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A prototype climate disclosure standard with a flawed conceptual framework

Recent plans are not translatable to the sustainable development issues that companies, investors and governments truly face, argues Carol Adams

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At the end of 2020 various organisations jointly released a ‘prototype’ climate-related financial disclosure standard cobbled together in some haste from existing offerings. Whilst anyone familiar with Taskforce on Climate-related Financial Disclosures (TCFD), integrated reporting and the Global Reporting Initiative (GRI) Standards is likely to be favourably disposed to the proposed reporting requirements, the conceptual framework underpinning them is flawed. It is not translatable to the range of sustainable development issues that companies, their investors and national governments are concerned about. In stitching together bits of existing frameworks and standards, this prototype complicates, rather than simplifies.  And it brings in new jargon. 

The conceptual framework abandons the International Integrated Reporting Council’s focus on value creation for the organisation and society in favour of “enterprise value”, and talks about the “nested and dynamic nature of sustainability information”. Sustainability reporting and sustainability-related financial disclosure are explained as different types of reporting, whereby GRI’s multi-stakeholder process acts as a scout “uncover[ing] sustainability matters”. The purpose of GRI’s scouting isn’t clear because apparently the Sustainability Accounting Standards Board (SASB) “filters” these “sustainability matters” to “determine whether they are reasonably likely to be material to enterprise value”.  The new technical term for the relationship between these two types of reporting (sustainability reporting and sustainability-related financial disclosure) is “interoperability”.  Confused? Not surprising.

The prototype has nothing to do with sustainable development, a necessary condition for investors to earn long-term returns.  “Sustainability matters” are not, as you might reasonably expect, defined with reference to the UN Sustainable Development Goals (SDGs), but rather as “value drivers represented by the capitals in the <IR> Framework with the exception of financial capital”, while sustainability-related financial disclosures provide “details of the specific sustainability matters that have generated the financial impacts captured in the financial statements, as well as insight into how the future will unfold for the enterprise” (all achieved without the reporting organisation identifying their material sustainable development impacts).

The new technical term for the relationship between these two types of reporting (sustainability reporting and sustainability-related financial disclosure) is “interoperability”.  Confused? Not surprising.

Determining these “specific sustainability matters”, their financial impacts or how they affect enterprise value is subjective, and accountants could spend years trying to figure it out rather than focus on what really matters – the impact of organisations on sustainable development. The GRI’s press release on the prototype acknowledges this danger arguing that “a new corporate reporting regime is needed in which financial and sustainability reporting is given equal footing”.  It defines  sustainability reporting in terms of an organisation’s positive or negative contributions to sustainable development. The prototype does not provide this equal footing and takes reporters and their investors down rabbit holes, convoluted paths and ultimately to dead ends on a journey to enterprise value in the absence of sustainable development.  

This prototype suggests that the content elements for all sustainability-related financial disclosure standards should follow the four themes in the TCFD recommendations (governance, strategy, risk management and metrics and targets).  But these themes were considered inappropriate in the development of the SDG Disclosure Recommendations, which build on the TCFD recommendations, integrated reporting and GRI Standards to enhance contribution to the SDGs. Risk management by the organisation for the organisation is not a sufficient focus, particularly when considering broader sustainable development issues. The GRI’s term “management approach” is widely understood and appropriately broader.

The prototype then goes on to shoehorn disclosures into the International Accounting Standard Board’s conceptual framework for financial reporting with just a few tweaks to accommodate this spurious notion of ‘enterprise value’ to be achieved through sustainability-related financial disclosure. What nonsense!

This prototype falls short of cutting a line through the disparate standards and frameworks to address what is really needed as supported by ample independent scientific research.  It bears the logos of “the five” and was “facilitated by” the Impact Management Project, World Economic Forum and Deloitte. Of these organisations, GRI is in a minority in addressing the impact of organisations on sustainable development and the prototype is at odds with various statements by the GRI, UN bodies and others on what is needed. It reads as a fervent attempt to show the relevance of the International Integrated Reporting Framework and SASB standards (in particular) to the IASB’s Conceptual Framework for financial reporting, whilst leaving reporting on impact on the periphery. This approach will erode long term investor returns.

Inconsistent with its own conceptual framework, the prototype does include a requirement to disclose scope 1, 2 and 3 emissions. The supporting text appears to acknowledge the folly of the conceptual framework: “…universal asset owners may call for specific disclosures that may not influence an individual company’s enterprise value…, but in aggregate, create risk for an overall investment portfolio.”  I agree! If we don’t achieve sustainable development, investors won’t make long term returns. So let’s focus on contribution to the SDGs and protect the well-being of future generations and the planet at the same time. The UNDP’s SDG Impact Standards, the SDG Disclosure Recommendations and the GRI Standards are designed to help.


Carol Adams is Professor of Accounting at Durham University Business School and technical expert to the UNDP’s SDG Impact Team. The views expressed here are her own.

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