Pressures Mount Across the Board for ESG Reporting

A major international accounting firm calls for more education on ESG (environmental, social, governance) reporting…The World Business Council and Baker Mackenzie law firm call for more board oversight of sustainable management… Consortium of Canadian pension funds calls for more standardization of ESG disclosures…Two leading reporting organizations plan to merge disclosure standards efforts… Former Dow Chemical chairman and CEO urges CEOs to embrace Stakeholder Capitalism but believes it will take time.

The Association of International Certified Professional Accountants has announced plans to provide education and resources to assist accountants with reporting on environmental, social and governance (ESG) information. According to an article in CPA Practice Advisor, Sue Coffey, CPA, and executive vice president of the association, says, “These efforts reflect and further advance public accountants’ (CPAs’) and management accountants’ (CGMAs’) decades of work in helping organizations understand the value of ESG information to their businesses, and report on and communicate their commitment to the priorities, values and concerns of their growing and increasingly diversified stakeholders…This year, we have seen the COVID-19 pandemic and tremendous environmental and social risks greatly impact our communities. These factors, coupled with stakeholder demand, are driving more organizations to report reliable and accurate ESG information that extends beyond financial information. She adds, “CPAs and CGMAs (Chartered Global Management Accountants) are uniquely qualified to help organizations increase stakeholder trust and confidence, improve decision making and lower the cost of capital. The association is committed to providing educational resources and practical tools for professionals working on behalf of corporations and robust authoritative guidance for those who play an independent role providing auditing and assurance services.”

A recent report by the World Business Council for Sustainable Development and Baker Mackenzie law firm urges board directors to address sustainability asks: “So, why does sustainability matter for directors?” “As an overarching reason, because directors owe fiduciary and other duties to act in the company’s best interests, by implication the company’s long-term sustainable success. Some other considerations are because: 1. There is increasing regulation that requires companies and directors to take sustainability issues into account in their business operations, decision-making and reporting, respectively. 2. There is a risk of litigation should directors fall short in the duties they owe the companies they oversee or should the company breach regulation or incorrectly report what it is or isn’t doing. 3. There is the risk of damage to reputation if a company falls short of what the public expects, via the court of public opinion (the so-called ‘clicktivists’), which can be active both externally (for example, potential future employees, customers, suppliers, communities) and internally (the workforce). 4. Important stakeholders, such as customers and employees, are increasingly focused on sustainability issues.

Canada's eight biggest pension funds have joined forces to support improved corporate sustainability reporting. In a recent collective announcement, they recommend more standardization in the way companies and their investment partners report environmental, social and governance (ESG) data in a standardized way. According to a report on KFGO radio, CEOs of the top pension funds, which manage $1.2 trillion US in assets, have joined forces in their quest for increased transparency based on the power of numbers. "How companies identify and address issues such as diversity and inclusion, human capital, board effectiveness and climate change can significantly contribute to value creation or erosion," reads the statement released by Ontario Teachers' Pension Plan, Canada Pension Plan Investment Board and the Public Sector Pension (PSP) Investment Board and others. “They asked companies to use the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures framework to further standardize ESG-related reporting….For us to achieve the objectives of disclosure, we have a louder voice banding together, and it's the first time we've done that," PSP Investments' CEO Neil Cunningham says in a statement to Reuters.

With the goal of enhancing standardization of ESG disclosures, the International Integrated Reporting Council (IRRC) and the Sustainability Accounting Standards Board (SASB) have announced their intention in 2021 to merge into a single organization to be called the Value Reporting Foundation. Reports Accounting Today, “The unified group will give investors and corporations a comprehensive corporate reporting framework across the enterprise with standards aimed at improving global sustainability performance. The two groups have worked together since 2014 as part of a group known as the Corporate Reporting Dialogue that was established by the IIRC. According to the article, “They and other sustainability standard-setters have come under increasing pressure from financial regulators around the world to harmonize their sometimes conflicting sets of standards and frameworks for environmental, social and governance, or ESG, reporting. Five of them agreed in September to work on better aligning their standards. The International Financial Reporting Standards Foundation, which oversees the International Accounting Standards Board, is weighing a proposal from the International Federation of Accountants to assume an official role in setting up and overseeing an International Sustainability Standards Board.

Former Chairman and Chief Executive Officer of The Dow Chemical Company, Andrew N. Liveris, believes it will take time for CEOs to embrace Stakeholder Capitalism. He tells Alan Murray CEO, Fortune USA, in a recent interview in Greece, "CEOs and corporate boards understand that they must now secure an 'operating license' from all stakeholders in order to make a profit in the long term.” On the other hand, he adds, "We have a long way to go until Stakeholder Capitalism is integrated into the thinking and reactions of all corporate leaders."

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