Value creation v impact

Main points:

  • The SDGD Recommendations ask organisations to consider both value creation for the organisation and impact on the achievement of sustainable development.
  • Key reporting frameworks are compared for their focus on contribution to value creation v impact.
  • The SDGD Recommendations draw on the three most influential non-financial reporting frameworks/standards.

Should reporting frameworks focus on value creation or impact? Recent references in the Financial Times to the alphabet soup of sustainability standards and infighting amongst framework/standard setters arise from business concerns that it is all too hard and is also due to competition for limited funding for framework/standard setting initiatives.

Rather than supporting existing initiatives and rewarding collaboration between the various bodies there have been threats that businesses might develop their own standards. That would only serve to heighten concerns about the lack of credibility of corporate narrative reporting and the reporting-performance portrayal gap.

Decades of academic research has shown that unless corporate reporting is mandatory and enforced, companies will focus on the positive, gloss over negative impacts (if they mention them at all), misrepresent the scientific literature and downplay risks. There are, of course, pioneering companies seeking to make a positive impact on society whilst creating value for their shareholders and stakeholders.

In recognition of the need to do more, the European Commission has launched a public consultation on the Non-Financial Reporting Directive asking which frameworks and standards should influence the revised content.

The SDGD Recommendations ask organisations to consider sustainable development risks and opportunities relevant to value creation and their impact on achievement of the SDGs. The diagram below maps key frameworks/standards against relevance to long term value creation (or destruction) (y axis) and impact on stakeholders (x axis). The mapping idea came from a conversation with Paul Druckman who has also been considering a way forward for the non financial reporting architecture.

IFRS, US GAAP and SASB standards focus on financial measurements and like the UN Sustainable Development Goals (SDG) do not seek to measure value more broadly. Hence their low position on the y axis. Value is derived through the transformation of multiple capitals, not just financial capital.

The integrated reporting framework on the other hand set out to encourage organisations to work towards value creation more broadly rather than focussing exclusively on cash, revenues and profit. The TCFD Recommendations adopted much of its language and encourages organisations to focus on the risks of climate change and new opportunities resulting in actions that are in the long term interests of the organisation and the climate. Russell Picot talks about the need for the TCFD Recommendations here.

The Global Reporting Initative (GRI) Standards are developed through a multi-stakeholder approach and focus on an organisation’s impact on stakeholders. Most large companies use them primarily because they address stakeholder concerns and their stakeholders expect them to. They do not aim to link to value creation for the organisation.

The Sustainable Development Goal Disclosure (SDGD) Recommendations are in the top right hand corner because the underpinning concepts draw on those of the <IR> Framework, TCFD Recommendations and GRI Standards. For example, the definition of materiality in the SDGD Recommendations considers both value creation (as in the <IR> Framework) and impact (drawing on the GRI approach):

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. (Adams et al, 2020)

Rather than seeing these three frameworks/standards as ingredients in a tasteless alphabet soup or making life complex for corporates, they are considered complimentary, each important in transforming business to create value without simultaneously detracting from global efforts to achieve sustainable development, or better still making a positive contribution to them. How each contributes to the SDGD Recommendations is set out in the Table below sourced from the Feedback on the Consultation Responses (Adams, 2020) that informed the SDGD Recommendations.

The contribution that SASB can make to organisational efforts to achieve the SDGs is yet to be articulated. But hopefully, SASB will demonstrate how it complements the approach in the SDGD Recommendations (aligned with <IR>, GRI and TCFD) i.e. how organisations can use them together for a better overall outcome.

Reporting frameworks and standards will continue to be misued by companies seeking to portay their performance more positively than it warrants. Increased mandatory disclosure that is enforced and innovation in assurance provision is critical to better quality non financial reporting.

By Carol A Adams


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

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  1. I agree that the mandatory requirement is essential for better reporting. However, while necessary, I doubt whether that will be sufficient.
    I would look further to the reporting of how the Board, Directors and Senior Managers are paid (short and long term) for their achievement of ESG targets. For example, Mr Fink from BlackRock notes the importance of ESG yet he does not inform how his pay package and perks reward him or his colleagues endeavours.

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