Response to “Interconnected Standard Setting for Corporate Reporting”
Friday, June 12, 2020
Today, the CAQ shared our perspective on Accountancy Europe’s Cogito Paper – Interconnected Standard Setting for Corporate Reporting.
Over the past year, the focus on ESG reporting as a way for U.S. public companies to communicate business risks and opportunities has rapidly translated into growing investor, policymaker, regulator and corporate interest in this type of enhanced corporate reporting. This has been driven by, among other things:
- The rise of corporate purpose and a focus on long-term value, including intangible assets such as human capital and corporate brand and reputation, for all stakeholders, including investors, employees, customers and others;
- Investor demand to understand a company’s ESG profile – from both an operational and strategic perspective – in making capital allocation decisions; and
- U.S. public company Board of Director (Board) and management interest in identifying strategies to drive differentiation, cost efficiencies, and resilience.
The current COVID-19 pandemic has furthered heightened interest in this company-reported information.
Despite this, one of the biggest challenges that we hear from investors, companies and Board members in assessing a company’s ESG risks is the lack of broadly adopted ESG reporting standards. While the building blocks of reliable, comparable and relevant ESG information begin with a foundation of quality reporting by company management, the challenge for companies to determine what types of ESG information to report, and how to communicate relevant information to stakeholders in a landscape of multiple frameworks and standards, is real.
A globally accepted system built from existing standards and frameworks that can be adapted to the market needs in different jurisdictions could help support companies in presenting ESG information that is comparable.
Moreover, because ESG information is increasingly used by the capital markets, the information needs to be credible and well supported, so that when questions are asked, there are good answers about the quality of the process for accumulating and reporting the information, the oversight of the reporting, and the ability of the information to withstand outside challenges. Put another way, the information needs to be reliable. In our public interest role, U.S. public company auditors play a role in the flow of reliable information for decision-making. Like the audits of financial statements and internal control over financial reporting, third-party assurance from a public company audit firm enhances the reliability of ESG information presented by companies to investors and other stakeholders.
Download the full comment letter here.