Holding business to account
We round up the key lessons for business, CAs, standards setters and government from our recent ICAS sustainability summit, and share expert insight on the future of sustainability reporting.
How do we, and should we even try to make sure that businesses are held accountable for the impact they have on the environment and on society more widely? And if we should, how can we make this meaningful but also achievable? These were just two of the questions that ICAS and guests posed to a panel of experts and keynote speakers at our Sustainability Reporting Summit on 26 April at One Great George Street in Westminster, London.
We managed to attract a great line up of speakers and panellists including standard setters, regulators, UK Government, corporates, NGOs and industry bodies. The afternoon brought some lively discussion and some tricky questions to the two panels. As ever, the discussion left everyone with more questions than answers, but isn’t that always the case with complex issues? It was, however, good to hear the government talk about its direction of travel and business discuss how they moved from seeing reporting as a burden to being a tool for value creation. Others challenged the capacity of the profession to effectively manage sustainability reporting and assurance.
The ICAS position
ICAS has been thinking about sustainability for a long time and has been a critical partner in the development of international standards. This area can sometimes appear as a confusing myriad of different organisations and bodies who operate in this field. There were several references during the afternoon to the need to simplify the ‘alphabet soup’ of bodies, acronyms, and standards if we are to make reporting become second nature rather than another onerous job.
J Bruce Cartwright CA, Chief Executive of ICAS, and Indy Singh Hothi CA, President of ICAS until two days after this event, set out the ICAS stall early on, making our position clear. We are calling for aligned, mandatory, sustainability reporting standards which report on a wide, holistic set of measures. These should include the impact of climate change and other sustainability issues on a business, but also the impact of the business on the environment and society – otherwise known as double materiality.
We believe that sustainability in its widest sense is too important to hope that voluntary measures will do the job or that simply reporting on the financial impact of climate change on companies is enough. We believe that reporting on the impact companies have on the environment and society is the only way to fully understand and address the impact and cost of companies doing business.
To achieve this, there needs to be alignment between the International Sustainability Standards Board (ISSB) and Global Reporting Initiative (GRI) standards. This multi-stakeholder focus would deliver a set of international standards that will satisfy investor needs and the growing public demand for action and more holistic reporting.
In recent months ICAS has been open about this position in our letters to the Prime Minister, Secretaries of State and on public platforms and it was heartening for us to hear Ravi Abeywardana of the IFRS Foundation say in his keynote address that “ICAS has shown real leadership around mandatory reporting of ISSB and GRI standards.”
Judy Kuszewski, Chair of the Global Sustainability Standards Board (GSSB), until very recently, said in her speech that the accountancy profession generally and accountancy professional bodies themselves have been such a strong ally and one of the first sectors “to really get” the importance of sustainability.
The UK perspective
One of the many reasons for bringing such a diverse group of people into one room, was to let the UK government hear the different views from speakers from key organisations, and the audience, to set out the ICAS position and of course to listen to the government’s thinking.
The UK government recently announced its continued commitment to endorse the standards of the International Sustainability Standards Board (ISSB) – with the first two of these expected towards the end of June. In March, the newly created Department of Business and Trade (DBT) outlined a 12-month process to consider these standards once they are published. This will include a review to judge whether the standards are usable within a UK framework.
Andrew Death, Deputy Director at DBT, taking part in one of our panels, when questioned about how we can balance different stakeholder needs said, “corporate reporting in and of itself won’t change anything. It’s how people use that information and what decisions they make as a result of that information.”
On making standards mandatory, Andrew added that there will be a separate consultation (and decision) on whether the ISSB standards should be mandatory for companies. The government view is that the ISSB approach is the best fit for the UK just now. The 12-month period of assessment will give the government flexibility on how the standards might be implemented and allow it to look at how businesses can implement those standards, before potentially moving to a mandated approach.
He feels that part of the difficulty just now is that there are so many “different sets of standards, and in some instances, people are reporting against no standards, making it extremely difficult to understand the information coming out”. More guidance is needed for both reporters and users.
The room welcomed his closing remarks that eventually we should reach a point where there shouldn’t be a need for separate sustainability reporting, “that it shouldn’t be sustainability versus financial reporting, it should be integrated, and it should be reporting to help the company to tell its story.”
Materiality
Judy Kuszewski, former chair of the Global Sustainability Standards Board (GSSB) told the audience that in 2022 there had been one million downloads of the Global Reporting Initiative’s (GRI) Standards – a huge 52% increase compared to 2021. She explained that both sides of the double materiality debate are equally important – the strengthening of sustainability related financial disclosures reporting as well as wider impact reporting - and that both should be considered necessary and material - but that we should be looking at the outward impact first. Philippe Diaz from WWF added we had waited far too long for a set of comprehensive and holistic standards and that we are already 10 years behind where we should be.
Interoperability and joint working
Interoperability is key in the creation of meaningful and usable standards. Saskia Slomp of EFRAG talked about the need for partnership working and of the common interest and shared research already going on between the different standards setting bodies. EFRAG works closely with the GRI and the ISSB on alignment, and seeks to develop standards in parallel, with the aim that over time there will be no differences, or they will be limited. To achieve this involving all the many stakeholders and getting their input is critical. As Saskia put it: “We have to move together. We are not in competition.”
Ravi Abeywardana from IFRS highlighted that the ISSB standards have tried to consolidate much of the ‘alphabet soup’ of standards and the importance of connectivity and interoperability between them. He too stressed the importance of collaboration between the leading industry standards, acknowledging the reporting burden for businesses and that where there are similarities within areas, they will try and find the most interoperable ways of working.
In one of the panel sessions, Mark Vaessen (Accountancy Europe) called for a mapping exercise to compare the different climate standards in different countries, which would be important for accountants who want to stay EU compliant, but who need to comply with international regulation. He remarked that the ISSB standards had built the cornerstones for reporting in all jurisdictions for us to build upon.
The big questions
The two panel sessions threw up some challenging questions, not least from the Head of Sustainability at the Weir Group, who asked how anyone was supposed to make any meaningful progress in reducing their impact on the planet, while having to spend so long accounting for the harm they might be doing and reporting on so many data points (there are over one thousand identified in the GRI standards). The panel responses varied from the need to take the concerns of interest groups seriously, to having to internally galvanise to put measures in place to start the process of reporting. Judy Kuszewski emphasised that “impacts are relevant and real and must be reported, regardless of the financial materiality.” Anthony Carey from Mazars asked the big question – “are we missing the chance to be brave and bold and go for one set of performance standards which embrace double materiality”? The view from the panel seemed to be that although this might be desirable in the long term, we are still years from this being a practical possibility.
What does business think?
‘What’s measured, gets managed’ – (and so, conversely, what isn’t measured won’t be managed) was the adage used by Matthew Forster from Britvic, a business on the front foot of sustainability. The phrase seemed to resonate with many in the room. Britvic has pivoted from seeing sustainability reporting as a burden, to viewing it as an opportunity to set itself apart from other companies, and that knowing where your impact lies, wherever that is (carbon, crops, water stress etc) and reporting on it, can present valuable opportunities. The company links senior managers’ bonuses (up to 20%) to performance against Environmental, Social and Governance (ESG) measures. It also believes that success in attracting the best talent is linked to how well it performs in addressing climate change.
At the start of the session, Bruce Cartwright talked about the importance of bringing people together “who really know what they’re talking about,” which meant there was more possibility of finding consensus in where and how we take sustainability reporting. At the end of the afternoon, we had certainly seen a willingness to listen and to learn from one another. Mark Babington of the Financial Reporting Council (FRC) said in the final panel session that we are all trying to work out how to live with the consequences of climate change, and that although right now, we are all focused on sustainability reporting, he suggested we “go back and think about what is most important for us to report.”