If ever there was a time to conclude that the world cannot continue to function based on the primacy of financial reporting above all else, it is now.
Businesses have already been grappling with the very real risks and opportunities posed by climate change. And now, it appears inevitable that COVID19 will have a permanent impact on the way businesses think and communicate about human, social and manufactured capital as well.
These are challenges that will be applicable to every business, whatever its size and wherever it is located.
As chair of the Corporate Reporting Dialogue (CRD), whose participants include most of the world’s largest standard setters and framework providers for corporate reporting, I have been giving these matters considerable thought.
I now believe that the urgent formation of a global comprehensive and connected corporate reporting system is fundamental if we are to tackle these challenges face on.
Whilst it has always been acknowledged that there are challenges in enabling robust and effective reporting across the reporting chain – including on financial and sustainability-related information – my experience leading the CRD and now, with this crisis, has led me to conclude that corporate reporting for both financial and pre-financial information is more important than ever.
Investors, employees, customers and other stakeholders must have access to reliable and comprehensive information. And, as this crisis makes abundantly clear, we need to strengthen links between pre-financial and financial information.
As the pandemic brings into sharp focus, going forward, many corporate reports will increase disclosure on preparedness and response. These reports will mix financial concerns such as impact to revenues and profits, but also include pre-financial issues such as occupational health and safety, employee assistance and business continuity planning. Only when these are considered together can stakeholders get a holistic view of value creation and impacts beyond the company.
Whilst participants of the Corporate Reporting Dialogue are committed both as a group and individually to supporting the development of this system, they are also agreed that the CRD will not take a lead role as such. Going forward, the CRD will serve as the bridge between the financial and pre-financial reporting platforms. We continue to fully support the ongoing efforts to streamline and harmonize the financial and pre-financial reporting platforms that will be led in other forums.
The participants of the Dialogue are in a strong position to provide expertise, understanding and support to advance the development of a consolidated system and ensure that it is rooted in the existing approaches they have collectively developed over many years of supporting businesses to report.
I believe that supporting the work of the Impact Management Project to build consensus on how to measure, manage and report impacts could be an important first step. And there is a need to strengthen our communications to explain the strong basis the frameworks and standards provide for a global reporting system.
The coming years will undoubtedly prove to be among the most challenging for businesses globally, as well as legislators and regulators, as the resilience of business models are tested to their limits. I would encourage the leaders of framework providers and standard setters globally to be enablers and not a barrier to ensuring more holistic and high-quality corporate reporting so that we can tackle these challenges head on.