Academics at odds with the IFRS Foundation Trustees on sustainability reporting

by Carol A Adams and Frank Mueller, Professors at Durham University Business School

This article was first published in Accounting Today.

When the IFRS Foundation Trustees put out their Consultation Paper on Sustainability Reporting, the accounting scientific community responded in unusually high numbers. This reflects the lack of alignment of the proposals with the academic research in the field resulting from the political nature of the global debate. 

Thirty-nine responses to the consultation came from 104 academic signatories across 74 organisations or scientific networks and 20 countries. The majority (72%) of these 39 submissions were opposed to the proposals and this opposing majority collectively have substantial research records in sustainability reporting, in contrast to the group in favour. But even amongst the supporters, concerns were raised. 

Mainstream accounting research has highlighted the political nature of accounting practices.  Accounting it is not simply a technical tool that gives you the ‘correct’ answer, but a tool at the mercy of the powerful that can have unintended consequences. When it comes to sustainability reporting for enterprise value, the range of interpretations of what an ‘investor perspective’ entails, and then what is financially material and in what time frame, is huge.

The IFRS Foundation itself has not to our knowledge discredited evidence-informed-views of this branch of accounting academe.  In fact, it states the importance of evidence-based decision making, although it did not consult with academics, or draw on their research, when developing its Consultation Paper on Sustainability Reporting.  However, some of its supporters have labelled academics in this field as extreme left wing, grumpy and cantankerous, one even noting that more people that count listen to them. 

A major bone of contention amongst the objecting academics was the conceptual framing – the talk of financial materiality, cash flows and enterprise value. Researchers know that messaging that directs corporate efforts matters. We use the term interpretive schemes to refer to the messaging that influences corporate approaches. A conceptual framing that doesn’t address sustainable development and planetary boundaries will be interpreted as business-largely-as-usual. And this will have a negative impact on long term returns. It will encourage a lack of accountability for the impacts of an organisation on achieving sustainable development – that is, rather than being curtailed, greenwashing will flourish. Academics did not question the need for mandatory reporting requirements; far from it, they have been calling for them for decades – but to make companies accountable for their impacts. Most companies know that their stakeholders want it and deliver it anyway, but under a voluntary regime, quality suffers. 

Academics questioned the global relevance of sustainability reporting standards that take a financial materiality perspective. 

This conceptual framing from the IFRS Foundation might be tolerated by the scientific community were it not for the dismissive approach to the Global Reporting Initiative (GRI) Standards. 23 of the 39 academic submissions commended the GRI’s work to the IFRS Foundation. A memorandum of understanding (MOU) has now been signed by the IFRS Foundation and the GRI, but how far it will go to address the scientific community’s concerns remains to be seen. The GRI’s multi-stakeholder approach is not likely to be something the IFRS Foundation would be trusted to replicate, giving due weight to, say, civil society organisations. 

Only 5 of the 39 responses agreed with the climate first approach with 26 arguing for broader coverage, not least because it would further weaken accountability for a broad range of corporate impacts. 

Other criticisms of the IFRS Foundation proposals made by academics and informed by evidence included:

  • The assumption that the IFRS Foundation has the best governance structure without analysing what else is out there or what is appropriate for sustainability reporting
  • The IFRS Foundation lacks legitimacy to set sustainability reporting standards and what is being proposed is not sustainability reporting 
  • The IFRS Foundation does not have the required technical expertise
  • The proposals are not compatible with the commitments made by national governments with respect to climate change and the Sustainable Development Goals
  • The proposals are not in the wider public interest.
  • The lack of evidence supporting the proposals and the body of evidence indicating they won’t have the desired consequences. 

The findings from our analysis published this week have implications for both the legitimacy of the proposals and their effectiveness if the key contentious issues are not addressed. Perhaps they might persuade some to reconsider which voices should be heard.

Our research paper examines the arguments that have been used to credit and discredit particular arguments. Most (64%) of submissions opposed to the proposals supported their arguments with research evidence (a crediting technique) 

Our literature review highlighted how positions can be discredited, either regarding empirical (or other) evidence; or, more indirectly, by highlighting the stake that proponents supposedly have. Stake accusation has a history in climate change advocacy and climate change scepticism: climate change advocates have typically been accused of being driven by a left-wing ideology and / or lucrative research grants; climate change sceptics have typically been accused of being driven by financial interests tied to fossil fuel friendly think tanks or foundations. Our review of the literature suggests that engagement can be legitimated (credited) by pointing to the knowledge base it rests on. Our findings highlight that the majority of academic submissions opposed to the IFRS Foundation’s Consultation Paper cited relevant peer reviewed research to support their argument. 

Engagement in an academic discipline of accounting links academics with practitioners and other members of the profession. Where the ongoing legitimation of a professionalised field is in doubt, legitimacy deficits can arise. As was shown earlier, discrediting happens when critics decide to point to discrediting motives, financial or ideological, that are seen as driving the research. Questions over the legitimacy of a profession or discipline persist when arguments driven by stake accusations predominate over arguments driven by reference to our empirical knowledge base. 

We conclude that the opposing academic voice with respect to the IFRS Foundation Trustees’ proposals on sustainability reporting was credible and supported by research evidence. Yet it has not been taken into consideration. Just as the IFRS Foundation Trustees’ Consultation Paper did not provide analysis or evidence to support its proposals, to a large extent, neither did the academic submissions that were supportive of them. 

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  1. Thank you Carol. I am fully supportive.

    Knowing how this might pan out, perhaps we should now begin considering what we need to undertake should the IFRS’ proposals become accepted as they stand.

    IFRS’s response to comments have not been forthcoming on this topic previously.

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