You can’t opt out of financial reporting, so why does it continue to be okay to opt out of reporting financially material sustainability risks?

CDSB Managing Director Mardi McBrien says reporting will need to play a key part in the world achieving the World Business Council’s Vision2050 strategy.

The World Business Council for Sustainable Development (WBCSD) is, over the next three days, holding it’s Council Meeting. This is a key moment, in which large global businesses will come together and work out how to achieve the Vision2050 strategy – calling for a world in which more than 9 billion people can live well, within planetary boundaries by mid-century. Today, I will be speaking as part of a panel on, The Future of Investment, which will look at how businesses can lead the transformations needed to meet the global challenges that we face. I will be speaking with Peter Bakker, President and CEO, WBCSD, Mark Carney, UN Special Envoy on Climate Action and Finance, Amy Clarke, Co-Founder and Chief Impact Officer, Tribe Impact Capital, Ben Keswick, Executive Chairman, Jardine Matheson and Claire O’Neill, Senior Advisor Climate and Energy for COP26, WBCSD.

Reporting will need to play a key part in the world achieving that vision as I outlined recently in my foreword of  WBCSD’s latest version of Reporting Matters. Regulators globally have taken ambitious steps, in many cases making reporting sustainability-related information mandatory via a range of policy instruments. At the same time, corporate commitments such as pledges to reach net zero GHG emissions have reached an all-time high. ESG activism took center stage during the 2021 proxy season as investors lost patience with the pace of corporate ESG disclosure amidst the impacts of climate change playing out not just across their portfolios, but also across the global economy. 

As a corporate, reporting of risks on an annual basis to your investor is mandated by law. Yet, when the lens is applied to the reporting of financially material ESG risks and opportunities, they are viewed as optional – you can’t opt out of financial reporting, so why does it continue to be okay to opt out of reporting financially material sustainability risks? 

As an example, we have once again seen a dramatic increase in companies reporting against the Task Force on Climate related Financial Disclosure Recommendations (TCFD) in 2020-21. However, the vast majority continue to produce a standalone TCFD report, failing to integrate the risks and opportunities into their general-purpose reporting (annual report, 10-K, etc.) to their investors – with even fewer providing evidence of these risks and opportunities in their financial statements. We are also seeing far too many companies not telling a consistent story across all their reporting channels, leaving themselves wide open for others to make their own assessment of the companies’ position, performance and long-term value creation strategy. 

The alphabet soup of reporting frameworks, standards and approaches has often been blamed for companies not telling one story or even used as an excuse for not reporting in the first place. Often the complexity of navigating the space and not knowing where to start are cited to justify these shortcomings. In November this year during the 2021 COP26 in Glasgow, the International Financial Reporting Standard Foundation (IFRS Foundation) will announce the establishment of the International Sustainability Standards Board (ISSB) – a sister board to the International Accounting Standards Board (IASB). 

This is a once in a lifetime opportunity to build a global corporate reporting system utilizing the existing frameworks and standards of CDSB, TCFD, VRF (SASB-IIRC) and the WEF International Business Council (IBC) metrics. The ISSB will set the new global floor for reporting sustainability-related financial information to providers of capital, on which jurisdictions across the world can layer their own, more ambitious policy priorities using a building blocks approach. 

With the alphabet soup gone and agencies that enforce corporate reporting rapidly upskilling to start to call out poor sustainability-related financial reporting, there is nowhere left to hide. Companies cannot continue to operate with sustainability siloed as though it is not business-critical and where environmental and social issues are acted on in piecemeal and boilerplate fashion. 

With each day we are getting closer to missing the Sustainable Development Goals (SDGs) and Paris Agreement targets. Rewiring the information systems of the global economy and its incentives, of which corporate reporting plays a key role, is part of the solution.  

The decision is yours. Act now or face the consequences. 

Mardi McBrien is Managing Director of the Climate Disclosure Standards Board (CDSB).