Notes on Hans Hoogervorst’s recent speech “on what sustainability reporting can and cannot achieve.”

I have to admit I could hardly get past the speech’s astonishing opening icebreaker:

• First, I want to thank Professor Alan Jagolinzer of the Cambridge Judge Business School for organising this event. Alan has been an Academic Practice Fellow at the IASB, so we know him well. Alan is living proof that accountants are not necessarily boring people, because he started out as a pilot in the United States Air Force. As far as I know, he was never shot down and captured, so I guess that even makes him a bit of a hero! Surely, we need all the heroes we can get to tackle climate change.

On its own terms this would merely seem maladroit, but the presumably conscious Trumpian echo pushes it into the realms of the sinister. As The New York Times reported it in 2015:

• Mr. Trump upended a Republican presidential forum here, and the race more broadly, by saying of the Arizona senator and former prisoner of war: “He’s not a war hero. He’s a war hero because he was captured. I like people who weren’t captured.”
• Mr. McCain, a naval aviator, was shot down during the Vietnam War and held prisoner for more than five years in Hanoi, refusing early release even after being repeatedly beaten.  

Presumably the citation is meant to be in some way ironic, but that can hardly be determined from the printed text alone. Whatever was intended, Trump is a persistent enemy of (among much else) rationality, reflection and enlightenment – that is, of just about everything that IFRS might be hoped to represent. In my view, there’s no excuse for evoking him in such a context, other than to explicitly counter and oppose. Anyway, moving on, these are some of the speech’s main ensuing points:

• I do not think the IASB is equipped to enter the field of sustainability reporting directly.
• Having said that, sustainability issues can already have an impact that needs to be reflected in financial reporting as it currently is…(for instance) the carrying value of assets—such as property, plant and equipment and assets recognised in relation to mineral resources—could be overstated if the impact of climate-related risks is not properly taken into account.
• (Beyond that ) we believe the IASB has a role to play, namely through our efforts to improve what we like to call ‘broader financial reporting’.
• We have started working on a major overhaul of (the Management Commentary) Practice Statement. (Among other things) companies will have to tell how sustainability issues, including climate changes, may impact their business if that impact is material. The work of bodies such as (the Financial Stability Board’s Task Force on Climate-related Financial Disclosures) may well help them meet the requirements of a Management Commentary here.

He notes in his closing remarks:

• Since my early days as a climate-change sceptic, the issue of climate change has decidedly moved into mainstream politics. You may have noticed that even climate-change sceptics do not really deny climate change any more. There is simply too much evidence: they accept that climate change is real. Instead, they now deny that it is man-made. At least they know they have to adjust their pseudo-science in order to remain faintly credible.
• Climate change has moved to the forefront of people’s concerns and this will hopefully create more room for adequate public policies in the future. The more these policies start to bite, the more relevant sustainability reporting will become.

This seems like faint hope indeed, but I think in this respect Hoogervorst has it about right. He notes that “we should not have exaggerated expectations about sustainability reporting as an agent for change,” observing accurately that “full transparency did little to curb excess in corporate remuneration.” It’s common to say that what gets measured gets managed, but most of us can likely think of examples where a particular reported measure became increasingly disconnected from its original substantive purpose, and essentially useless as a meaningful indicator. Hoogervorst succinctly observes: “It is good that the G20 is promoting climate-related disclosure; it would be a thousand times better if they could agree on the introduction of a kerosene tax.”

But even a rampant optimist will likely conclude that such steps will only occur when climate degradation has gone well past the point of no return, and probably not even then. There are no easy answers here. Individual virtue (or, if you prefer, heroism), even that of individual corporations, is a puny thing set against mass apathy or hostility (especially as it’s usually only relative virtue at best – Hoogervorst cites how even the most progressively-minded of us love our air travel), but I suppose we must hope for a relentless incrementalism – both in transparency and in underlying action – that eventually leads to a breakthrough. We should acknowledge though that by its nature, the breakthrough will only be sufficient if it radically rewrites comfort, security and stability as we currently think of them…

The opinions expressed are solely those of the author