A debate over whether sustainability reporting should be mandated and organised by independent bodies or left for the markets heard broad agreement that such reporting should be done, but faced strong rejection of any compulsory requirement
The subject under debate at the Oxford Union was whether corporate sustainability reporting should be standardised, motivated by the publication of a paper by Richard Barker and Robert G Eccles of the Saïd Business School, suggesting that the US Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) should implement a universal standard for reporting on environmental impact.
Anne Simpson, investment director at CaIPERS, opened the argument by saying that the introduction of standards had ‘preventative as well as value creation potential’.
She argued that a standardised system was important because ‘you have to have metrics that matter’ and that this could only reasonably be achieved by external enforcement. She also said the lack of standards was creating confusion in the markets: ‘The problem is, because there are no standards, stakeholders cannot compare one company to another’.
Tom Quaadman, executive vice president of the US chamber centre for Capital Markets Competitiveness (CCMC), argued that a standardised set of principles would have a ‘lack of disclosure effectiveness’.
‘What we have found is that a markets-based approach is effective...while we respect the green paper and its authors, the chamber of commerce thinks that they have missed the boat’. He made the point that the Sustainability Accounting Standards Board (SASB) already existed and, although not backed by legislation, was observed by many companies.
He said that a universal standard would likely exclude a number of significant factors, noting that the reporting requirements for the mining sector would be significantly different from the requirements of the financial services sector.
‘Sustainability is important to many different stakeholders, but at present the FASB and the IASB require only very specific information’, he said, suggesting that providing a standard that met the needs of all stakeholders would be very difficult. He suggested that the market-based approach would create a ‘segmented approach’ that would suit all participants.
Paul Druckman, the chair of the corporate reporting council of the Financial Reporting Council (FRC), said that because of the importance of reducing environmental impact, it could only be achieved by external pressure. ‘There is an urgency - we cannot leave this alone. We could even accuse the capital markets of failing society.
'How long will a market-based approach take?’ He conceded that the intervention of the IASB and FASB would not be ideal, but said that this was less important: ‘We need to do this now...perfect is the enemy of good.’
Bob Herz, a former chief of FASB, took the approach that the bodies in question were not suited to the task being offered to them. ‘FASB is mandated by the Securities and Exchange Commission (SEC) and constitutional documents, and the IASB is mandated by consensus. Changing all of that takes time’.
He also quoted IASB chair Hans Hoogervorst who said at the Brazilian accounting pronouncements Committee’s (CPC) 14th international seminar in 2017 that ‘we do not plan to get into environmental and sustainability reporting. That is not our area of expertise. There are many other players. Our remit is, and will remain, financial reporting - with focus on the participants in the capital markets’.
Harvey Pitt, the former chairman of the US (SEC), suggested the issue under discussion ‘is not an academic issue - it is a real-world issue’. ‘Doing something rapidly makes no sense if all it would achieve would be to confuse everyone as to what should be disclosed, how and why’.
This attitude was shared by Jonathan Bailey, head of environmental, social and governance (ESG) investing at Neuberger Berman, who said that the markets were already taking matters into their own hands at ‘an astonishing rate’.
He noted that 85% of the S&P500 already disclose their environmental impact, compared to a decade before when environmental reporting was largely avoided. ‘We do not need to try and create an alphabet soup of bodies and standards, because it is already happening - ten years ago sustainability reporting was simply not done’.
This change, he argued, was proof that the market was most adept at meeting changing needs. ‘What nobody wants is a poorly-designed kneejerk reaction to sustainability reporting. We need a system of reporting that can keep pace with the changing requirements of the market and society’. This, he said, would simply not be possible if the standards were organised by relatively slow-moving official bodies.
There was a broad consensus from both the participants and the audience that some form of sustainability reporting was vital, with Druckman pointing out that environmental change currently threatened £23 trillion in material assets according to trading estimates.
Lady Lynn de Rothschild, who introduced proceedings, joked that the debate was ‘so important that they had to cancel the Brexit vote’ on the preceding evening.
She invited those present to register their vote in parliamentary manner of division of the assembly, with students exiting through two doors. The final tally showed an broad split between those supporting the proposal and those against.
The green paper, Should FASB and IASB be responsible for setting standards for nonfinancial information? is here
Report by James Bunney