The Pace Quickens, the Plot Thickens Unexpected Progress Toward 

Convergence in Global Sustainability Reporting Standards

By Alan Willis, FCPA, FCA 

Would you believe it? In the last six months there have been promising developments in the confusing, fragmented landscape of sustainability reporting and ESG disclosures that, a year ago, were unimaginable. There has been remarkable progress toward convergence in global sustainability reporting standards, paving the way for ESG-related disclosures to capital markets to become as reliable, relevant and comparable as IFRS-based financial statements are in financial reporting. The pace is quickening, the key actors are collaborating, the plot thickens. Where is this all headed? Are we seeing the rethinking of corporate reporting?

In an article I wrote for ThinkTWENTY2020’s Summer 2019 issue (Enhancing Relevance: Shaping the Future of Corporate Reporting), I proposed a two-part design for the future of corporate reporting that would meet, on the one hand, the needs of investors for information about enterprise value creation that is relevant and material to their decision making and, on the other hand, the needs of stakeholders in general for information relevant and material to their assessments of corporate sustainability, i.e., enterprise impacts on the environment, society and the economy. The former I called a Value Creation Report (which would accompany the financial statements), the latter an Accountability and Sustainability Report. Moreover, I suggested the key organizations that would need to lead the way and convene the resources to undertake these two development streams. These proposals (reproduced for ready reference in a box at the end of this article) have turned out to be more prescient than I could have expected!

More Collaboration Needed

I emphasized there is no need for additional frameworks and standards, just consolidation and integration of what is out there already, by collaboration among appropriate, credible, competent organizations already in existence. I pointed out the importance of achieving regulatory support and endorsement of sustainability-related reporting standards – without delay for the Value Creation Report, maybe later for the Accountability and Sustainability Report. Such standards need to become mandatory, embedded in regulatory or statutory external reporting requirements in worldwide markets and jurisdictions. And I said that every company would need to create a reliable integrated data base of all the information and metrics needed for internal and external reporting, financial and otherwise, according to whatever disclosure standards it is following.

In subsequent blogs in 2020, while still expressing doubts as to how soon the requisite collaboration might occur, I reported several unexpected signs of collaboration for convergence and advancing progress to meet capital market needs for reliable, comparable disclosures. I noted, for example, the December 2019 paper by Accountancy Europe on Inter-connected Standard Setting for Corporate Reporting,[1] the EU’s July 2020 call for new work on standards for its Non-financial Reporting Directive,[2]  the WEF/International Business Council’s proposals (with Big Four accounting firm support) in Towards Common Metrics and Consistent Reporting of Sustainable Value Creation[3] and the continued work of the Corporate Reporting Dialogue. 

Then, in July 2020, came the joint GRI and SASB announcement that they planned to collaborate “in promoting clarity and comparability in the sustainability (reporting) landscape,”[4] followed in September by the even more amazing news that “Five global organizations, whose frameworks, standards and platforms guide the majority of sustainability and integrated reporting, today announce a shared vision of what is needed for progress towards comprehensive corporate reporting – and the intent to work together to achieve it.“ The five organizations in question, CDP, CDSB, GRI, IIRC and SASB[5]  (hereafter referred to as the “Five”) published a “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.”[6]

Their proposed approach recognized the differing information needs and materiality concepts of “providers of financial capital” (e.g., investors) and other, broader categories of stakeholders. The former are primarily concerned with decision-useful information for the assessment of performance and prospects in enterprise value creation (both within and outside the financial statements), while the latter focus their attention on multiple sustainability topics and related disclosures about enterprise impacts on the economy, environment and people. 

The Five envisaged a stepping stone approach to harmonization, with two main building blocks. The first building block would address disclosures relevant to enterprise value creation, deploying information from the existing frameworks and standards of both financial standards setters (IASB and FASB) and those of the Five proponent organizations, plus maybe others such as the Task Force on Climate-related Financial Disclosures(TCFD) recommendations. The second building block would draw on the same existing frameworks and standards but would go beyond the first building block, recognizing the wider range of information needed by a broader range of users and their concerns about an enterprise’s impact on the economy, environment and people, communicated through a variety of channels and media.

On the very same day in September 2020 as the Five’s announcement, the International Federation of Accountants (IFAC) issued a release calling for the “creation of an International Sustainability Standards Board alongside the International Accounting Standards Board.”[7] This was accompanied by a schematic depiction, “The Way Forward,” of the objectives, structure and building blocks of the proposed new board. “The Way Forward” diagram included a structural element advocating that the new sustainability standards board “should adopt a building blocks approach, working with and leveraging the expertise and disclosure requirements of leading initiatives, including CDP, CDSB, GRI, IIRC, and SASB.” Momentum was clearly building in support for a new architecture for comprehensive corporate reporting. 

Evidence of this momentum was strengthened dramatically on September 30, when the Trustees of the IFRS Foundation published a consultation paper to assess the demand for global sustainability standards and what role the IFRS Foundation might play in their development.[8] In short, the IFRS Foundation proposed that it establish a new Sustainability Standards Board (SSB) alongside the International Accounting Standards Board (IASB). That same day, IFAC issued a release applauding the IFRS Foundation’s new initiative. Comments on the IFRS Foundation’s consultation paper on sustainability reporting are due by December 31, 2020, but IFAC and the GRI have already submitted their responses to the IFRS paper, broadly supporting its proposed role in the sustainability reporting landscape.

Unification for Value Creation Reporting

But one more surprise announcement came out on November 25, when the IIRC and SASB announced their intention to merge into a new unified organization, the Value Creation Foundation.[9] The aim of this initiative is to provide investors and companies with a comprehensive framework for reporting on the full range of information that is relevant and material to understanding and assessing enterprise value creation. The announcement emphasized that the <IIRC> Framework and the SASB Standards are complementary, that the new Value Creation Foundation will work to integrate other existing frameworks and standards as appropriate into the new corporate reporting system, and engage with the IFRS Foundation, IOSCO, et al, “working towards global alignment on a corporate reporting system” in which “integrated reporting and sustainability disclosure have the same level of rigour as financial accounting and disclosure.”

So how do all these new announcements and initiatives fit with the IFRS Foundation proposal, and where might they take us in the next year or two? 

The IFRS Foundation paper first recognizes the widespread and urgent demand for consistency and comparability in sustainability reporting – a demand shared among investors, preparers, central banks, regulators, public policy makers, auditing firms and other service providers – and notes the multiplicity of sustainability reporting frameworks, standards and metrics. The paper points out that any contribution by the IFRS Foundation can build on its track record of expertise, credibility and due process in standard setting (i.e., for the work of the IASB in developing IFRS used by public companies in nearly all jurisdictions and capital markets around the world), plus its worldwide relationships with securities regulators and governments. 

After consideration of strategic options to (a) do nothing or (b) try to facilitate harmonization among existing initiatives, the IFRS Foundation concluded that (c) its best response to the demand for consistency and comparability in sustainability reporting to serve investors and other primary users of financial statements would be to create a Sustainability Standards Board alongside the IASB. The IFRS Foundation clearly recognizes the importance of the new SSB, not only to develop and acquire its own expertise in setting standards for sustainability reporting, but also to collaborate with and build on the established work of the existing leading organizations in this space, such as the Five, the TCFD, and now, presumably, the Value Creation Foundation to be created by the IIRC and SASB. The IFRS Foundation paper is notably silent as to the role of the future (revised) IASB Management Commentary/MD&A in the future corporate reporting system.

The IFRS Foundation’s paper proposes that, in the interests of making early progress, the sustainability reporting standards established by the SSB should initially focus on the information needs of investors and other financial capital market participants, based on what is presently considered material to their decision making. The paper recognizes, however, that over time information about an entity’s impacts on sustainability, i.e., on the environment, economies and society, may in fact become material in the eyes of investors, not just, as today, in the eyes of broader categories of stakeholders. Therefore, in due course, the SSB would need to consider whether it should broaden the scope of its standards to align with, for example, the very widely recognized and used sustainability reporting standards that the GRI has developed over the last 20 years. 

The IFRS Foundation’s paper is thoughtfully laid out, posing many important issues and seeking broad feedback on key questions. It represents a powerful catalyst for fresh, urgent and collaborative dialogue among the key actors in the sustainability reporting landscape, taking into account the feedback by year end that will undoubtedly inform that dialogue. It’s perhaps the long-awaited answer to investors who have been calling for IFRS for ESG!

Information for Wiser Decision Making

For now, however, thinking back to my own article in 2019, I see momentum building first toward the investor package (“bundle”) I envisaged, comprising financial statements plus a Value Creation Statement that combines integrated and sustainability reporting relevant to assessment of enterprise value creation, and second toward the continued evolution of true sustainability reporting (my Accountability and Sustainability Report) for broader stakeholders concerned about an entity’s environmental, economic and social impacts, as well as the implications of these for the entity. The “value creation” component of the former package may well take shape through early collaboration among the IFRS Foundation, the Five and the TCFD, while the latter package may continue to evolve and mature under the leadership of the GRI but in collaboration with other relevant actors. Whether the SSB standards and the GRI standards will converge over time remains unclear for now, but sustainability reporting needs to become mandatory somewhere down the road.

COVID 19 and climate change are global life-changing crises, but at least they underscore that financial reporting alone does not provide the information needed to make wise decisions about how enterprises create value and affect the world we live in. They have highlighted the interconnectedness between the environmental, social and economic phenomena and realities that shape our quality of life and how we do business.

By creating globally accepted disclosure standards for mandatory sustainability reports that accompany financial statements to provide the broad spectrum of information needed by investors about enterprise value creation, we will have made a giant stride towards sustainable finance and capital markets as well as a significant step toward thinking and transparency about entity environmental and social impacts.

Bottom line: 2021 will be an interesting, even exciting, year in the evolution of corporate reporting, to the benefit of all stakeholders and the long term public interest. Watch this space!

Excerpt from “Enhancing Relevance: Shaping the Future of Corporate Reporting,” ThinkTWENTY20Summer 2019, issue, pp. 18-21:

Today’s corporate reporting landscape has grown piecemeal and disjointedly over many decades, from a time when the business landscape and concept of corporate accountability were very different from today’s. Imagine resetting the clock, as if today we could boldly rethink, reinvent and redesign all of external corporate reporting to reflect the realities and context of the 21st century in which businesses must operate.

Suppose we were to consider separately the reporting expectations of (a) a company’s

“providers of financial capital” (investors, lenders and creditors) and (b) other stakeholders and the general public whose interests are, or are likely to be, influenced by a given corporate business enterprise (and who may in turn influence company policy and action). 

We now have the opportunity to examine and consider how all the various reporting channels, standards and frameworks, financial and otherwise, mandatory and voluntary, might be

harnessed, integrated and – where necessary – modified or enhanced into two broad reporting

“bundles” that respectively meet the needs of (a) investors (“providers of financial capital”) and

(b) other stakeholders.

The Reporting Bundle for Investors

Investor needs might be satisfied by a two-part reporting bundle that comprises a super integrated MD&A (MD&A on steroids!), perhaps better called a Value Creation Report, accompanied by a company’s financial statements based on International Financial Reporting Standards (IFRS). The form and content of the Value Creation Report would be designed by selecting – modifying as necessary – and integrating relevant elements of what is currently called for in existing elements of the IIRC Framework, the SASB standards, the TCFD recommendations, CPA Canada’s MD&A Guidance, securities regulators’ MD&A requirements, the revised IASB Management Commentary Practice Statement and, possibly, subject to a relevance and materiality test, informed by other sources such as the ICGN Guidance on Integrated Business Reporting, the UN SDGs or the Future Fit Business Benchmark.

This new Value Creation Report would aim to provide in a connected way, as concisely as possible, all the information that would be deemed material to investors beyond what is disclosed in the GAAP financial statements. Hyper-links or icons would enable on-line user access to more detailed information on some issues and topics.

The Value Creation Report would need to be customizable in places for each of the 70-plus industry sectors covered by the SASB standards. Although it would, for a while, need to include the MD&A disclosure items currently called for by securities regulators, in the fullness of time, with IOSCO encouragement, it could replace current MD&A requirements in North America and similar “Management Commentary” style requirements in other jurisdictions (e.g., the EU and the UK, Asia, South Africa, etc.). Securities regulators in Canada and the US would, for example, simply require a Value Creation Report plus financial statements in their periodic filings.

Design and development of the Value Creation Report would be undertaken by a credible consortium similar to the IIRC’s Corporate Reporting Dialogue, convened by organizations accustomed to due process in setting corporate reporting standards. This work would not necessarily call for establishment of a new global organization if an existing one, such as the IIRC, were widely seen as capable of undertaking it, subject to showing it had or could acquire suitable leadership, governance and resources.

To meet investor needs, the familiar MD&A model that has been around for decades, suitably updated, adapted and enhanced as suggested above, could thus become the ideal Value Creation Report to accompany IFRS financial statements, eventually achieving securities

regulators’ recognition. Interestingly, the integrated reporting model proposed by the IIRC in its 2013 framework has many of the same content elements as the Value Creation Report suggested above. 

It is unlikely that audited financial statements will disappear anytime soon because of their familiarity and foundational, albeit narrow, function in accounting for investors’ contributions of financial capital, so they would accompany the Value Creation Report to provide an additional level of detailed financial information.

The Reporting Bundle for Other Stakeholders

For other stakeholders’ purposes, the widely used and accepted GRI’s Sustainability Reporting Standards could be used as the basic model or point of departure for designing the second

report “bundle,” let’s call it the Accountability and Sustainability Report – enhanced as necessary by incorporation of appropriate elements of the IIRC Framework, the TCFD recommendations, the SASB Standards and, say, the Future Fit Business Benchmark and UN SDGs. To accomplish this work, the GRI could convene an appropriate new multi-stakeholder collaborative task force to design and develop the new Accountability and Sustainability Report, building on the GRI’s original mission and its current reporting standards. There would need to be, as now, sector-specific versions of the GRI Standards for the newly devised Accountability and Sustainability Report. 

If investors, business sectors, civil society and other stakeholders were all on board with the two-part approach proposed above, then securities regulations and company law might be the last remaining obstacles to address for, at least, the investor bundle. But, as we saw in the 1933 Securities Exchange Act of the US, in the 1975 re-write and subsequent changes to the CBCA, in SCC references to corporate citizenship in the BCE decision, in South Africa’s King Report and in EU directives about reporting, the concept of protecting the public interest is not static or immutable – it evolves to meet societal values and economic circumstances over time. The new regime for corporate reporting might eventually be widely embedded in company law and securities regulations. 

What we don’t need now is even more piecemeal reporting frameworks for this and that – we need integration and consolidation of what’s already out there, through a meaningful, trusted contemporary process and a lens that all stakeholders, including investors and companies, can align with: long-term value creation, the importance of ESG factors and wide acceptance of the new realities and corporate accountabilities for doing business outlined earlier this paper.

There is now an opportunity to boldly reinvent and redesign the landscape of corporate reporting over the next decade or sooner. The actors in information supply chains, the report users, the stakeholders, the standard setters and the frameworks are all known today, but are they ready and willing to collaborate, just as the GRI and Accounting for Sustainability did in 2010 to create the International Integrated Reporting Council? They simply need to be convened to collaborate in two parallel and connected (but not competing) task forces for the sake of relevance in 21st century corporate reporting.





[5] CDP (formerly Carbon Disclosure Project), Climate Disclosure Standards Board, Global Reporting Initiative, International Integrated Reporting Council, Sustainability Accounting Standards Board.