CFOs look for consistency, transparency in emerging sustainability requirements

Dive Brief:

Over 80 CFOs globally signed a letter sent to the International Sustainability Standards Board (ISSB) urging more transparency to sustainability or environmental, social and governance (ESG) standards as the board gears up to publish climate reporting requirements later this year.
The ISSB, an offshoot of the International Financial Reporting Standards Foundation (IFRS), launched public consultations for two proposed standards regarding sustainability disclosures for capital markets in March, with one standard concerning general sustainability requirements while the other concerned climate-specific disclosures. Its comment period for these proposals closed July 29.
Ensuring transparency and interoperability is key for such requirements, however, CFOs urged, with the letter outlining six key areas for the ISSB to improve regarding their proposed guidelines. “As CFOs from a wide range of sectors, we recognize that sustainability disclosures are most effective when they inform decision making — providing comparable, relevant information to investors and other stakeholders,” the letter reads.

Dive Insight:

CFOs and financial executives across a wide variety of industries added their support to the letter, submitted to the ISSB by way of the Accounting for Sustainability (A4S) organization. Signatories include Paul Donofrio, vice chair for Bank of America, Betty Orlopp, deputy chairwoman and CFO for Commerzbank, Ewout Steenbergen, EVP and CFO for S&P Global and Matt Ellis, EVP and CFO for telecommunications firm Verizon, among others.

The recommendations listed in the letter include making sure ISSB standards “align with relevant and emerging sustainability reporting standards” as well as “connect to financial reporting standards and promote integrated thinking as illustrated through frameworks such as the Integrated Reporting Framework.”

The ISSB must also understand reporting is a “means to an end” rather than the final goal of such disclosures, CFOs urged in the letter, making it critical for companies to receive adequate time to create and integrate the processes needed to meet ESG targets.

“Unless the practical challenges around data accuracy and completeness are recognized and addressed within reporting and assurance standards, there is a risk that companies will avoid setting the ambitious targets needed to drive innovation and will divert effort into reporting instead of action,” signatories warn in the letter.

The fear that ISSB’s proposed standards will further complicate the ESG reporting playing field is leaving many companies wary, while others point to potential loopholes in the Board’s guidelines that could wind up leaving investors in the dark about overall ESG risks. While ISSB’s guidelines would require firms to disclose the material impact of outside ESG risk, they do not require companies to submit detailed disclosures regarding the impact of their operations upon the environment or society, according to a July 29 report by Bloomberg.

Adding more transparency to these guidelines is also becoming key for regulators as well as CFOs and other financial decision-makers. The European Banking Authority (EBA) issued a statement on July 29 noting it had submitted its responses to the public consultations of ISSB standards, where it highlighted the importance of both transparency and consistency in the crafting of such guidelines.

Other financial watchdogs such as the U.S. Securities and Exchange Commission (SEC) are also increasing their focus on ESG guidance, with the SEC also announcing new proposals for environmental reporting in March, with a comment period that closed in June.

Changing environmental guidance has faced pushback in the U.S. from corporate as well as government officials; West Virginia recently announced it would bar Goldman Sachs, JPMorgan Chase, Wells Fargo and other top banks from new contracts within the state based on the banks’ decisions to cut back financing to coal companies, for example.

While the future of sustainability reporting requirements remains murky, the number of companies reporting ESG data is slowly increasing. A joint study released Monday by the American Institute of CPAs (AICPA), the Chartered Institute of Management Accountants (CIMA), and the International Federation of Accountants (IFAC) found the number of firms reporting at least some ESG data inched up to 92% in 2020 compared to the 91% which did so in 2019.

Fifty-eight percent of global companies also obtained independent assurance regarding ESG guidance in 2020 compared to the 51% which did so in 2019. The report also found 82% of ESG assurances were limited in scope compared to the 83% which were limited a year prior.