Speech: The Paradoxes Plaguing Sustainability Reporting

Posted on December 11, 2020 by Editor

The past year has seen growing consensus on the need for non-financial reporting standards in order to mitigate climate-related financial risks and help investors divert capital towards more sustainable ends. However, sustainability reporting is a complicated task, and a number of difficult questions need to be answered before effective standards can be established. In a recent speech Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), highlighted three thorny issues that any successful sustainability reporting regime must navigate.

Firstly, Maijoor cautioned that sustainability reporting standards need to be both global and jurisdiction-specific, to cater to international and local investment. With both the EU and IFRS concurrently exploring sustainability standards, it’s positive to hear that Maijoor believes EU standards must be compatible with any international scheme. A modular solution that would allow jurisdictions to increase or decrease requirements in line with their needs could be worth exploring. [Ed — and from XBRL International’s perspective might mean that we avoid duplication, overlap and resulting lack of comparability in related XBRL taxonomies.]

Secondly, as with financial standards, the risk of misstatement and misleading reporting needs to be minimised to ensure data is credible. As such, it’s crucial that any non-financial standards are developed in the public interest, are principles based, and yet are also sufficiently specific to ensure consistent application, audit-ability, and enforceability – a balance that the IFRS has demonstrated is possible in its financial standard setting.

Finally, Maijoor notes that standards need to be proportional, with a less rigorous reporting regime for SMEs, as is the case in financial reporting, providing relief for firms less able to absorb the additional reporting burden.

Some salient points… regardless of how exactly international reporting standards are achieved, clearly, crucial to their success will be international cooperation, a rigorous standard setting process, and thorough consultation with all relevant stakeholders.

Read the speech, which was given during the webinar “A new standard for a new capitalism: accelerating corporate responsibility through non-financial information,” here.

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