Removing clutter in non-financial reports and providing common standards is integral for responding to calls for sustainable business and changing behaviour.
The analyses that followed the financial crisis are truly bewildering. It is a dizzying exercise to try to make sense of the frenzy of calls for different behaviours, sustainable markets, focus on systemic risk beyond financial metrics, rebuilding of trust and so on. For me, the main message that stands out from the din is that false knowledge caused many of the blunders that drove the market over the edge. If that is the case, we need reliable information to form part of the architecture that supports the new stable structures we want to build.
Influenced by stakeholder demand, the desire to regain trust, activity by organizations such as the Carbon Disclosure Project (CDP) and Global Reporting Initiative and policy activity in some jurisdictions, companies are energetically responding to that demand for information. There is a sharp increase in sustainability and corporate social responsibility reporting and disclosures on non-financial indicators including businesses’ objectives, strategy, environmental and social impacts, governance practices and so on. The benefits of such reporting include greater transparency, more stakeholder inclusiveness, brand and reputational transformation and, some claim, better financial returns. Many of the reports I have read are innovative and make compelling reading.
Welcome as this is, the rise in non-financial disclosure has caused a dilemma. Some commentators claim that corporate reports are littered with clutter that obscures important messages; others claim that there isn’t enough information and others say that it is the lack of comparabiilty and consistency of information that makes it unusable.
Such claims prompted the establishment of the Climate Disclosure Standards Board (CDSB). Climate change related disclosure, including information about a company’s greenhouse gas emissions, strategy for dealing with climate change risks and opportunities and mitigation plans has become embedded in the normal corporate reporting cycle thanks to the efforts of the CDP and others. However, the absence of standards governing what and how to report results in variation in the quality, quantity, presentation and placement of climate change-related information. In the same way that the International Accounting Standards Board creates standards on financial reporting, CDSB seeks to develop a standardised approach to making climate change related disclosures that are suitable for inclusion in the mainstream corporate reports in which companies deliver their annual financial results.
IASB and its predecessors have had over 50 years to work on financial standards. Predictions about dangerous global warming mean that climate change reporting, which is about a decade old, cannot wait that long to make sense to stakeholders. CDSB, which issued the first edition of its Climate Change Reporting Framework in September 2010, is therefore developing its work through a process of continuous improvement, collaboration, testing and revision. Hopefully this will accelerate the speed at which we can get the architecture in place for a more stable future.