By Tamara O’Brien, TMIL’s roving reporter
Ed’s note: the discussion was particularly rich so do watch the video if you’re interested in the ins-and-outs of what’s going on!
Today’s webinar coincided with local elections across the UK. And for the first time in decades of voting, I spoilt my ballot paper. Accidentally of course. But why? My inherent absent-mindedness (let’s call it artistic temperament) is definitely a factor; exacerbated by dashing out between zooms, the polling station being a bit chaotic, and the fact that I’d forgotten my specs. Plus, after so many months of lockdown, a slight fogginess when doing anything in public.
However, I think the clue lies in how I spoilt the paper. I whizzed out to vote after today’s webinar, my mind still buzzing with different approaches to environmental, social and governance (ESG) reporting standards. And halfway home, I realised that I’d… ticked the boxes. And as we all know, anything other than an X invalidates the vote. (1)
Box-ticking! Bane of good reporting and responsible citizens alike. And its unintended impact on the process of democracy would doubtless raise the ire of Trust me, I’m listed author (and my good friend and Falcon Windsor colleague), Claire Bodanis. Claire famously states in every TMIL webinar that she believes good corporate reporting to be crucial to the healthy functioning of a capitalist democracy. How you arrive at ‘good’, in ESG terms, was the theme of today’s webinar.
The sniff test
In introducing the session, Claire gave us some fun facts:
ESG funds have attracted more than $340 billion in the last few years – almost twice as much as the rest of the stock fund universe combined.
The Financial Times recently said that investors ‘are in a frenzied game of one-upmanship’ to prove how seriously they take ESG.
Job done, then? Not quite. In reality, a lot of the company funds badged ‘ESG’ do not, as Claire put it, pass the sniff test. You can game tick-box disclosure to pass the scrutiny of machine-readers looking for key wording, and only the truly dedicated human report-reader will sniff it out. This will continue to happen as long there’s no generally accepted set of standards of what ‘good ESG’ looks like. That’s what today’s panellists are working towards.
The ESG regulatory state of play
Professor Robert Eccles of Oxford University’s Saïd Business School, and founding chair of the Sustainability Accounting Standards Board (SASB), knows rather more about integrated reporting and how companies and investors can create sustainable strategies than most other people put together. Veronica Poole, partner and head of corporate reporting at Deloitte, who has had roles on advisory bodies of a host of reporting organisations, and has been facilitating co-operation between five international standard-setting institutions – who have committed to working towards a comprehensive, global system of ESG reporting.
The five ESG framework- and standard-setting bodies
CDP: Carbon Disclosure Project
CDSB: Climate Disclosure Standards Board
GRI: Global Reporting Initiative
IIRC: International Integrated Reporting Council
SASB: Sustainability Accounting Standards Board
(These last two soon to form the Value Reporting Foundation)
Veronica made the point that high-quality ESG reporting is essential to creating the balanced, post-Covid society we all want. More prosaically, it requires standard-setters and regulators to create a reporting infrastructure that can lead to high quality, decision- grade information for investors.
I must admit that Veronica’s story of how the group of five got to where it is now – its Statement of Intent to work together to create a consistent set of standards – passed over my head in a blur of acronyms, consultations and agreements. The important thing is, we’re getting close to a global solution for investors – led by the IFRS Foundation, the parent of international financial reporting standards, with the planned launch of its International Sustainability Standards Board (ISSB).
Corporates: make your voices heard!
Back to the webinar, and Robert commented that investors are totally on board with global ESG standards; they overwhelmingly want to be able to compare stocks from companies all over the world. But he believes that corporates, especially in the US, aren’t always keen on anything that could be considered a regulatory burden.
Both he and Veronica, along with the rest of the reporting standards fraternity, are banging the drum for the IFRS Foundation’s march towards global sustainability standards, and urging the business community to get involved in shaping how this information flows between them and their investors.
A flavour of the Q&A
Q: Realistically – will a global set of standards happen?
RE: The US will probably implement SSB standards with a light touch – we support these standards, and we encourage companies to adopt them.
VP: It takes a lot of players to make it happen but I think it will! It’s not about having the same regulatory approach around the world, but creating a common global baseline. Competitive and supply chain forces will also be important drivers in this – a company demanding the same data from suppliers worldwide is a powerful motivator for them to disclose it. But we can and must create a common global baseline of the reported ESG information to avoid the kind of fragmented reporting landscape that hinders humanity’s progress towards sustainability goals.
Q: Do we risk patting ourselves on the back for creating standards, without creating the changes in society and business that we need?
RE: I agree, we shouldn’t let the perfect be the enemy of the good. To cut to the end here – I think we ultimately need to change from a shareholder-centric corporate model. There are directors’ duties such as section 172 in the UK and other work is moving us towards ‘purposeful business’, including the idea of the ‘public benefit corporation’ in the US. Global ESG standards are a way we can build on these.
Q: Do you share a concern that the drive towards sustainability standards may divert companies from their adherence to the UN’s Sustainable Development Goals?
VP: ESG standards are the first part of the sustainability conversation. The second, more difficult part is how we measure a company’s impacts on the planet and society at large, and we don’t have a consistent way to do this yet. We must recognise that capital markets and investors can rightly claim they need ESG information, because they’re acting in the public interest: our pensions, investments and savings rely on their efficiency in allocating capital to sustainable and resilient businesses. So no, I don’t see ESG standards as a distraction from the SDGs. They’re complementary, taking us a significant step forward – a step we need and are ready to make before we can begin to measure impacts more holistically.
Parting message – get involved and make the standards work for business
The new standards are not a done deal! In April 2021 the IFRS Foundation published a consultation ‘Proposed Targeted Amendments to the IFRS Foundation Constitution to Accommodate an International Sustainability Standards Board to Set IFRS Sustainability Standards’. If you want IFRS Foundation global sustainability standards to work for business, get involved and send in a response. Raise it with the International Chamber of Commerce, all the industry associations and roundtables that your company is a member of, and mobilise a statement from your own company as well. You can find the consultation here.