‘Harmonisation’ or dumbing down non-financial reporting?

by Carol Adams

Main points:

  • The key non-financial reporting frameworks deal with different issues and serve different audiences
  • “Harmonisation” appears to mean simplification but the complexities facing business require a multi-faceted response – there is no one reporting framework that addresses all the issues / audiences.
  • Corporate reporting frameworks influence what businesses focus on –  reducing their coverage risks making important issues invisible.

Over the last week, in the aftermath of the IIRC’s conference, there have been various comments on social media about the need for “harmonisation” of corporate reporting frameworks.  But what does harmonisation mean to those calling for it?  There are already similarities between the principles and approaches used in the International <IR> Framework, the recommendations of the Taskforce on Climate related Financial Disclosure (TCFD) and the Climate Disclosure Standards Board (CDSB) Framework.  They address different issues and can be used together while the GRI’s Global Sustainability Standards provide information important for key corporate stakeholders and, through a multi-stakeholder approach, help companies identify indicators of most interest.

Given the increasing complexities faced by global businesses, the inter-connectedness of sustainable development issues and their long-term impact on businesses, is now the time to dumb down non-financial reporting for large corporations?  Investors are increasingly relying on it to make decisions.  I’d argue that reporting organisations need to skill up and increase resources to supply the information that investors (and other stakeholders) are looking for and that will help boards make decisions that maximise value creation in the long term.  Frameworks and standards could be seen as means to help organisations achieve that rather than as a burden (research shows that to be the case).

One commentator on LinkedIn noted “CSR departments in many companies are focussed on reporting rather than acting”.  But if they are reporting future strategy, targets and performance against targets, that means that others in the organisation is ‘acting’.  Perhaps the acting is happening in a holistic way across the organisation rather than left to the CSR Department? That is what needs to happen.  I remember a forward-thinking sustainability executive of a utility company tell me in the 1990s that he will have done his job when there is no longer a need for a sustainability chief, because everyone regards it as part of their job. Perhaps CSR Departments and others working on non-financial reporting should develop the business case for reporting to ensure they have the resources needed.

Key standard/framework setters talk of the need for an ‘umbrella’ organisation and each seems to feel they are best equipped to be that organisation.  But in a process of mergers or takeovers we might lose some important information or a focus on what matters.  The argument by some Standard/framework setters that if there are too many standards, none of them will be adopted by regulators seems to be scaremongering by those would-be umbrellas.

Perhaps a more fruitful starting point would be to acknowledge the difference between the key reporting Frameworks/ Standards and demonstrate how each adds value, how they can be used together to add more value for the organisation and its stakeholders.  Why not work with regulators together to show how each elements of each are needed?

Financial reporting is arguably more burdensome and subject to more scrutiny than non-financial reporting and yet increasingly less relevant.  The case for mandatory non-financial reporting is strong.

 

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