Sustainability reporting bodies react as accounting chief Hoogervorst stirs the ESG ‘alphabet soup’

Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB), has suggested that a merger of sustainability standards setting bodies could be a way forward worth exploring for the future of corporate reporting.

Hoogersvorst floated the idea back in May, at a meeting of the Corporate Reporting Dialogue, a group that convenes the main financial and non-financial reporting players (see participants below).

The meeting was held under “Chatham House rules”, but Hoogervorst recently reiterated his remarks for a video interview with Deloitte UK.

He said: “I strongly recommended them that it would be very good if some of these groups, some of the standards setters, could merge and create a less chaotic world for the companies, for the preparers, because there are simply too many standards around and a tremendous potential for disclosure overload, which is already a problem for IFRS [International Financial Reporting Standards]. ”

The IASB has ruled out setting sustainability standards, mainly because they say they are not equipped to do so and because it would be a distraction from its current focus.

The furthest the IASB intends to go is to update the guidance for management commentary, the narrative reporting that provides additional context to understand companies’ financial statements.

Guidance on the management commentary practice statement, as it is technically known, will consider the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD). The exposure draft of the project, and a subsequent consultation, is not expected until the second half of 2020.

“That’s too late, too slow,” Mardi McBrien, the Managing Director of the Climate Disclosure Standards Board (CDSB), the consortium of business and environmental NGOs, told RI.

“Many organisations have had to set up to help meet the emerging needs of ESG information. Many of us, particularly the CDSB, only exist in the absence of IASB doing something on this issue [climate-related disclosures].”

McBrien added that the CDSB has already written a framework which is aligned completely with the IASB work and “they are welcome to take it”.

Ian Mackintosh, Chair of the CRD and a former IASB Vice-Chairman, said that from the stakeholder meeting in May there emerged a “fairly widely view that something needs to be done”.

“What people are asking for is one framework and one set of metrics, so they can get comparability and everybody knows what to do. The merger of existing ones is one way it could happen, but not necessarily the only one,” he said.

Mackintosh said another way is to continue with the existing frameworks and explain how they fit together. Such is the goal of the ongoing the Better Alignment Project launched in November 2018.

The first step of the project involved Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) the CDP and the CDSB mapping their frameworks against the recommendations of the TCFD.

The first report will be published on September 23, during the Climate Week in New York.

Asked about a potential merger, Tony Rooke, Global Technical Director at CDP [the former Carbon Disclosure Project], said it would be something to be explored on a bilateral basis between standards setters and reporting frameworks.“It may not make sense for all of them to come together under one roof. We all function in different parts of the value chain.”

Tim Mohin, CEO of the GRI, told RI that claims of a crowded reporting landscape are “highly misleading”.

“The reality is that there are very few organisations who provide international and independent disclosure standards. While some companies offer ESG ranking or analytical and commercial services, these should not be confused with standard setting,” he said.

SASB was not available for comment at the time of writing.

“The IASB should either take on the challenge or not, but don’t fault the existing standards setters for not doing their work” — Jean Rogers

But its founder and former CEO, Jean Rogers, told RI that a “mash-up” is an “impractical fantasy” that will not work due to “product-market fit” issues.

“The IASB should understand product-market fit more than anyone having spent more than a decade in talks with FASB [the Financial Accounting Standards Board, the US body] on convergence with virtually nothing to show for it.”

Rogers said that, “ironically”, the model for a global approach to sustainability standards is the IASB model.

She said this is because there is not one IFRS but basic standards which are tailored, adapted and translated for the 166 jurisdictions and distinct markets that use them. Then the IASB approves that they still meet the intent and spirit of IFRS principles.

She added: “It is not inconceivable at all to think that the early efforts of the existing sustainability standards organisations could be absorbed and replaced by a global organisation, serving 166 jurisdictions, that is fit for purpose. That said, I still think the US will want its own, ostensibly because securities law is more rigid in what it will allow.”

“The IASB should either take on the challenge or not, but don’t fault the existing standards setters for not doing their work,” Rogers said.

RI understands that there were European stakeholders at the May meeting who insisted on a more Europe-centric approach of standard setting, avoiding ‘the IFRS mistake’, a reference to the adoption of the IASB rules by the EU bloc in 2002.

European stakeholders argued that a London-based private company (the IFRS Foundation, the IASB governing body) should not be setting the rules for the rest.

Feeding into this is an influential recent study by Patrick de Cambourg, President of French standard-setter Autorité des Normes Comptables.

Commissioned by the French Ministry of Economy and Finance, it suggests a more EU-led approach to non-financial and sustainability reporting.

Corporate Reporting Dialogue Members and Observers
CDP: formerly the Carbon Disclosure Project
CDSB: Climate Disclosure Standards Board
FASB: Financial Accounting Standards Board (“observer” participant)
GRI: Global Reporting Initiative
IASB: International Accounting Standards Board
IIRC: International Integrated Reporting Council
ISO: International Organization for Standardization
SASB: Sustainability Accounting Standards Board