The End of Accounting or a Sustainable Beginning?
Investors need high-quality, comparable environmental data that captures intangibles and is aligned with financial reporting. That’s the conclusion of Christian Dreyer, a leading analyst and independent investor and until recently the CEO of CFA Society Switzerland. In a recent article he looks ahead to a post-pandemic world and presents his perspective on sustainability reporting, the need for meaningful data, and the next big challenge – climate change.
Drawing on Baruch Lev and Feng Gu’s ideas around “the End of Accounting”, Dreyer observes that the explanatory power of reported financial information has plummeted in recent decades, a trend which is only likely to continue. Financial Reporting as it stands can’t capture important intangibles – and he argues that our focus on such intangibles must be ambitious and wide in scope to capture meaningful environmental information.
Current ESG and sustainability reporting frameworks are diverse and inconsistent, and – often having been created with other goals and stakeholders in mind – are insufficiently decision-useful for investors in comparison with financial reporting.
Dreyer argues that addressing climate change will require massive structural change in the world economy, and that a mandatory sustainability reporting framework could provide the guidance that investors need to navigate and effect that change. From his perspective, “…the output would need to be audited and follow similar standards of comparability, quality, and coherence as current financial reporting within a disciplined control framework.“
Read Dreyer’s full piece here.