Social Value International has launched a Global Survey on Investors’ Expectations of Company Accounts 

The survey explores “whether information reported in company accounts reflects the expectations of those who use them.” It’s open to “anyone whose financial decisions or future income may be affected by how companies perform.”

As the news release puts it:

• Company accounts sit at the heart of capital markets, shaping how profit is measured, risk is assessed and capital is allocated across the global economy. Yet despite growing social and environmental pressures, investment decisions continue to be driven largely by financial information that fails to reflect the wider costs and impacts generated by business activity. While capital continues to flow in pursuit of profit, significant social and environmental externalities remain largely invisible within financial reporting.
• Accounting is rarely recognised as part of the solution to these systemic challenges, and yet it plays a central role in defining what is measured, valued and acted upon.
• The current basis for company accounts is to meet the needs of so-called ‘primary users’, whose assumed expectation is financial returns alone. However, investors may hold alternative or modulated expectations; for example, financial returns subject to specific conditions such as doing no harm, protecting the environment or contributing to social stability.
• There is research to evidence that many investors are interested in such conditions, as reflected in the rise of responsible and impact investing. This survey goes further, by examining the information that investors would like to see in company accounts themselves, rather than in separate sustainability or ESG disclosures. 

The release doesn’t address why the information in question, if we assume companies provide it somewhere, would be better located within the body of the financial statements rather than in a separate dedicated (although of course appropriately integrated and cross-referenced) report: ever-advancing search capacities should only make the core location of a given piece of information less relevant (if the point is to bring it within the scope of the audit report, the release doesn’t say so). Anyway, the survey asks “of the following, which, if any, should be included in company accounts to best help people make investment decisions?” It provides the following choices:

• Information on financial returns only (i.e. not accounting for many of the consequences to people and the environment).
• Information on financial returns after payments to compensate for harm done to people and the environment (i.e. financial returns calculated after accounting for any negative consequences to people or the environment).
• Information on financial returns after payments to compensate for both harm done and benefits created for people and the environment (i.e. financial returns after calculation of both net negative and positive consequences to people or the environment).
• Information on benefits created for people and the environment and compensation for harm done (i.e. positive and negative consequences to people and environment only, no financial returns).

Clearly though, the alternative models envisaged here differ so radically from the current one that it’s meaningless to winnow them down to a few lines in a multiple-choice question. The accompanying text specifies: “By “people” and “environmental” we mean the positive and negative consequences generated by a company’s activities, investments, and policies which may affect the wellbeing of people and the planet. Consequences for people can relate to diversity, equality, equity, inclusion, etc. Environmental consequences relate to the natural world, including areas such as climate change, air and water quality, etc.” But leaving aside items constituting legal obligations and meeting other recognition criteria, current practice doesn’t require placing a financial value on any of those items, and for most of them it seems highly unlikely it ever will (would there ever be a consensus that a company’s profit or loss should be reduced to reflect a value for the related negative consequences to diversity and inclusion?). It’s unclear then what the survey could hope to achieve, no matter how one-sided the results might be.

It also notes: “Currently, the Conceptual Framework for Financial Reporting defines a primary user of company accounts as “existing and potential investors, lenders and other creditors” and does not classify “government” as a primary user in the definition. Governments use company accounts for regulation, market fairness, economic policy and as the basis for corporation tax calculations.” It asks: “Do you think that “government” should be included as a “primary user” of company accounts in the IFRS Foundation’s Conceptual Framework for Financial Reporting, or not?” with answers ranging through definitely or probably yes or no. A positive response in this regard would presumably be considered as buttressing the argument for expanding the scope of what’s reported. However, as the IASB noted in developing the conceptual framework, such a change would likely raise myriad complications. For instance, governmental interests include a broad-based interest in maintaining financial stability, and “some may take the view that the best way to maintain financial stability is to require entities not to report, or to delay reporting, some changes in asset or liability values. That requirement would almost certainly result in depriving investors, lenders and other creditors of information that they need.” And that’s a fairly benign objection, considering the “interests” of certain types of government (you know, the toxic, destructive, irrational kind…)

The opinions expressed are solely those of the author.