Amid increasing interest in environmental and wider social issues, the industry regulator has published a Statement of Intent on Environmental, Social and Governance challenges, which outlines areas where there are issues with ESG information and its plans to help address these issues.
The Financial Reporting Council (FRC) has highlighted underlying issues along the entire lifecycle of ESG information – from its production and distribution through to audit and assurance, to the way it is consumed and regulated. Meanwhile, it warns that the inefficiencies of meeting multiple obligations for differing stakeholders are thwarting attempts for meaningful reporting.
At the same time, it says there can be a lack of credibility in ESG information. The current level of data maturity in most companies makes it difficult to provide assurance and financial statements may also not take proper account of material ESG issues affecting the company. The lack of useful and usable information makes it difficult for stakeholders to make effective decisions and for investors to address their own regulatory requirements.
Sarah Dunn, Technical Manager, Financial Reporting Faculty commented: “Improving the reporting of ESG information requires a comprehensive and cohesive reporting eco-system. Each stage, from the point of capturing the underlying data to how it is ultimately delivered to users, is crucial to ensure the availability of high-quality, reliable and decision useful ESG information. We support FRC’s calls for greater coordination and connectivity, both within the UK and internationally in order to find solutions to the current challenges facing ESG reporting.”
Meanwhile, the FRC’s Financial Reporting Lab has published a snapshot of Sustainability Accounting Standards Board (SASB) reporting practice in the UK, which shows an increase in uptake, but warns that more and better reporting is needed. The use of SASB Standards is voluntary for UK organisations, although in November 2020 the FRC issued a statement on non-financial reporting that encouraged public interest companies to use them.
In particular, it called on better communication of use of the SASB standards and warned of selective reporting of SASB metrics and insufficient cross referencing to ESG metrics in other reports. It also warned that a failure to link independent assurance reports on SASB disclosures to the disclosures themselves reduced the ability of users to understand exactly what is and isn’t covered by assurance.
For more information on non-financial reporting see icaew.com/nfr