On the current exposure drafts on sustainability- and climate-related disclosures – how good would be good enough?
I don’t suppose anyone, including its drafters, thinks the exposure drafts are perfect. Many respondents, based on my unscientific scan of comment letters to date, would likely allow that they’re good (albeit that may mainly be defined as “better than nothing”). Some wouldn’t go that far. This is from Thomas & McElroy LLC:
- It lacks a conceptual framework such as capital maintenance and the measurement of progression towards a desired future state. It fails to offer an integrative concept to allow impacts on multiple capitals to be brought into a single meaningful framework for each context…
- Moreover, the…insistence upon only financial stakeholders being Users ignores the other valid stakeholders on whom impacts are vital considerations in sustainability performance measurement.
- Without a conceptual framework and in the absence of any context-based sustainability performance norms, how can any report preparers, auditors or regulators ensure that the reporting is meaningful in the context of the entity? Compliance with proposals that lack meaning cannot result in meaningful compliance. Pretending that this represents “sustainability-related financial information that is useful” is a gross misrepresentation….
- The…proposals may be capable of implementation in any jurisdiction, but they will universally fail to enable businesses or other institutions to move towards becoming sustainable…
- It would be hugely comedic were it not for the fact that this is a missed opportunity to get to grips with externalities, climate crisis, scarce global resources, depleted social capitals and limitless ambitions for economic value extraction. The accounting profession could now be the saviour of the world. But instead, IFRS seems more concerned with preserving incrementalism, financial primacy, and its own ascendant position in the field.
Thomas & McElroy have a dog in the fight, as the saying goes – the letter highlights their book The MultiCapital Scorecard “which includes economic performance and triple bottom line progression designed for managing multinational and multi-divisional entities.” But on this occasion, we’re all backing some kind of dog. Of course, it’s literally true that “as it stands, the exposure draft has nothing that counts as accounting for sustainability.” The exposure drafts to date aren’t about that, and they’re only about sustainability performance measurement in a broad, narrative sense (it’s also true that sustainability performance measurement would require standard setting, “not incrementalism”). Does that disqualify them as a useful first step? I go back and forth on that in my own mind. The Martello Advisory, an organization that “works with the boards, CEOS and CFOS to understand the ESG transition and make the required changes to protect their business, access to capital and future valuation,” assesses the drafts as “an excellent blueprint and direction of travel,” and pronounces itself “very supportive of the high-level concept of forward-looking measurement of opportunities and risks.” It sets out plenty of areas for improvement though, including that “the conceptual framing appeared a little unclear and somewhat confused, “at times it felt the stated objectives were lost, it was unclear as to what information should be disclosed, leaving the onus on the entity to make a choice,” and “lack of clarity on definitions may lead to misuse or interpretation within the capital markets context, therefore increase the risk of abuse” (Martello detects continuing possibilities for “greenwashing,” which we’ve noted in the past).
Could the accounting profession possibly indeed be the saviour of the world? Whenever I try to write in optimistic terms about this area, it always ends up getting away from me, mostly because I think any improvement in corporate behaviour will be swamped by governmental inaction and broader social trends. The New York Times recently reported on a “a coordinated, multiyear strategy by Republican attorneys general, conservative legal activists and their funders, several with ties to the oil and coal industries, to use the judicial system to rewrite environmental law, weakening the executive branch’s ability to tackle global warming.” As I’ve noted before, in a pending Republican-controlled, democracy-in-name-only US, a rejection of progressive ESG reporting initiatives, or restrictions on drilling, or imposed efficiency standards, will likely be spun as an impassioned defense of freedom in the face of amassing “socialist” forces: the greater the evidence of why change is necessary, the greater the virtue in resisting it. We see evidence on a daily basis of how here-and-now economic demands and anxieties – attaching to gasoline prices, food, and so on – completely swamp any longer-term considerations. Other countries may do a bit better, but not by enough to offset such calculated malignity by the supposed “leader of the free world”.
Against that miserable backdrop, it’s debatable whether the limits of the current exposure drafts represent any real “missed opportunity.” Still, given the stakes, the ISSB must surely respond to such criticisms in the committed spirit in which they’re offered….
The opinions expressed are solely those of the author