SASB_Evolution overview_UPDATE

Business relationships in difficult times

Sustainability and business — sustainability frameworks and standards

Evolution overview May 2021

Introduction: Towards a more coherent reporting landscape

As highlighted in Sustainability and business — the call to action: build back better report, we began a programme of thought leadership exploring accountancy and sustainability. This is part of a series of briefs exploring sustainability, business and the finance professional’s key role. These briefs help organisations consider the sustainability issues, how to integrate them into their long-term decision-making and how to incorporate these issues into internal and external reporting.

A collection of summaries of specific standards or frameworks, written from the management accounting perspective is part of this initiative. As a finance professional, you’ll likely encounter one or many of the sustainability frameworks and standards. It is a crowded and fragmented landscape, with slightly different terms, inconsistent language and various measures between the numerous methodologies. Adding to the confusion is whether adoption is voluntary or mandatory, and that some organisations work with combinations of standards and frameworks at the same time. Finally, the approaches to reporting also differ. They range from annual reports, integrated reports, sections on an organisation’s website aimed at a specific audience or a stand-alone sustainability report.

Fortunately, there are many initiatives underway. They address the fragmented accounting and reporting landscape and build a coherent global approach to corporate reporting to encompass financial and non-financial reporting. This brief is intended to highlight significant recent developments.

A framework or a set of standards?
The difference
A framework is principles-based guidance for how information can be structured and prepared, and what broad topics should be covered. A set of standards are specific, replicable and detailed requirements for what should be reported for each topic. They are rules-based requirements.

Background
In September 2020, recognising the urgent need to address the confusion around sustainability information and the need for a comprehensive solution, five of the leading sustainability and integrated reporting organisations issued a Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.

The five leading organisations issuing the Statement include CDP, Climate Disclosures Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Committee (IIRC) and Sustainability Accounting Standards Board (SASB). Their Statement summarises discussions that the Impact Management Project (IMP), World Economic Forum (WEF) and Deloitte facilitated.

In an effort to advance this work towards simplifying the corporate reporting landscape, the IIRC and the SASB (November 2020) have announced their intention to merge into a unified organisation, the Value Reporting Foundation.

What?

The Statement asserts that the GRI, SASB, CDP and CDSB, along with
the TCFD recommendations for climate-related reporting, guide the majority of both quantitative and qualitative sustainability disclosures. It also says that the IIRC provides the integrated reporting framework that connects sustainability to reporting on financial and other capitals.

The intent of the collaboration is to provide:

Guidance on how their ‘frameworks and guidance can be applied in a complementary and additive way’
A joint vision of how these elements can connect to financial accounting principles and serve as a starting point for a more coherent reporting system
A joint commitment to drive towards this goal through an ongoing work programme and willingness to work collaboratively with other stakeholders

How?

The vision outlined in the Statement of Intent builds on the notion that frameworks and standards that ‘ensure high quality, assurable information, on which the ecosystem depends’ create a foundation for reporting to support more efficient markets and more informed decision-making.

The goal is to create a ‘similar mindset’ around sustainability information that has evolved for financial information — market acceptance based on reliable, rigorous, transparent and independent standard-setting processes with robust governance. The key to this for sustainability information, as it is for financial information, is identifying a common set of metrics and disclosure requirements, where possible.

The recommended standard-setting process acknowledges the distinct materiality considerations of different stakeholders and corresponding different reporting objectives. It includes a broad global stakeholder consultation to identify topics and disclosures that may be relevant to a company’s positive and negative contributions to sustainable development. This is coupled with a process or ‘filter’ that reflects the needs of the user whose objective is financial decision-making.

The Statement proposes a ‘stepping-stone’ or ‘building block’ approach captured by the diagram below. The first building block is based on the standards and frameworks already in existence that are focused on disclosures relevant to value creation captured in an integrated report. This would be followed by a second building block that expands disclosures to the wider stakeholder group and communicated through other communications channels.

Why?

The Statement of Intent underscores the ‘groundswell of demand to understand the connection between sustainability topics and financial risk and opportunity’. Critical components of this groundswell of demand include a broadened perspective of the responsibility of business, along with intensified interest for more disclosure about risks and opportunities related to climate-change and other ESG components. Asset managers have become increasingly vocal on behalf of their investors about the need for increased disclosure.

The Statement also provides a timeline of activities and statements documenting the ‘growing appetite from regulators, policymakers and the accounting profession to respond to this demand’. Key among those include:

November 2019 — The International Federation of Accountants (IFAC) published a point of view that supported a global solution for standards to achieve relevant reliable and comparable narrative information and metrics.
December 2019 — Accountancy Europe set out an approach for a non-financial standards board (NFSB) under the International Financial Reporting Standards (IFRS) Foundation.
January 2020 — European Commission announced its proposal to develop non-financial reporting standards that consider internationally recognised standards and offer a model for what is ‘agreed at international level’.
April 2020 — The International Organisation of Securities Commissions (IOSCO) acknowledged the role that the driver of global capital markets regulation must play in this area: only by understanding financial and sustainability information together can investors and governments have the necessary insight into company performance.
June 2020 — IFRS Foundation Trustees agreed that their intention would be to conduct a public consultation about whether and how the Foundation should play a role in sustainability standard-setting.
July 2020 — Eumedion, an investor body, called for the IFRS Foundation to evolve to include a standard-setter for non-financial information.

On this front, the IFRS Foundation issued its IFRS Consultation Paper on Sustainability Reporting, also in September 2020. The Consultation Paper that was developed based on work by a Task Force the Foundation Trustees set up. It recommends creating a new Sustainability Standards Board (SSB) under the governance structure of the IFRS Foundation to develop global sustainability standards.

The IFRS Consultation Paper addresses a wide range of issues related to global reporting and the parties involved. Among the consultation questions posed was the task force’s recommendation that ‘the objective of the SSB would be to develop and maintain a global set of sustainability-reporting standards, initially focused on climate-related risks. Such standard-setting would make use of existing sustainability frameworks and standards …’

Following on from the issuance of the IFRS Consultation paper, the parties to the Statement of Intent also issued an Open Letter to Erik Thedéen, Director General of Finansinspektionen, Sweden, Chair of the Sustainable Finance Task Force of the International Organization of Securities Commissions (IOSCO). In the letter, the Statement of Intent and the proposed formation of a Sustainability Standards Board by the IFRS Foundation are identified as steps leading to a global architecture for comprehensive corporate reporting.

A ‘key element of this architecture is a conceptual framework for connected reporting, which should facilitate the critical interconnections between financial and sustainability information that is material for enterprise value creation’. This notion of a separate conceptual framework for connected reporting, in addition to conceptual frameworks for both financial reporting and for non-financial reporting, was highlighted as part of the ‘ultimate vision for interconnected standard setting for corporate reporting’, in the Accountancy Europe approach highlighted above.

Following consultation feedback, in March 2021, the IFRS Foundation Trustees announced their intention to produce a definitive proposal (including a road map with timeline) by the end of September 2021, and leading to an announcement on the establishment of a sustainability standards board at the meeting of the United Nations Climate Change.

A working group to accelerate convergence in global sustainability reporting standards focused on enterprise value has been set up. It will provide technical recommendations, including further development of a prototype built on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, as a potential basis for the new board to build on existing initiatives and develop standards for climate-related reporting and other sustainability topics. This includes working with standard-setter organisations of the Financial Stability Board’s TCFD, the Value Reporting Foundation (IIRC and SASB), CDSB, GRI, CDP and with World Economic Forum (WEF).

Who?

In addition to the commitment to work closely with IOSCO and the IFRS Foundation, the Statement expresses the ongoing commitment to work with other interested stakeholders across the ecosystem, including companies, investors and governments. In particular, the statement specifically recognises the EU’s leading as well as the efforts of the WEF International Business Council initiative to develop common metrics drawing extensively on the parties’ existing standards.

The WEF recently launched its white paper ‘Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation,’ which is the follow-up report to a consultation paper released in January 2020 at the WEF annual meeting at Davos. The main objective of the initiative, a collaborative effort involving a wide range of parties — including the Big Four, companies, investors, standard setters and other stakeholders — was to identify a universal set of ESG metrics and disclosures that companies could use for reporting and to monitor their progress towards the UN Sustainable Development Goals (SDGs).

The Statement solicits feedback on the ideas the paper expresses, along with recognition of the frameworks and how they can be used together. It also encourages engagement with all parts of the evolving corporate reporting ecosystem to realise the much-needed change.

Conclusion

The initiatives and cooperation being explored between the different standard setting bodies and frameworks are encouraging and demonstrates that sustainability has become a mainstream issue. While it may take some time to fully realise the ultimate vision of global sustainability standards, stakeholders (investors, customers and governments) demand that organisations increase their sustainability systems thinking and business reporting now.

Organisations cannot wait, they must begin to develop a more holistic understanding of risks and opportunities that includes anticipating and mitigating the impact of climate risk, and reporting on those risks and impacts. The accounting profession cannot wait, either. With our unique skill set for measuring, reporting and providing assurance on meaningful information, we have a vital role to play in pushing towards a global comprehensive reporting system.

What’s next from the AICPA and CIMA?

We will continue to watch the sustainability space and play a central role in its development. We will ensure that the journey towards the development of global standardised comparable ESG metrics and non-financial reporting is not at the expense of closing any future sustainability debate and innovation. Our aim is to achieve a balance of sustainability reporting and assurance alongside
data-driven insights so that resilient organisations and finance professionals can address prosperity, planet and people challenges.

We believe that we will see profound changes in the next few years in the work of management accounting and public accounting to embed new practices and standards relating to sustainability. The Association will continue to provide education and guidance to all areas of the profession, ensuring that it is ahead of this transformation. It’s truly an exciting time to be an accounting and finance professional.

Andrew Harding, FCMA, CGMA
Chief Executive, Management Accounting
Association of International Certified Professional Accountants

References

Report author:

Kenneth W. Witt
Senior Manager
Management Accounting & Member Engagement

Association of International Certified
Professional Accountants

The American Institute of CPAs^® (AICPA^®)

The AICPA is the world’s largest member association representing the accounting profession, with more than 418,000 members in 143 countries and a 129-year heritage of serving the public interest. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting.

The AICPA sets ethical standards for the profession and U.S. auditing standards for audits of private companies, not-for-profit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination and offers specialty credentials for CPAs who concentrate on personal financial planning; fraud and forensics; business valuation; and information technology. Through a joint venture with The Chartered Institute of Management Accountants^® (CIMA^®), it established the Chartered Global Management Accountant^® (CGMA^®) designation to elevate management accounting globally. The AICPA maintains offices in New York, Washington, DC, Durham, NC, and
Ewing, NJ. aicpa.org

The Chartered Institute of Management Accountants^® (CIMA^®)

CIMA founded in 1919, is the world’s leading and largest professional body of management accountants, with members and students operating in 177 countries, working at the heart of business. CIMA members and students work in industry, commerce, the public sector and not-for-profit organisations. CIMA works closely with employers and sponsors leading-edge research, constantly updating its qualification, professional experience requirements and continuing professional development to ensure it remains the employers’ choice when recruiting financially trained business leaders. cimaglobal.com

For information about obtaining permission to use this material other than for personal use, please email copyright-permissions@aicpa-cima.com. All other rights are hereby expressly reserved. The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. Although the information provided is believed to be correct as of the publication date, be advised that this is a developing area. The Association, AICPA and CIMA cannot accept responsibility for the consequences of its use for other purposes or other contexts.

The information and any opinions expressed in this material do not represent official pronouncements of or on behalf of the AICPA, CIMA or the Association of International Certified Professional Accountants. This material is offered with the understanding that it does not constitute legal, accounting, or other professional services or advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

The information contained herein is provided to assist the reader in developing a general understanding of the topics discussed but no attempt has been made to cover the subjects or issues exhaustively. While every attempt to verify the timeliness and accuracy of the information herein as of the date of issuance has been made, no guarantee is or can be given regarding the applicability of the information found within any given set of facts and circumstances.

^{aicpa.org | aicpa-cima.com | cgma.org | cimaglobal.com}

^{Founded by AICPA and CIMA, the Association of International Certified Professional Accountants powers leaders in accounting and finance around the globe.}
^{© 2021 Association of International Certified Professional Accountants. All rights reserved. 2103-87358}