The Statement of Intent: proposing a different approach

By Carol A Adams

Main points:

  • The willingness of reporting framework/standard setters to collaborate is welcome
  • A better place to start would be agreeing a conceptual framework
  • Some key questions are posed to start the process and tentative answers provided

Its good to see key global standard setters committing to work together with IMP and Deloitte to show how their offerings can be used together in the Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.  But the Statement proposes a retrofitted umbrella conceptual framework to fit what they each do and for whom. I encourage them to instead think about what that conceptual framework needs to be and how they can work towards it. 

I suggest several questions to consider and pose some tentative answers.

What should the conceptual framework cover?

A first consideration should be whether we can meaningfully and usefully move straight to a conceptual framework for both entity financial statements and other financial and non-financial disclosures/reporting. I suggest that is not useful. It might first be worth thinking about what we are aiming to achieve through other financial and non-financial reporting.   In which case, the small square can come out of the Statement of Intent’s figure 1 (reproduced below) – appropriate, since it is the IASB and FASB determines what goes in the financial statements.

How should value creation be defined?

The statement uses the term ‘enterprise value creation’. Figure 1 in the Statement of Intent indicates that enterprise value creation is defined narrowly in that the organisation’s significant impacts on the economy, environment and people do not influence it. This is not only false it also does not encourage organisations to operate within planetary boundaries. In fact, many will continue to believe they don’t need to. Is that the intention of the five organisations involved in this report?

You might consider an alternative approach:

“Organisations create (or destroy) value for their providers of finance through the value they create (or destroy) for the organisation and society. Through the process of creating (or destroying) value, organisations have an impact (positive or negative) on the achievement of the SDGs. The achievement of the SDGs is critical to creating long term value for providers of finance.”

This is the Fundamental Concept of ‘Long term value creation for the organisation and society’ in the SDGD Recommendations.  If you agree with that concept, the task is to demonstrate how your offerings together can help achieve it.  In this case all the squares in Figure 1 become redundant. 

What is materiality and what is reported where?

As Figure 2 from the Statement of Intent (shown above) above implies, many reporting organisations are already disclosing material sustainable development information in their annual integrated report drawing on GRI, TCFD and other disclosures.  Even though the <IR> Framework is not explicit about the need to consider sustainable development risks and opportunities in developing their strategy and approach to value creation, some already are. But too many are not.  This should be an explicit requirement. 

You could usefully help organisations decide on the indicators from other Frameworks that should go in the integrated report.  The GRI Standards, the most used of the various frameworks/standards, already allow organisations the flexibility to disclose information in different places. 

For the purposes of determining what goes in an annual or integrated report, definition of materiality in the SDGD Recommendations might be used:

“Material sustainable development information is any information that is reasonably capable of making a difference to the conclusions drawn by:

• 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.”

Together you have the opportunity to take organisations in a direction that is good for the world economy and achievement of the SDGs. Don’t waste it.

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  1. I am fully supportive of you views on the Statement of Intent. Thank you. However, the Statement of Intent is silent on context and that is worrying.
    There is one further potentially difficult issue to resolve and that is the inherent discrepancy between a rules based approach demanding compliance (SASB) and a principals based approach demanding integrity / conduct (GRI).
    A rather simplified approach could be to use the SASB methodology to generate an initial portfolio of organizational risks followed by confirmation and expansion with stakeholder engagement. Appropriate audits and verification would be needed for the data and its processing referring to risk (and opportunity), and the use of an assurance process ensuring demonstrable stakeholder validation and inclusion would also be needed. AccountAbility new standard, AA1000AS V3, for example.
    Subsequent evolution of the process could expand the risk portfolio into the supply and value chains while expanding the scope of stakeholders included.
    That would at least provides some substance as to the context of what was being reported.

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