Debate about role of sustainability information in IFRS continues

As the IASB considers the role it should play in streamlining the information companies voluntarily disclose about environmental risk, employee diversity and human rights, IASB Chairman Hans Hoogervorst knows this much: the board will not develop anything that becomes mandatory.

“What is certainly not on the table is that we ourselves would start writing or start developing sustainability standards,” Hoogervorst said at a meeting of the IFRS Advisory Council on April 5, 2017. “What is also certainly not on the table is that we would develop something that would be mandatory.”

Beyond that, however, the IASB is still searching for answers — and given the mixed feedback from its advisory panel, it may continue to do so for a while.

The IASB in March agreed to research how it might address the new, increasingly common information companies reveal about environmental, social and governance factors that affect their business. Such information typically is reported voluntarily, but not in a uniform way. There are hundreds of frameworks, standards, goals and codes that companies apply to report the information. Because of the lack of a central reporting mechanism, critics say some of the information looks more like marketing materials than information that can be used for robust financial analysis.

“In my opinion, it is very difficult to distinguish facts from fashion — and fiction,” said Giuseppe Ballocchi, a partner at Alpha Governance Partners and a member of the CFA Institute’s Future of Finance Content Council.

The IASB’s staff is researching whether it would make sense for to the December 2010 Practice Statement, Management Commentary, to streamline information on wider corporate reporting topics. Some companies incorporate information about sustainability and governance into their annual reports in the management commentary section — the IFRS version of a management discussion and analysis section of an SEC regulatory filing.

“I’m not sure we can jump from saying, ‘All of this stuff is out there and having an impact on the type of reporting investors are looking for,’ and saying, ‘The place to go is in the practice statement on management commentary,’” said Anne Simpson, investment director of global governance at the California Public Employees’ Retirement System.

Simpson also questioned the merits of making the updated guidance voluntary.

“The problem we have right now is that volunteerism becomes ad hockery,” Simpson said. “And we can’t get consistency.”

On the other end of the spectrum, Hidetake Ishihara, executive officer and head of accounting and finance at Nippon Steel & Sumitomo Metal Corp., said he had no appetite for the IASB to wade into the sustainability debate. The IASB already had “lots of things to do,” like develop accounting standards.

“Voluntary disclosures should be discussed between investors and corporate management,” Ishihara said.

At the end of the discussion, Hoogervorst said he was still convinced that the IASB needed to take action, but the form of that action was unclear.

“My instinct tells me if we don’t get involved, it will happen over and above us,” he said.

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