Towards better social and environmental impact reporting

by Carol A Adams

Main points:

  • Standards and guidance concerned with reporting on social and environmental issues are coalescing
  • The UK Government seeks to increase social and environmental impact reporting
  • The UN Sustainable Development Goals (SDGs) provide an impetus for impact reporting
  • Approaches to the SDGs aligned with reporting frameworks and governance approaches provide a means to address sustainable development issues through strategy to create value
  • The UK Financial Reporting Council’s new Guidance on the Strategic Report and revised Corporate Governance Code provide limited additional impetus for an increased focus on impact reporting.

The UK government’s Taskforce charged with implementing recommendations to grow a culture of social impact investing has today released the findings of its Better Reporting work stream.  The report draws on input from the Taskforce’s Better Reporting working group, 92 responses to a call for evidence, 13 interviews with experts and desk research.

Whilst the Taskforce was established by the UK Government it has global relevance due to the globalisation of business and investment activities.

The report notes that reporting standards and practice are coalescing and calls for this to continue emphasising the need for a principles-based approach and transparency.  The report calls for further coalescence noting that the majority of respondents feel the SDGs have a role to play in this.

Key findings on the current reporting landscape are:

  • Sixteen reporting approaches were identified including those of the CDSB, Global Reporting Initiative and the IIRC (integrated reporting) and UN Global Compact.
  • There is a lack of adequate assurance and verification processes for impact reporting which limits its usefulness to investors.
  • There is a lack of methodologies to measure social and environmental impact.
  • Insufficient linkage is made between material issues and strategy.
  • In the last 25 years non-financial reporting provisions around the world have increase from around 100 to around 1,000 (the Reporting Exchange)
  • The report notes that the CDSB, integrated reporting and TCFD recommendations call for similar processes and disclosures thereof.

On the last point, I’ve previously noted the strong alignment across these three approaches – whilst their emphasis differs, they can be used together.  The <IR> Framework is also compatible with developing a strategy to contribute to the SDGs and report thereon (see report on this here).

Inevitably some contributors objected to legislation to increase impact reporting on the grounds that it would inhibit innovation.  Legislation to creating a minimum level playing field would not do this and mandatory requirements which are enforced reporting remains insufficient and under-developed.

The next phase of this project will develop specific proposals on social and environmental impact reporting to inform the Taskforce’s recommendations to the UK Government in early 2019.

The Implementation Taskforce’s Better Reporting Working Group is led by Olivia Dickson and Paul Druckman, Non-Executive Directors of the Financial Reporting Council. A Deloitte team led by Sam Baker supported the work for this report.   The role of technology in increasing impact reporting is also being considered.

 

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