IASB Sticks To Knitting
An ongoing suggestion amongst policy makers, the accounting profession and ESG advocates is that the International Accounting Standards Board should take over standards setting in the field of environmental reporting and climate disclosure in particular. The Chair of the IASB used a speech last week to re-affirm that the IFRS standards setters will do no such thing.
For Hans Hoogervorst, the IASB is not the right body to consolidate the existing standards in that field. It does not have the expertise and it is clear that Mr Hoogervorst does not buy into the idea that transparency into the environmental impact of corporations will necessarily bring about wholesale change. Using the example of executive pay disclosure, he points out that previous attempts to alter behaviour through disclosure have not always had the desired effect. Pointing out that policy (read tax) changes that have direct financial impacts are what really move the dial, he makes the case that disclosure standards are first and foremost there to help investors allocate capital.
Acknowledging the merits of arguments made about the importance of identifying the financial impact of climate change on companies, Hoogervorst describes the importance of “broader financial reporting”, and the current overhaul by the IASB of Management Commentary. These disclosures should give more emphasis, in the future, on intangibles as well as the way that climate change may impact companies’ long term business models.
You can read the speech (especially the section on ESG ratings) as a cry for standardisation and improvement in the field. But it is also a very firm rebuttal to the suggestion that the IASB should take over. A must read… over here.