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Edging ever closer to a holistic, robust corporate reporting system

Posted 20 October, 2020

There has been real movement over the last six months to drive a new, cohesive, holistic reporting system that responds to market needs.

The IIRC’s focus is on ensuring the principles of integrated thinking and reporting are embedded into a comprehensive and international system that can drive the most robust and effective reporting possible.

We are working closely with all of the major players in this space to drive this ambition and believe that there is now a real opportunity for this to be realised, with cooperation and collaboration growing quickly on all sides.

This article shares some of the latest initiatives and thinking in this space and the role of the International Integrated Reporting Council within each.

Statement of Intent to Work Together Towards Comprehensive Corporate Reporting

The IIRC has joined forces with CDP, CDSB, GRI and SASB to provide a shared vision for a comprehensive, globally accepted, corporate reporting system that includes both financial accounting and sustainability disclosure, connected via integrated reporting. It is a shared vision of the elements necessary for more comprehensive corporate reporting and a joint statement of intent to drive towards this goal by working together.

Next month, the same group of organisations will publish a further report that shows how the frameworks and standards can be used together, along with a tangible example of how the proposed architecture can be applied to climate, by integrating the content of the standards and frameworks along with the elements set out by the Task Force on Climate-related Financial Disclosures (TCFD).

IFRS Trustees consultation

The Trustees of the International Financial Reporting Standards Foundation (IFRS) have published a consultation paper to assess demand for global sustainability standards and, if demand is strong, assess whether and to what extent it might contribute to the development of such a standard.

The IIRC believes IFRS Trustees have a crucial role to play in delivering internationally accepted institutional arrangements for sustainability disclosures relevant for the capital markets, ensuring robust governance, rigorous due process and independent standard-setting.

The IFRS Trustees and the IIRC have worked closely over many years to promote global harmonization and clarity of corporate reporting frameworks, standards and requirements in ways that drive coherence, consistency and comparability, signing a memorandum of understanding to that effect back in 2013.

European Commission

Earlier this year, the European Commission gave the European Financial Reporting Advisory Group (EFRAG) the mandate to undertake preparatory work for possible EU non-financial reporting standards.

The European Commission has, over many years, demonstrated real leadership in driving effective reporting across the value creation chain and this step is yet another signal of how seriously they are taking the need for sustainable finance solutions.

EFRAG has indicated its intent to work closely with existing framework and standard setters to develop its thinking. The IIRC has welcomed this, outlining three key recommendations:

  1. The need to drive connectivity of information to ensure sustainable development issues are mainstream factors within decision-making and resource allocation
  2. Reduce the reporting burden on companies by building on the widespread voluntary adoption of existing reporting frameworks and standards, such as the International <IR> Framework
  3. Demonstrate clear linkages between all information that impacts on value creation over time, reducing the need to distinguish between financial and non-financial information which can be misleading.

IOSCO Task Force on Sustainable Finance

Erik Thedéen, Chair of the International Organization of Securities Commissions (IOSCO) Task Force on Sustainable Finance made a speech setting out the important role IOSCO can play in driving reliable disclosure, reducing green-washing, and managing key risks. Mr Thedéen stated that IOSCO would engage in the work the IIRC is undertaking with CDP, CDSB, GRI and SASB to create an effective system for reporting in order to ‘safeguard the public interest in any future framework for ESG disclosure’. He stated that he expects this work to come together with the work of the IFRS Trustees and that, “taken together, these steps may lead to the foundation of a structure that can deliver a more coherent and comprehensive corporate reporting system.”

This intervention follows an open letter written to Erik Thedéen, building on the statement of intent, setting out how IOSCO can play a leading and critical role in accelerating system change by facilitating cooperation.

International Federation of Accountants

As the global voice of the accountancy profession, IFAC has called for the creation of a new sustainability standards board that would exist alongside the International Accounting Standards Board under the IFRS Foundation. The potential creation of this board is part of the consultation proposals put forward by the IFRS Trustees.

This new board, IFAC believes, should adopt a building-blocks approach, working with and leveraging the expertise and disclosure requirements of CDP, CDSB, GRI, IIRC and SASB. It continues, “Financial and non-financial information should be connected through a conceptual framework. Integrated reporting principles and the work of the TCFD should serve as a starting point.”

World Economic Forum and the Big Four

The World Economic Forum, in partnership with Deloitte, EY, KPMG and PwC published a report entitled ‘Towards Common Metrics and Consistent Reporting of Sustainable Value Creation’.

The IIRC welcomed the report as an important piece of thought leadership for identifying metrics that can support effective-long term sustainable value creation.

The authors of the report were clear that its contents are ‘fundamentally complementary’ with the joint statement issued by the IIRC and others.

The report set out the importance of metrics that can be integrated into governance, business strategy and performance management, consistent with the International <IR> Framework.