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ESG disclosures need joined up thinking

  • Larry Bradley, Leadership |

Over the last few months I have been connecting with leaders across KPMG to discuss the vital supporting role to be played by the audit profession to ensure that businesses report on their carbon footprints and sustainability agendas in a consistent manner, so that assurance on this information can be reliably provided by independent parties. The current COVID-19 pandemic has underscored the key importance of transparent reporting of the risks facing entities in this environment, including the resilience of their business models and global supply and value chains, and the interconnected role that financial and non-financial information play in achieving that goal.

We know that better connectivity between non-financial reporting and financial reporting, and the need for an integrated global corporate reporting structure, is a complex issue – and one that won’t be solved easily given the various affected parties and diverse perspectives of impacted stakeholders. Yet it is critical that we bring together these various perspectives and considerations in order to arrive at a consensus on a way forward and also, to ensure that further corporate reporting developments do not simply add to the multitude of existing frameworks.

I believe that the ultimate goal should be for a global standard for corporate reporting that considers the interconnectivity between non-financial information and financial reporting based on a conceptual framework for connected reporting. I outlined KPMG’s views recently in a response to an Accountancy Europe paper on these issues, which you can read in this document (PDF 53 KB). In my response I outline what I believe is required for a solution to interconnected standard setting for corporate reporting, including:

  1. Global standard-setting solutions should better promote global investment flows

    A global standard for corporate reporting is critical and will benefit both preparers and users of financial and non-financial information. Regional initiatives in corporate reporting may be necessary to achieve regional priorities, but they should not result in a fragmented global corporate reporting system. A global solution will assist in improving the efficiency and effectiveness of global capital flows, as well as result in a single framework to facilitate a single global approach to assurance, which will be critical for organizations that operate across national and regional borders; And importantly, for the benefit of investors.

  2. Non-financial standard-setting needs a conceptual framework resulting in relevant information that meets stakeholder needs

    For interconnected corporate reporting to be effective, it must address the right topics and provide the right information on those topics. This is evidenced, for example, by the fact that requests from investors for more information on ESG factors illustrate that their needs are not currently being met. This is also the case regarding investor calls for more information regarding intangible factors such as innovation, intellectual property, technology, brand and reputation, customer satisfaction, and the quality of strategic management and governance.

  3. Global standard-setting solutions requires support by global bodies

    In order to effect the systems change, global support is critical. At KPMG we encourage the engagement and support of the relevant global bodies such the Financial Stability Board, IOSCO, IMF, UN and World Bank, who have the stature and ability to ensure that a global solution is found.

I am interested to see how interconnected standard setting for corporate reporting initiatives continue to evolve, but we need to move forward on this issue. Now is the time for decisive action and in today’s climate with the COVID-19 pandemic, it is critical that we drive global consistency for businesses, investors and the public. This is an important debate that I feel passionate about. We all need to be part of building a solution so please get in touch to share your views.