Sustainability Reporting Flashcards
The emergence of sustainability reporting:
Why is Sustainability reporting important?
Since 1970’s. the advent of increased environmental awareness in society had exposed weakness with traditional financial reporting
Michelon et al. (2020) Highlighted a need for financial reports to address the needs of a broader range of stakeholders beyond the traditional investor/lender focus.
What is the view of traditional reporting?
Preparers of the accounts have an agency relationship with the shareholders as they are accountable to them in how they manage the entity to maximise shareholder wealth.
What is the problem with the traditional view of reporting?
Financial accounting focuses on maximising shareholder wealth, which consequently may not enough to ‘fulfill duty of accountability for long-term value creation’. Accounting for sustainability (2020).
The emergence of sustainability reporting:
Since the 1980s, there has been an increase in larger organisations participating in sustainability reports.
What are the statistics from KPMG in 2020
KPMG (2020) found that 96% of the worlds largest 250 companies prepared sustainability reports
Limitation of traditional reporting:
What is the limitation of the traditional view of reporting?
It fundamentally pursues short-term profitability at the expense of creating sustainable, long-term value is no longer an option.
What is sustainability reporting:
Define the term sustainability
‘Meeting the needs of the present without compromising the ability of future generations to meet their own needs’ United Nations (1987)
What is sustainability reporting:
What does sustainability relate to?
Limiting the use of depleting resources to a level which can be replenished
Ensuring development does not negatively impact future generations e.g. environmental damage.
Considering issues of social disparity/ exploitation of the poor
What is sustainability reporting:
What is another name for sustainability reporting that has been popularised?
ESG - Environmental, social and governance reporting
What is sustainability reporting:
Alexander et al (2020) cited the definition of ESG as…
a) the definitions of social responsibilities at large
b) how these responsibilities are defined and negotiated
c) How they are managed and organised.
What is sustainability reporting:
Sustainability reporting considers for 3 main factors…
Social, environmental, and human capital factors
and how they relate to organisational performance.
e.g. human capital factor could be pay for labour.
Current sustainability reporting frameworks:
Where does sustainability disclosure lie within the Report
Within Entity’s Annual Report
Current sustainability reporting frameworks:
Some jurisdictions have made mandatory sustainability reporting
For UK listed companies what are the requirements?
Climate Change Act 2008 and Modern Slavery Act meant disclosure of greenhouse gas emissions in their annual report.
Current sustainability reporting frameworks:
Majority of ESG reporting is voluntary. What are the some current sustainability reporting frameworks?
United Nations Sustainable Development Goals (UNSDG)
Global reporting Initiative (GRI)
International Sustainability Standards Board (ISSB)
Current sustainability reporting frameworks:
What are the goals of the sustainability reporting frameworks?
To improve sustainability reporting quality via requirement and guidance designed to assist preparers to measure and report information in standardised ways.
These approaches often use qualitative characteristics in IASB conceptual framework (2018).
Examples of sustainability reporting frameworks:
Effectiveness of UNSDG?
PwC found that 3/4 of companies surveyed mentioned UNSDG
But only a small minority referred to specific targets set out. Only 1% of the companies reported quantitative measures to show progress towards these targets.
Seems like most companies are putting in the bare minimum.
Examples of sustainability reporting frameworks:
Effectiveness of GRI (Global Reporting initiative)
Currently, the most widely used sustainability standards are set by an independent body (over 10,000 entities report globally report GRI).
Organisations can select to report on the standards that relate to their activities and the impact they have on the economy, environment and society both positive and negative.
ESG reporting should be verifiable and globally comparable, as the standard operates collaboratively with other frameworks such as IASB
Seems like the most practical ESG framework
Examples of sustainability reporting frameworks:
Effectiveness of ISSB (International Sustainability Standards Boards)
This is a new body founded by IFRS
Likely will become the most used sustainability reporting framework due to IFRS.
ISSB aims to provide information to investors to produce a global set of comparable and consistent sustainability standards for companies
Consolidation of Sustainability reporting frameworks:
ISSB, since being formed by IFRS will most likely become the most used, therefore, there have been integrating of sustainability of frameworks:
Some established sustainability standard setters have merged with ISSB .e.g the Sustainability accounting standards board and Climate Disclosure standards board.
Now the GRI (current biggest sustainability framework), has agreed to work with ISSB towards developing cohesive corporate reporting system.
The aim is to avoid entities from preparing multiple different ESG frameworks
–> Improves consistency and comparability of the disclosure for the users.
