8. August 2022: EXECUTIVE SUMMARY OF THE PI RESPONSE ON THE ESRS CONSULTAION
DEAR EFRAG, PLEASE STANDARDIZE SUSTAINABILITY PERFORMANCE AND NOT ITS MANAGEMENT!
Executive Summary on the PI comment letter on the first set of Draft ESRS: Dear EFRAG, please…
- define selected mandatory sustainability indicators, ideally on activity level, to be reported along the value chain based on their absolute impacts on society – irrespective of an entity’s materiality judgement, with clear thresholds like 50 g CO2e/1 € revenue. Entities should be furthermore required to report these in an aggregated way (cradle-to-gate scope). In addition, consider working towards monetization factors to quantify the related impacts on society in monetary terms. Such indicators can, however, be complemented with related optional KPIs to be used in integrated reporting that links financial and sustainability performance.
- require the disclosure of the strategic intent and give the freedom to declare all other disclosure requirements (governance, strategy, risk, and opportunity management) as not applicable based on their imperative. This also means to delete the rebuttable mechanism.
- Prevent standard-driven “Only PR” approaches by making the materiality analysis voluntary based on the strategic intent with “single” or “double materiality” as optional definitions. If done according to the ESRS, materiality matrices should contain the main dimensions “impact on society” (y-axis) and “impact on business” (x-axis), and the sub-dimensions actual- vs. potential impact on business (z-axis). Methods of determination and cut-offs should not be standardized. Rename the dimensions accordingly as both terms (“impact materiality” and “financial materiality”) are misleading and incomplete (see our paper What’s material?!).
Reasoning: In essence, sustainability/ESG is about changing the way business is done and not about reporting; this should be the guiding principle for any sustainability standard. To date, strategies and management approaches are not standardized to ensure competition and provide organizations with a necessary level of freedom, including the decision of some organizations to comply only with legal regulations. Any standard that suggests an organization should be doing more risks producing standard-driven “Only-PR” approaches. Instead, it could be more efficient for governments to create incentives for the market to reach a sustainable development that maximizes Societal Value. A global standard that determines the principles and rules for accounting Societal Value KPIs would be a step forward for measuring and comparing an organization’s sustainability performance.
Relatedly, the identification of material topics and KPIs should be coupled with the organization’s management strategy.
The ESRS should define core metrics on activity level for sustainability performance and reporting, including the upstream value chain for selected indicators. This enhances transparency, as outsourcing a certain production step may be a feasible approach to fool the primary users of a report.
29. July 2022: EXECUTIVE SUMMARY OF THE PI RESPONSE FOR ISSB DRAFT
DEAR ISSB, PLEASE STANDARDIZE SUSTAINABILITY PERFORMANCE AND NOT ITS MANAGEMENT!
Executive Summary on the PI comment letter to the Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information: Dear ISSB, please…
- Define mandatory sustainability indicators, ideally on activity level, to be reported along the value chain based on their absolute impacts on society. In addition, work towards monetization factors to quantify the related impacts on society in monetary terms. Such indicators can, however, be complemented with related optional KPIs to be used in integrated reporting that links financial and sustainability performance.
- Require the disclosure of the strategic intent and give the freedom to declare specific disclosure requirements (governance, strategy, risk, and opportunity management) as not applicable based on their imperative.
- Materiality matrices should partially be standardized with the main dimensions impact on society (y-axis) and impact on business (x-axis), and the sub-dimensions actual- vs. potential impact on business (“z”). Methods of determination and cut-offs should not be standardized.
- Ensure that the materiality definition in the report is the same as for the organization’s management. Please give organizations the freedom to choose between single and double materiality for their ISSB report. Imposing one definition on all is state-driven management.
Reasoning: In essence, sustainability/ESG is about changing the way business is done and not about reporting; this should be the guiding principle for any sustainability standard. To date, strategies and management approaches are not standardized to ensure competition and provide organizations with a necessary level of freedom, including the decision of some organizations to comply only with legal regulations. Any standard that suggests an organization should be doing more risks producing standard-driven “Only-PR” approaches. Instead, it could be more efficient for governments to create incentives for the market to reach a sustainable development that maximizes Societal Value. A global standard that determines the principles and rules for accounting Societal Value KPIs would be a step forward for measuring and comparing an organization’s sustainability performance.
Relatedly, the identification of material topics and KPIs should be coupled with the organization’s management strategy.
The ISSB standard should define core metrics for sustainability performance and reporting, including the upstream value chain for all indicators. This enhances transparency, as outsourcing a certain production step may be a feasible approach to fool the primary users of a report.
Read the full PI response here: https://www.ifrs.org/content/dam/ifrs/project/general-sustainability-related-disclosures/exposure-draft-comment-letters/p/positive-impacts-b63a1221-4282-4f56-81ca-aeba4bee2423/positive-impacts–pi–issb-response.pdf