in XBRL data format as mandated by the US SEC for better transparency and accountability to better manage risks for investors/Wall Street)…
To solve the relevance of this global movement by companies to report relevant, material sustainable data to the capital markets -- the Sustainable Accounting Standards Board (SASB) has come into play in the United States. The current Chairman of SASB is Michael Bloomberg and with two former US SEC Chairs who understand the importance of corporate reporting and financial accounting…
As Professor Eccles says in the interview (former Chair of SASB): “SASB aims to fill this gap. Regulation S-K, which sets the specific disclosure requirements for a company’s Form 10-K and other Security Exchange Commission (SEC) filings, requires that companies report material information, both financial and non-financial. SASB provides guidance for determining material ESG information for companies in every industry. For example, carbon emissions of an insurance company itself is not material, but for a coal-fired utility company it certainly is. With the input of a variety of stakeholders, SASB is finishing up this standards-setting process for 79 industries grouped into 10 sectors. Provisional standards for all 79 industries will be completed by the end of the first quarter of 2016. The standards are appropriate for global use; 40% of the downloads from the SASB website are from overseas visitors.”
With the effort of organizations such as SASB – industry defined environment, social governance (ESG) KPI data needed by the global investment community is being defined and therefore relevant to better manage risks and encourage investments by Wall Street to companies “doing the right thing” to support the public interest/ “license to operate” for a more sustainable world for future generations.
It is very clear from COP21 – literally trillions of dollars from both government and the capital markets will have to be moved over the coming years to deal with climate change/ global warming. Responsible companies have an opportunity of creating a “lifeboat” for themselves by using SASB reporting standards for example to show they are both sustainable and an important player in our society disclosing these important CSR metrics. By expanding this reporting process by focusing on these industry defined CSR KPIs companies are demonstrating how they are using resources (such as energy) more effectively and efficiently -- winning support from Wall Street and communicating more effectively with external stakeholder groups.
What we are also finding in the world of accounting is that numbers alone doesn’t necessarily “tell the story” of a company and its relevance to the public interest – other indices are needed such as minority composition of management, women in management, sustainable short-term and long-term goals of a company, the company’s relationship to its supply chain and if child labor or human trafficking (Slavery), and other important stakeholder issues such the IP value a company holds, it’s reputation in the marketplace, etc... Metrics decided by both management and the finance team to disclose to the capital markets.
The IMA is a council member the International Integrated Reporting Council (IIRC). The IIRC’s mission is to establish integrated reporting and thinking with mainstream business practice as the norm in both public and private sectors to include both financial and non-financial data the finance team thinks its relevant in telling a more complete story to the capital markets as well as mitigate material risks (INTEGRATED REPORTING). This includes the disclosure (if necessary) of important CSR data critical to creating a sustainable world for future generations. IIRC will play a critical role as the world business community moves forward with integrating both financial and non-financial data in the reporting process.
For reference on INTEGRATED REPORTING and its relevance to the accounting marketplace -- Professor Bob Eccles recently wrote the following book on this topic: The Integrated Reporting Movement : Meaning, Momentum, Motives, and Materiality.
Accountants are and will play an important role in this global movement toward integrated reporting as a "best practice" for corporate disclosure. Today, more than 50% of the S&P 500 companies are voluntarily disclosing CSR/ sustainability information to the capital markets and this trend is rapidly expanding both in the US and in other countries. The EU has mandated non-financial reporting as a best practices for more than 6,000 public companies in the EU.
Assurance services are and will be needed for this non-financial data included in the integrated reporting process. In markets where CSR data has been mandated by governments – accountants are “front and center” checking the validity of this data and helping companies prepare the reporting such as disclosing the company’s energy usage or reviewing its supply chain and providing independent review if child labor or human trafficking is involved in new audited reports in companion with the financial audited report.
And we are learning new accounting technologies are playing a role as the reporting disclosure process expands. Technology will play an important role in helping to gather and report this data to the capital markets using technologies such as XBRL for sustainability data.
Stay tuned for more information on this important new topic and best wishes for the coming holidays as we prepare for the New Year -- knowing accountants will play a major role in helping prepare a sustainable world for future generations...