A response to Carol Adams from CDSB’s Mardi McBrien

We must diagnose the problems with corporate reporting realistically, argues Mardi McBrien

“We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it and make important choices wisely” – EO Wilson

Carol’s plea for reporting and other systems that align with the SDGs is admirable. I share her convictions, some of her frustrations and all of her desire for change. However, the route to achieving what she wants is not to dissect the limitations of current offerings – that just delegitimates any discourse about how to proceed. The answer is to break free and break out of locked-in practice, and design the systems and processes we want for the future we want. 

This is not a new idea. My inspiration comes from Complexity: The Emerging Science at the Edge of Order and Chaos by M Waldrop. Despite its daunting title, the book is actually a page turner full of super vivid and quirky characters exploring new ways of understanding economics but being hampered by ‘lock-In’. There are many stories in the book about how enforced tunnel vision becomes so instinctive that people don’t even notice it anymore. We must not have tunnel vision that the offerings of the incumbents in any system – including corporate reporting – have the answers we seek. We need to think with, but beyond now, to design full scale structural change.

Can we turn our attention to negotiation and interpretation now, please, and break free of the locked-in debate about reporting standards?

Whatever your views on corporate reporting, it has not caused a crisis yet. Even where there is crisis, lock-in limits our capacity for structural change. In Capitalism and its Legitimacy in Times of Crisis the authors examine why “the publicly perceived incapacity of today’s capitalism [after the crisis] to even meet classical expectations such as guaranteeing economic stability” did not lead to a paradigmatic shift in economic ideas and regime change. The authors attribute this (amongst other things) to the absence of collectively agreed ideas that could convince others to question the value of the current economic regime and to demand a substantial change. For success, the ideas would have to provide convincing diagnostic, prognostic and motivational frames that outlined things that should be done to solve the diagnosed problem and provide rationale for mobilization. 

So, my simple suggestion is to diagnose the problems with corporate reporting realistically. We cannot assume that personal behaviour can be corrected, wild animals tamed, malfunctioning machines repaired, diseases cured and corporate reporting solved with existing systems alone. As long as we think that, there is no case for a Great Transformation, as the authors call it. We have to make sure that we are not merely adjusting better to a sick world, and that we are moving beyond incremental change. To be fair to the Group of Five, they clearly say that their work is only intended as a contribution to the IFRS Trustees’ proposed development of sustainability reporting standards. They are, by definition, catering to a limited audience for a limited purpose. However, if we want the system to which Carol refers, we cannot focus on a limited range of actors and factors in the way that the post-crash economic systems critique was “too focused on economic actors and specific varieties of the capitalist market economy while the capitalist market economy as a whole fades into the background”.

In designing an approach that is aligned with the sustainable development agenda, I am not suggesting that we forget everything we have done and learnt to date. Just that we critique its contribution to the future we want. We need to provide access points or bridges to connect existing ideas with the transformed world that we clearly and collectively articulate. However, ownership and origination of those ideas is unimportant and irrelevant to the design. Existing ideas are to be critiqued against the requirements of the new system regardless of their owner or origin.  

This is why I prefer to devote resources to the new design rather than to the merits or limitations in the tunnel of existing activities. The new design must emerge from negotiation where initially discordant voices are harmonised into a symphony of agreement. It is a symphony that must keep playing – by definition it has no end – it does not need to be “interoperable” (suggesting combinations of separate parts) – it needs to operate as ONE self-reinforcing system.

Negotiation happens via words. Carol’s article highlights the importance of negotiating shared views on the meaning of words. In Waldrop’s book, two scientists use opposite words to explain the same thing. One talked about “order” because he started from the messy, contingent world of Darwin in which there are no laws. The other used “messiness” because he started from the abstract world of economic equilibrium in which the laws of the market are supposed to determine everything as precisely as the laws of physics. Carol contends that “risk management by the organisation for the organisation is not a sufficient focus, particularly when considering broader sustainable development issues….the term ‘management approach’ is widely understood and appropriately broader.” My understanding is that the combination of strategy and risk management disclosures should cover the risk management approach she seeks, but that is the sort of thing we should negotiate.

Finally, whatever appears in corporate reports, whatever of the origin and ownership of the principles and content elements according to which it has been prepared and the assurance process it has been through (or not), the reader will apply a level of interpretation to it. I maintain that the Reporting Exchange and other platforms/activities that have examined the reporting provisions in the public domain tell us everything we need to know about the type of information that is currently requested (and reported to varying degrees). Now we need to turn our attention to how it is to be interpreted in the new system we design. In simple terms, does the information allow the reader to interpret whether the reporting company is (a) profitable, (b) resilient and (c) contributing to sustainable development?  The interpretation depends on information types, including about the context in which companies operate, in combination. 

Can we turn our attention to negotiation and interpretation now, please, and break free of the locked-in debate about reporting standards? We will unlock that debate when we backcast from the new system design to the information and interpretations needed to serve it.

Mardi McBrien is the Managing Director of the Climate Disclosure Standards Board