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Sustainability reporting: Some insights

“Sustainability” terminology may be interpreted or used differently by stakeholders. The term ‘sustainability’ is broadly understood to refer to information related to environmental, social, or governance (ESG) matters (be they related to reporting on investor focused sustainability information material to enterprise value and the effective functioning of global capital markets or multi-stakeholder focused sustainability reporting that captures impacts of a reporting entity on economy, environment and people) and, therefore, is consistent with the public expectations for the work of this board.”

Kevin Dancey, CEO, International Federation of Accountants

SUSTAINABILITY has become a basic expectation of organizations and is related to stewardship and governance.

Sustainable funds have been set up and are attracting capital at a rapid pace. It was reported that in the United States, such funds reached $1 billion in 2020 accounting for twice the amount in the preceding year and approximating more than 10 times than in 2018’s value.

Investors in their capital allocation consider sustainability through what may be called as ESG lens, i.e., environmental, social and governance information. The information is subjected to analyses that engagements of independent professionals and/or firms are resorted to objectively report on the entities’ ESG compliance.

Some concerns on sustainability reporting

1. Data. The lack of reliable and comparable ESG data is a key challenge to create a level playing field in the ESG “marketplace.”

Technology is adopted to facilitate massive volume of data processing to track and analyze them. The use of technology in sustainability reporting should take into account some basic things like the kind of data to be collected and tracked.

More importantly, the set and/or type of technology tools to use to collect, track and analyze the information should be determined. Data analytics software is one of those tools.

Timeliness of collection, tracking, analyzing and reporting is key to useful reports in support of decision-making.

2. Standard and Enforcement. In the absence of a common standard and enforcement mechanism, it can be challenging to measure the impact of certain ESG factors.

It is even harder to track and disclose metrics, especially in the case of some of the social factors that tend to be more qualitative in nature and less well-defined. Of significance is the fact that those who provide assurance on sustainability reports come from different disciplines.

International professional bodies like the International Ethics Standards Board for Accountants (IESBA) through a technical working group initiated looking at crafting such standard.

In developing standards, the following may be worth noting:

  • Comprehensiveness (to limit exceptions)
  • Coherence
  • Implementability
  • Clarity and conciseness
  • Scalability
  • Relevance

Consultations and/or dialogues with a broad range of stakeholder groups and exposure of drafts to solicit comments and/or views as well as close coordination with all concerned are imperatives in standards setting. Public interest is a prime consideration.

Indeed, the enormity of concerns renders standard setting for sustainability daunting. Things take time to evolve and so, standard setting.

With collective efforts from concerned sectors, it may be facilitated for the sake of objectivity and reliability in reporting with a basic expectation of high quality outcome.

Conchita L. Manabat is the president of the Development Center for Finance. A past president of FINEX and past Chair of the International Association of Financial Executives Institutes, she serves as the chairman of the IAFEI Advisory Council. She is a member of the consultative advisory groups of the International Auditing & Assurance Standards Board and the International Ethics Standards Board for Accountants

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