It is remarkable to think that it was nearly 20 years ago, during my tenure as President, that ICAEW began to meaningfully engage with issues of sustainability. Today, such environmental, social and governance (ESG) issues are high on the agenda of corporate reporters. For me, it is therefore profoundly gratifying to see the Institute – among other venerable organisations – taking a leading role in this area on behalf of the accounting profession.
From transparency to performance
Last year, I joined the Board of Directors of the Sustainability Accounting Standards Board (SASB) Foundation, which provides practical tools that companies can use to implement the kind of integrated thinking and reporting I have long championed. Global markets are increasingly attuned to the idea that prosperous businesses and a thriving society go hand in hand. Measurement tools that help companies not only enhance ESG transparency but drive ESG performance will be critical if market infrastructure is to be fit for purpose in the 21st century.
This is precisely what SASB’s 77 industry-specific standards provide: detailed guidance on the small handful of ESG topics and associated performance metrics most closely linked to a given sector and its ability to create enterprise value. Because of this focus on rigorous measurement and fundamental value drivers, the standards are especially relevant to accountants, their companies and their clients.
SASB standards address issues like water management for a beverage manufacturer, data privacy for a bank, and product lifecycle management for a producer of chemicals. The performance metrics are designed to provide actionable business intelligence that can support enhanced decision-making by both the users and providers of financial capital, while also helping move the needle on broader societal challenges.Although SASB standards were initially developed for US markets – from their conception in 2011 to their launch in 2018 – the issues they cover today transcend geographic boundaries. In fact, hundreds of companies in more than three dozen countries now use SASB standards in core communications with investors, including more than 20% of the S&P Global 1200. Meanwhile, SASB’s Investor Advisory Group consists of more than 50 leading asset owners and managers from Asia, Europe and North America, with more than £31trn under management. Closer to home, of the nearly 600,000 times SASB standards have been downloaded, 10% of these downloads have been in the UK and nearly 30% from Europe more broadly.
More signal, less noise
Perhaps the primary criticism of the sustainability reporting landscape is that it appears crowded and confusing. As capital markets have begun to recognise the important connections between sustainability performance and financial outcomes, a complex and thriving ecosystem of non-profit and for-profit organisations and initiatives has developed to provide a wide range of sustainability-related information and analytics.
Against this backdrop, an array of initiatives has recently endeavoured to bring clarity to the world of corporate sustainability disclosure (see the article on page 10) – perhaps most notably the Consultation Paper on Sustainability Reporting issued by the International Financial Reporting Standards Foundation (the Foundation) last September. In exploring whether the Foundation has a role to play in improving the consistency and comparability of sustainability reporting, the paper notes that in undertaking such an effort, it would be important to build upon the important work and accumulated knowledge of existing ESG standard setters and framework providers.
Among these, the Foundation pointed to the recent Statement of Intent to Work Together Towards Comprehensive Corporate Reporting, co-authored by five organisations – CDP (formerly the Carbon Disclosure Project), the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council and SASB. In this joint statement, the ‘group of five’ provide a shared vision for comprehensive corporate reporting and explain how their frameworks and standards individually complement one another as well as collectively complementing generally accepted financial accounting principles. The International Federation of Accountants has recommended the Foundation adopt the ‘building blocks’ approach outlined by the ‘group of five’.
Finally, the Financial Reporting Council recently published The Future of Corporate Reporting, a discussion paper in which my colleagues and I make the case that the significant developments in measurement and coalescence of standards currently taking place require a system to sit among. We believe we have articulated a new and viable system of corporate reporting that is based on objectives rather than audiences only, representing an agile network of reports that take into account modern technology enablement. We believe that this underpinning system is fit for purpose in today’s complex reporting landscape.
In each of these models, SASB standards have a crucial role to play and, in fact, may be better positioned to unlock their full potential. SASB’s industry-specific, mostly quantitative metrics can introduce essential elements of accountability and comparability to corporate sustainability disclosures. For example, they can shed important light on the effectiveness of a firm’s governance practices, its stated strategy, its approach to risk management and its pursuit of key performance targets, while also facilitating benchmarking against peers. However, pairing metrics with a complementary, principles-based framework can be truly transformative. Such an approach can help a company more fully interrogate its value creation strategy by treating sustainability less as a box-ticking reporting exercise, and instead embedding it in the fibre of the organisation through a process of integrated thinking.
Looking ahead
As the world and its markets continue to reel from the impact of COVID-19, much of the economic discussion has focused on the idea that we must take the opportunity to emerge from the pandemic stronger and more resilient by ‘building back better’. This perspective has only accelerated the focus on ESG considerations among businesses, investors, regulators and beyond.
In this ‘next normal’, sustainability performance and reporting are likely to become increasingly relevant to the accounting profession – and, indeed, the profession must continue to evolve alongside the markets and the world that it aims to serve. In corporate reporting terms, a direct link is to the United Nation’s Sustainable Development Goals (SDGs), with the SDG Disclosure Recommendations potentially filling that gap. Accountants must continue to enhance their expertise and skills in measurement, control, reporting and assurance, to ensure they both contribute to and benefit from this emerging global system.
As the future of accounting – for sustainability and otherwise – continues to take shape, I invite Financial Reporting Faculty members to participate in SASB’s standard-setting process (visit sasb.org). With 10 active projects currently underway, SASB relies on a range of informed perspectives to ensure its work effectively addresses the needs of a diverse set of global market participants. By contributing their expertise to the ongoing evolution of essential infrastructure, accountants have the opportunity to better understand and perhaps even help illuminate the path towards more efficient, stable, and resilient global capital markets.
About the author
Paul Druckman is Chairman of the World Benchmarking Alliance and Board member at the Sustainability Accounting Standards Board Foundation. President, ICAEW, 2004/2005.
