IASB looking to expand sustainability reporting

The International Accounting Standards Board (IASB) is considering whether to expand its current practice statement on management commentary to include wider reference to environmental and societal issues in corporate reporting, after admitting it is currently ‘silent’ on sustainability

Speaking at an international accounting seminar in Brazil, IASB chair Hans Hoogervorst acknowledged that some ‘would like the IASB to play a more central role in trying to create more uniformity in the multitude of sustainability standards.’

Hoogervorst went on to state: ‘The IASB is often asked questions about what our role is in this space. Some Let me be clear; we do not plan to get into environmental and sustainability reporting. That is not our area of expertise. There are many other players.’

However, he acknowledged that ‘financial reporting in the narrow sense has its limitations’.

‘There are many elements of value creation which are important to the investor but which are not adequately captured in the financial statements. Investors need to understand a company’s business model and its strategy for long-term value creation. They need to understand the intangibles that are vital to their business model.

‘And, yes, sustainability issues can also be important for long-term value creation in certain industries, just think of mining and car manufacturing,’ Hoogervorst said.

The IASB chair said that as it is very difficult to measure intangibles reliably, such topics are often best covered in the management commentary section of the financial report.

IASB issued a non-mandatory management commentary practice statement in 2010, which encourages management to provide context to the financial statements.

Hoogervorst said: ‘However, there has been a lot of development in this area since 2010. There is an increasing interest in integrated reporting with its focus on long-term value creation and a greater emphasis on connectivity, for example on how external developments affect a company’s strategy. Several important documents have been produced that have further developed thinking on integrated reporting—for example the <IR> Framework by the IIRC.

‘It is also clear that there is increased awareness about how the environmental and societal restrictions have an impact on long-term value creation.

The establishment by the Financial Stability Board of the task force on climate-related financial disclosures is a notable example of this trend.

‘Our management commentary practice statement is silent on these issues. Because of all the changes in recent years, the IASB is considering whether we should update our practice statement to capture the developments.’

IASB chair’s speech to accounting seminar in Brazil is here

Report by Pat Sweet

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