CFA Institute Supports Intent of Sustainability Standard Setters to Work Together
We were pleased to see the summary of alignment discussions among leading sustainability and integrated reporting organizations—SASB, GRI, IIRC, CDSB and CDP—published late last week in the Statement of Intent to Work Together Towards Comprehensive Corporate Reporting (“Statement of Intent”). As we noted in our comment letter to Accountancy Europe’s paper, Interconnected Standard Setting Corporate Reporting, CFA Institute has long supported efforts to achieve global accounting standards, and we support the proposal to do the same for sustainability standards. As we noted there:
As an organization comprised of global investment professionals, we have consistently supported high-quality global financial reporting standards. We supported the convergence of IFRS and US GAAP because we believed, and still believe, that a single common high-quality language for interpreting financial results is beneficial to investors. While companies report based upon their country of domicile, investors seek investment opportunities globally and a common language makes comparison, the life blood of investment analysis, much easier. In today’s world, investors must be multi-lingual while companies are singularly lingual reporting their results based upon accounting and reporting standards in their domiciliary or listed jurisdiction. Capital increasingly crosses borders and artificial constructs such as accounting or reporting by jurisdiction make the investing process more challenging.).
Our view on the need for consistency and uniformity of information described in the report as “non-financial information” is no different. A solution that results in greater global convergence around such disclosures would be optimal for investors.
The time has come for regulators and other stakeholders globally to recognize the importance of consistent global standards as it relates to sustainability disclosures. A common language that enables investors to distinguish between financial value–relevant and values-relevant disclosures is important in serving the needs of ultimate investors and professional investors who work on their behalf to ensure their investment objectives are met.
In our aforementioned Accountancy Europe letter, we highlighted the importance of considering whom disclosures are prepared for (the audience), the objectives of the disclosures, and their location. As we have observed the current dialogue on ESG and sustainability disclosures, we believe there may be an attempt to meet the information needs of many stakeholders who have many different objectives through disclosure regimes meant to serve investors—not all stakeholders. Further, we note the conflation of objectives (financial value vs. values) at times, and we perceive there is less recognition that such information and metrics should be measurable and quantifiable into value creation for investors. As we expressed in that letter, we believe it is important to be clear on what investors need and what is material to their investment decision-making process, and then to consider separately the information needs of other stakeholders (i.e., including investors who invest based upon values over value). That is not to say that stakeholders other than investors—or investors who invest based upon values alone—don’t have valid information desires or needs, nor is it too say that the objectives are mutually exclusive; it is just to say that the discipline in thinking through and discerning the difference is essential to enhancing an understanding of all stakeholders and the adoption of standards in jurisdictions globally.
In our view, this Statement of Intent recognizes the need to work together to reach a globally converged solution and to make this important distinction on disclosures related to enterprise value creation and sustainable development. While there is much to do to reach common, well-understood definitions of material enterprise value creation, sustainable development, their interrelation, and materiality in the pursuit of the underlying disclosures, this Statement of Intent is an important step forward in facilitating this discussion and advancing a common understanding and vision. We look forward to the IFRS Foundation’s consultation on its engagement in the sustainability standard-setting process.
CFA Institute stands ready to support such a process and to engage our investor members in this important undertaking, and we laud the organizations’ efforts in advancing this discussion.
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