JSE event: Towards Common Reporting Standards: Will it help achieve the aims of sustainable development?

Chief Sustainability Officer at the Johannesburg Stock Exchange (JSE), Shameela Ebrahim, posed some very pertinent questions when we kicked of the JSE’s annual sustainability show case earlier today.  Her questions were:

  • Why so many standards and what are the various standards meant to achieve?
  • How directly relevant are they to achieving the aims of sustainable development (using the SDG’s as framing perhaps)?
  • What could each of the current moves toward alignment lead to?
  • How could reporters think about, and use, the existing frameworks with SDG outcomes in mind?

A recording of the session including audience Q and A is now available here. Here’s roughly how I answered Shameela’s questions:

Shameela: Why so many standards and what are the various standards meant to achieve?

My answer: Initially there was just the GRI Guidelines and the AA1000 Framework.  Both started off in the late 1990s.  The GRI focussed on reporting on indicators of importance to stakeholders and the 1999 AA1000 Framework set out a principles-based approach to integrating issues of importance to society into corporate planning and thinking.  Much of that thinking was later incorporated into what are now known as the GRI Standards developed by the Global Sustainability Standards Board (GSSB).  That was an important step because, where companies are required to report just metrics without thinking about, say context and materiality, and without incorporating sustainable development issues into planning and decision making, research demonstrates that they fail to disclose, or even identify, material matters not covered by those metrics.  My colleagues Professors Brendan O’Dwyer and Chris Humphrey argue that case very well in Accountancy Age.

with Mervyn King

Professor Mervyn King made South Africa the first country to mandate integrated reporting through the King III Code in 2009, the same year HRH Prince of Wales convened a meeting to establish the IIRC.  The GRI were part of that meeting and Mervyn is a former chair of the GRI Board. 

Shameela Ebrahim asked the questions

The International <IR> Framework published in 2013 advanced some of the ideas in the 1999 AA1000 Framework and the IFRS Foundation’s Management Commentary (Practice Statement) and importantly included the notion of long term value creation through multiple capitals to encourage thinking beyond financial materiality.  The inclusion of natural capital and social capital made it clear how they are important to decision making. The requirement for board involvement in the integrated reporting process encourages boards to consider all six capitals in developing strategy.  Indicators in the GRI Standards that are material to thinking about long term value creation started to get prominence in the annual integrated report. 

The International <IR> Framework has influenced stock exchange requirements and national and regional reporting regulation.  Unfortunately, the IFRS Management Commentary has not to date been amended to reflect it and IASB Board papers on the matter talk about financial materiality rather than broader value creation.  Nevertheless, companies that do not claim to follow the International <IR> Framework are also adopting elements of integrated reporting as they copy what they consider to be good reports.  Research shows that the ideas have influenced, not only how companies report, but also broader thinking about value creation and linking social impact activities to their approach to value creation. 

The TCFD recommendations published in 2017 adopt a similar approach to the International <IR> Framework, encouraging organisations to think about both financial and physical risks of climate change and what that means for strategy and how business is done.  The take up of the TCFD recommendations is increasing.

So, these are the three key frameworks or standards.  They each offer something important not covered by the others.  The GRI, used by over 8,000 companies worldwide, allows companies to report their impacts on society, the environment and economies, something which is of interest to a broad range of stakeholders. 

A problem with the SASB approach, as I see it, is that it is rules based – companies have to disclose specific metrics.  There is a large body of research that shows that when metrics are specified in the absence of conceptual framework and/or a focus on internal processes, thinking and decision making, material matters are not disclosed.  Another problem is the focus on materiality to investors.  We know that investors themselves do not know what sustainable development issues are material to them now or in the future.  The bottom line is that if we don’t achieve the SDGs, we won’t be creating value in the long term. So we must consider corporate impact on achieving the SDGs.

The UNDP Impact Standards are not reporting standards but rather promote good practice with respect to the SDGs across the themes of strategy, management approach, transparency and governance. This focus on changing internal processes is critical to creating the transformation needed to address sustainable development.

Shameela: How directly relevant are they to achieving the aims of sustainable development (using the SDG’s as framing perhaps)?

My answer: The SDGs won’t be achieved unless there is a shift in what businesses do and how they do it.  That’s why in the visual about disclosure themes in the SDGD Recommendations strategy is right at the centre.  This inclusion of strategy comes from the International <IR> Framework and the TCFD recommendations that followed it.  To achieve the SDGs there needs to be a strong focus on opportunities as well as risk.  That’s why, in the SDGD Recommendations, the TCFD ‘risk management’ theme has been replaced with the GRI term ‘management approach’. (See Table 2 in the Feedback on the consultation for the SDGD Recommendations.)

The International <IR> Framework requires reporting on strategy.  However, senior management teams and board members often have limited knowledge about sustainable development, so it doesn’t get adequately considered.  It needs to be explicit that sustainable development risks and opportunities should be considered in developing strategy and disclosed.  Research shows that even high impact companies are not disclosing the physical risks of climate change. 

When I visited South Africa a few years ago I spoke with some Board Chairs and Directors who identified poverty and inequality and the consequent risk of civil unrest as key sustainable development risks.  But I wonder how many South African companies disclose the potential impacts of those risks, what they are doing to mitigate them and what opportunities addressing those issues might bring for their organisation and society?  A metrics-by-industry approach to reporting would not include this, but it is relevant to investors.

So the SDGD Recommendations take the most relevant parts of all three frameworks and add SDG specific requirements. This includes, for example: identifying the SDGs on which the company has the greatest positive or negative impact on achieving and setting targets thereon; board/governing body competencies in and oversight of the sustainable development context and issues and their integration into strategy; and, investments in and benefits generated from opportunities arising from sustainable development issues.

Shameela: What could each of the current moves toward alignment lead to?

My answer: I think the key one to watch is the IFRS Trustees’ proposal to establish another Sustainability Standards Board.  IFRS progress is slow.  For example, the Management Commentary (Practice Statement) revision has been in process for years.  IFRS already have a lot to do to incorporate climate change and other sustainable development issues into existing IFRS Standards before they should focus on sustainability standards.  Consideration of sustainable development issues on the balance sheet needs to be explicit in IFRS Standards because a shift is needed. It’s not enough to say that current standards allow for impairment due to climate change, for example, because there are concerns that fossil fuel assets are overvalued. 

Ironically, I think that a lot of confusion has been introduced by the various efforts to ‘harmonise’.  For example, the new notion of ‘enterprise value creation’ introduced in the IMP led Statement of Intent report with current standard setters appears to be narrower than the International <IR> Framework definition.  This is a backward step. 

The re-defining of ‘financial materiality’ to mean things that people can understand now to have an impact on the financial statements whether now or in the future is not helpful.  It is subjective as is the IFRS proposal to consider matters “most relevant to investors and other market participants”. 

The IMP’s notion of ‘dynamic materiality’ whereby material sustainable development impacts may move in or out of being material for enterprise value creation is also unhelpful in my view. 

In a context where investors are trying to make things simple these definitions will support an inclination to only take note of things where the financial impacts are clear NOW. But sustainable development issues are complex, interdependent, and impossible to reflect accurately in financial terms.

The materiality definition in the SDGD Recommendations is concerned with information that can make a difference to

• stakeholders concerning the positive and negative impacts of the organisation on global achievement of the SDGs, and;

• providers of finance concerning the ability of the organisation to create long term value for the organisation and society.

Impact comes first to demonstrate its importance.  You cannot forget impact. The achievement of the SDGs is critical to creating long term value for providers of finance.

I think the IFRS Foundation should adopt the concepts and content elements of an updated International <IR> Framework into its revision of the Management Commentary (Practice Statement).  The <IR> Framework should be explicit about requiring consideration of sustainable development issues. 

Shameela: How could reporters think about, and use, the existing frameworks with SDG outcomes in mind?

My answer: While globally many organisations don’t include sustainable development risks in their mainstream risk identification and mitigation disclosures, there’s no reason why they shouldn’t be thinking about them and including them in their Annual Integrated Reports.  They should also consider sustainable development issues and the SDGs on which they have a material positive or negative impact in their strategy to create long-term value for the organisation and society. Because it is a different way of thinking, a change from the status quo, it really needs to be explicit in an updated <IR> Framework.  Perhaps South Africa could lead the way again here?  Through the process of transforming the six capitals the organisation also has an impact (positive or negative) on achievement of the SDGs and this has implications for the availability of capital inputs in the future?

The recent consultation on the GRI universal standards made a welcome clarified requirement for organizations to consider their actual and potential negative impacts. The proposal is that a material topic is defined as one that reflects the organization’s most significant impacts on the economy, environment, and people, including impacts on human rights. The revised definition better aligns with an organizational focus on impact on achievement of the SDGs.

Table 1 in the Feedback on the consultation for the SDGD Recommendations shows which parts of the <IR> Framework, GRI Standards and TCFD recommendations have informed the approach.  The Business Model diagram in Adams (2017) shows sustainable development and the SDGs can be incorporated into integrated thinking and the integrated report.


Adams, C A, with Druckman, P B, Picot, R C, (2020) Sustainable Development Goal Disclosure (SDGD) Recommendations, published by ACCA, Chartered Accountants ANZ, ICAS, IFAC, IIRC and WBA. ISBN: 978-1-909883-62-8

Adams, CA (2020) Sustainable Development Goal Disclosure (SDGD) Recommendations: Feedback on the consultation responses, published by ACCA, IIRC and WBA. ISBN-978-1-898291-33-6

Adams, C A (2017) The Sustainable Development Goals, integrated thinking and the integrated report, IIRC and ICAS.  ISBN 978-1-909883-41-3.

Adams, CA, (2017) Conceptualising the contemporary corporate value creation processAccounting Auditing and Accountability Journal 30 (4) 906-931 http://dx.doi.org/10.1108/AAAJ-04-2016-2529 

ODwyer B and Humphry C 2020 From tyranny to salvation: the credibility of common metrics for ESG reporting, Accountancy Age

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  1. Excellent. Thank you

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