TechTalk Blog - SUSTAINABILITY/ NON-FINANCIAL DISCLOSURE BY PUBLIC COMPANIES GAINS TRACTION AS COUNTRIES & COMPANIES DEAL WITH GLOBAL WARMING

By David Colgren posted 05-04-2016 11:46 AM

  

Interesting article from CNBC on water scarcity and its impact on current and future country GDP growth. Water scarcity continues to become a global issue – especially in California and its impact agricultural production. 

From the article: “Nearly a quarter of humanity already resides in water-scarce countries. Countries that mismanage their water supplies as climate change effects take hold could see economic growth rates decline by as much as 6 percent by 2050, a new World Bank report claims.”

Last August 2015, a Citigroup report said global inaction on climate change would wipe $44 trillion off global GDP by 2060.

However, "there is a silver lining," World Bank Lead Economist Richard Damania said in a press release. "When governments respond to water shortages by boosting efficiency and allocating even 25 percent of water to more highly-valued uses, losses decline dramatically and for some regions may even vanish." 

US public companies are beginning to understand the value of using water in a more sustainable manner and issuing external reports to stakeholders and investors on water consumption and better management using reporting standards such as CDP.

According to Wikipedia: CDP (formerly the "Carbon Disclosure Project") is an organization based in the United Kingdom which works with shareholders and corporations to disclose the greenhouse gas emissions of major corporations as well as water, supply chain, forest and cities.

Better management of natural resources such as land, water, soil, plants and animals will impact the quality of life for both present and future generations in a concept known as stewardship. Stewardship is an ethic that embodies the responsible planning and management of resources. 

In June 2013, the Sustainability Accounting Standards Board and CDP announced an agreement to deepen their partnership towards advancing corporate disclosure on material sustainability issues by government & public and private companies to deal with global climate change.

The Sustainability Accounting Standards Board has signed a memorandum of understanding with the Institute of Management Accountants to advance the management and disclosure of non-financial information in corporate reports.

The agreement, signed by SASB CEO Dr. Jean Rogers and IMA president and CEO Jeff Thomson outlines the basis for ongoing cooperation, collaboration and alignment between the two organizations. SASB and the IMA agreed to identify ways to align the thought leadership of both organizations to strengthen corporate reporting and disclosure and share each other’s work.

Forbes: US public companies begin to turn to SASB for non-financial / sustainability reporting.  

Interesting that both the Financial Stability Board (FSB – which reports to the G-20 Nations) and the US SEC is seeking public comment on the need for this type of material information (such as water or carbon usage) that can be disclosed with financial information by public companies to investors and important stakeholders.

Non-financial issues such as sustainability are becoming a larger part of the role of accountants and financial professionals. “Management accountants have long been at the forefront of measuring and reporting relevant information, including non-financial data, that drives value,” Rogers said in a statement. “The partnership between SASB and IMA is an important step to help management accountants identify, measure and manage non-financial factors that affect financial performance.”

In October 2014, the EU issued its directive on corporate disclosure of non-financial information by more than 6,000 larger companies based in Europe. In essence, this requires many companies headquartered or having significant operations in the EU to disclose non-financial data (e.g., environmental, social, and governance-related information) on a regular basis.

At the request of the G20, the Financial Stability Board (FSB) engaged the private and public sector to review how the financial sector can incorporate climate-related issues in financial reporting. A first report (to be delivered by March 31, 2016) that will set out the scope and high-level objectives for the proposed work, together with a set of fundamental principles of disclosure, to provide an enduring disclosure framework and guide the Task Force’s Phase II recommendations.

The IMA supports the concept of reporting non-financial information disclosure such as water usage into an “integrated report.”

To enhance the available of sustainability information disclosed by companies an opportunity exists to compare financial and non-financial data using the XBRL data format. XBRL has be mandated by the US SEC for public company financial statement data disclosure -- and it only makes sense to utilize XBRL for sustainability data disclosed by public companies as well. Doing so will result in de facto – integrated reporting. Comparing financial and non-financial data for more effective corporate analysis.   

Stay tuned to hear more about sustainability reporting and its impact on financial and non-financial reporting and the concept of “integrated reporting.”



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05-04-2016 07:57 PM

Thanks for the important blog, David. One of the key developments is Jeff Thomson and the SASB agreeing to collaborate on standards for non-financial reporting. There is so much heat, but not often light in the climate change debate that we need some (sober-minded) accountants helping out to validate reporting even while scientists go back and forth on the causes and effects of changes in our climate.
I would be interested in how we would report on things like CO2, since there are advantages and disadvantages to rising levels of this gas, as I read recently on how higher carbon dioxide has increased the plant cover of about 11 million square miles. That's good, but there are obviously countervailing effects. Tricky stuff and we all need the best minds on this reporting framework, standards and practices.