It’s early days, but “INFRS” could be sustainability reporting twin of accounting’s IFRS

Accounting chiefs start to talk of ‘International Non-financial Reporting Standards’

The idea of working on a set of ‘International Non-financial Reporting Standards’ or “IN-FRS” has been floated at a KPMG event and discussed with Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB).

At the global meeting of KPMG technical partners held in the Netherlands earlier this month, where Hoogervorst was a panelist, the issue of what role can the IASB play in sustainability reporting was again discussed, this time under the brand of INFRS.

The notion of creating another standards board under the umbrella of the IFRS Foundation, the governing body of the IASB, that sets INFRS alongside the IASB, was debated at the KPMG meeting.

“Hans didn’t dismiss that, he knows people are asking for it,” Mark Vaessen, a KPMG partner who attended the event, told RI.

“There is merit in looking at it. The IFRS Foundation as an organisation is trusted by investors and has a track record in setting global standards. Therefore, it is a natural place to look at,” Vaessen said.

Hoogervorst’s position on the IASB potentially taking a IASB role in sustainability standard-setting has evolved in the last few years, from outright reluctance at first to the current stance of listening to what stakeholders may suggest.

For the time being, the furthest the IASB plans to go is to update the Management Commentary Statement Practice, the narrative reporting that provides additional context to understand companies’ financial statements.

This summer, however, Hoogervorst suggested that a merger of sustainability standards- setting bodies could be the next step to explore the future of corporate reporting.

Among those bodies are the participants in the Corporate Reporting Dialogue, which at the Climate Week NYC published an update of their Better Alignment Project.The update focused on the convergence between their respective frameworks and the recommendations of the Task Force on Climate-related Financial Disclosures.

It is not clear when and who coined the term ‘INFRS’ but an early use of the term as an overarching synonym for sustainability reporting standards can be found in remarks made by Feike Sijbesma, CEO of DSM, the Dutch manufacturing group.

In September, at a conference hosted by DUFAS (the Dutch association of asset managers), Sijbesma said that investors are struggling to understand how to measure the impact of sustainability.

“We participate in about 20 metrics but there are around 600, each with its own approach. I would love there to be convergence and to have, say, an INFRS acknowledging non-financial parameters,” Sijbesma said.

Meanwhile, an academic paper co-authored by Wim Bartels, KPMG partner, has found that the IFRS framework does not sufficiently encourage energy companies to reflect on climate change in the valuation of their production.

The paper entitled, The Impact of Climate Change in the Valuation of Production Assets via the IFRS Framework, analysed two sets of energy companies: fossil fuel and renewable companies.

The paper found that the fossil companies analysed did not apply any impairment of assets because of reasons related to climate change.

However, renewable energy companies have “potential ‘hidden reserves’ … based upon future increased energy production…although the demand for renewable energy already increases rapidly, the accounting standards do no avail the impairment instrument …to renewable energy companies to reflect this.”